Until now the emphasis of the economic crisis has been its impact on the real estate sector. But 'Brand Dubai' positioned itself not just as a business and tourism hub but also established a formidable commercial reputation for retail. Buoyed by an extensive portfolio of malls, the emirate was the destination for shopping in the GCC.
A new report by real estate consultancy Jones Lang LaSalle argues this sector is now in a period of transition. With new supply entering the market, declining sales, lower footfalls and reduced tourist numbers in 2009, the pressure on the retail industry means it has to look long and hard at how it can evolve out of the crisis.
No longer, the report claims, will the emirate witness the rapid opening of wide-scale, 'super-regional' malls in Dubai. In fact the new Mirdiff City Centre, developed by Majid Al-Futtaim Group (MAF), which opened on March 16 could be the last the emirate will see of that particular model.
Prior to this, a host of major retail outlets opened in Dubai, strengthening its position in the region; in 2005 it was Mall of the Emirates and Ibn Battuta Mall, in 2007 Dubai Festival City, 2008 Dubai Mall and now Mirdiff City Centre. Since 2006 the total stock of retail mall space in Dubai has increased from 15 million square foot to the current 24 million square foot.
New retail trends
The global slowdown means a number of trends in the retail sector are emerging. Coupled with the slowdown in mega malls, there will be a greater focus on local spending, with the market adjusting to address the resident population.
With the option of simply opening outlets based on speculation, the onus is now on retail outlets under one brand having to pull their own weight with the 'prop-up' effect of superior outlets diminishing. According to the Jones Lang LaSalle report retailers and mall owners reported a typical decline of at least 20% in retail sales during 2009, while the Dubai Chamber of Commerce reports that total retail spending in Dubai is expected to increase by around 4% in 2010 and more than 8% in 2011.
Despite this the retail model will recover in due time. 'The Dubai market has experienced a period where retail supply has been growing ahead of demand generators and this has resulted in a significant increase in the retail space per person,' Craig Plumb, head of research, Mena, Jones Lang LaSalle told AMEinfo.com.
'The next few years are likely to see a reversal of this situation, with retail supply growing less quickly than population and visitor arrivals. This will result in the market returning to a position that can support major additional projects (such as City of Arabia) in due course. The timing of these projects will be dependent upon that of the residential, employment and tourist generators in the surrounding area. While large parts of the Dubailand project remain on hold, the timing of the City of Arabia retail mall is likely to be delayed.'
Change in market fundamentals
Property in general in the emirate continues to struggle. In its Q1 2010 report, Dubai-based property services company Asteco reported that apartment rental rates decreased by an average of 5% compared to Q4 2009, due primarily to increased supply in the market. Sales prices have decreased by an average of 7% since Q4 2009.
This view was backed up by a report released by Dubai-based real-estate advisory company, Investment Boutique, which dismissed speculation of a marked turnaround in fortunes for the real estate market.
'For a sustainable recovery in the property sector, the market fundamentals have to change. In the Dubai property sector, supply continues to enter the market, while on the demand side, banks are still not lending freely, residents are still afraid of losing their jobs and there is likely to be another round of firing in early 2010. As such, we do not see sufficient market indicators pointing towards a recovery at this stage,' the report on the state of the market in Q4 2009 said.
Heather Wipperman Amiji, chief executive officer of Investment Boutique, added in the report that a number of key issues need to be resolved before any solid recovery could be made. These include the disruption to liquidity in the banking sector, the abundance of supply coming onto the market and a more consistent demand for real estate. Come the end of 2010 however, Amiji suggests there may well be some stability as there will be more certainty in global markets and local exposure to bad loans.
Investment Boutique anticipates that project stakeholders are likely to take stock of their situation and either cancel projects with little economic value in the market of 2010 and absorb the write-offs or allow the supply to come on-stream and let the market adjust accordingly.