Complex Made Simple

Do we need more malls in the UAE?

The UAE has seen a tremendous growth since 1960s when it was only a small gulf country with not much presence on the international map. Cut to year 2017 and Dubai along with other Emirates has become a buzz word for shopping and luxury living.

UAE’s retail market on the rise

The UAE’s retail sector is projected to expand at a compound annual growth rate (CAGR) 4.9 per cent, according to an analysis released by the Dubai Chamber of Commerce and Industry.

The UAE has maintained its presence as one of the go-to destination for a fun and exciting holiday. Thanks to the ever growing retail sector combined with some amazing structures, a lot of tourists as well as the local and expat population head to the malls to enjoy their time, visiting various retail shops while also indulging in a movie experience or taking the kids to the umpteen number of indoor games arenas.

The value of the UAE’s retail market was estimated at $56.6bn at the end of 2016, according to recent data from Euromonitor International. The sector contributes around 11 per cent to the country’s GDP, while Dubai’s retail and wholesale sector accounts for a larger percentage (29 per cent) of GDP.

An influx of shopping malls?

The UAE is synonymous with malls and shopping and therefore one can witness a major boom in Mall construction. Within Dubai, there are nearly 64 malls, eight more are being constructed. This might sound ridiculous to many, but for those living in the UAE, it has become a way of life and a typical weekend activity- mall hopping. This brings us to the question: Do we need more malls in the UAE?

There is no clear answer to this because different people think about it in different ways. For the government it is an opportunity to generate revenue, for the brands it is an opportunity to reach out to more customers, and for people it is about availability of more options.

Demand within the UAE’s retail sector remained steady last year, supported by a 5.8 per cent year-on-year increase in footfall within shopping malls. This trend was supported by a rise in the number of tourists, the absence of sales tax, in addition to the expansion of sales events, promotions and shopping festivals.

From the point of view of the retailers, the future is bright, as investors have placed a lot of confidence in the upcoming mall projects.

Bhupinder Singh, General Manager and Chief Financial Officer of Dalma Mall said at the RECon MENA 2016 Conference and Exhibition: “Visiting a mall in the UAE is not just about shopping; it is about an experience. You mix your shopping with entertainment and with dining to get the complete overall experience.”

Singh pointed out that today malls in the UAE offer specialised services such as hospitals and clinics. He said: “Increasingly, what residents and tourists are seeing is not just a shopping mall, but a destination where you can get everything under one roof.”

Another driving factor for the rise in the planning and construction of malls in the UAE is the Expo 2020. This mega event is set to bring in an influx of nearly 20 million tourists into the UAE. It is going to position the UAE as a connecting point to the world and therefore retailers are looking to build on concepts that are unique. The Expo2020 has posed many opportunities and a number of retailers and developers are looking to benefit from the event.

About a quarter million square meters (sqm) of new retail space was added to the emirate last year, marking the highest level since 2010, according to JLL. This figure brought the total volume of completed gross leasable area (GLA) in Dubai to 3.4 million sqm by the end of 2016. No major change in supply kept the total GLA in Abu Dhabi stable at 2.6 million sqm.

From an economic point of view, the increase in malls is not going to help the retailers much due to the dwindling economy worldwide.

According to Diaa Noufal, an Associate Partner for Middle East and North Africa research at Knight Frank in their report UAE Retail Focus Autumn 2015 states that the declining oil prices combined with strengthening of the US dollar against world currencies is greatly affecting the spending power of tourists and residents.

The UAE has one of the highest number of shops per capita in the world, wherein 4.7 million square metres of land is dedicated to malls in Abu Dhabi and Dubai alone. To add to this, according to the report by Knight Frank, the total amount of mall space is set to increase by 66 per cent by 2020.

Rise of online shopping

A growing online market in the UAE is an important development to note. With the merger of with Amazon and the launch of the new rival, the e-commerce sector is predicted to take a sharp increase in the coming years.

Sarwant Singh, Senior partner and head of visionary innovation group at Frost & Sullivan says that e-commerce is set to become a major trend for business in the UAE and is expected to be valued at whopping $10 billion by 2018.

Although this sector is largely untapped in the UAE, it is set to rise exponentially as consumers become more net-savvy. Keeping this in mind, the retail sector is set for some tough competition and the rise of more malls in the UAE might not exactly help this cause.

Combining all these factors, there is a huge question on the feasibility regarding the increasing construction of new and huge malls in the UAE and whether they should take shape at all.