MEED: How did the UAE’s retail sector perform in 2012?
Nicholas Levitt: It has been a generally positive year for the UAE economy and we’re expecting that trend to continue in 2013. We’ve benefited from high and relatively stable oil prices and an upturn in consumer sentiment, which has positively impacted into tertiary sectors such as retail.
In terms of UAE retail, we’ve now had a period of more than nine months where there has been sustained levels of growth. We’re seeing that across the core areas of luxury brands and auto sales, and mid- and lower-level brands are also reporting double-digit growth. In Dubai particularly, we recently saw the announcement of some large-scale tourism and retail projects. The fact there is enough confidence for these projects to be announced is a marked change from where we were 18 months ago. Retail and tourism will be key drivers of the economy over the next few years.
What impact has the retail recovery had on mall demand?
During the past 18 months, Dubai has become less predictable in terms of its mall space, with first-tier malls outperforming the rest of the market. My feeling is that in 2013, this situation will change because of the capacity issues we are starting to see in first-tier malls. Retailers will be forced to take space in the next tier of shopping centres in order to get the floor space they need to safeguard their growth.
Retailers tell us they are struggling to secure access in prime mall spaces, so are reverting to plan B.
How does Abu Dhabi’s retail landscape compare?
Abu Dhabi’s retail sector is growing again also, but there are differences. We’ve seen a significant rise in the number of mid-sized malls in the capital in recent years, which makes the picture more complicated. Abu Dhabi’s main malls are at capacity, with a waiting list. The question for retailers is where they should go in order to get the best square footage for their brands. The question for a number of these mid-sized malls is how they will find their niche in Abu Dhabi’s retail market. How will they differentiate themselves to attract tenants and continue with high occupancy levels?
The UAE has a significant amount of retail supply in the pipeline. Will malls need to look beyond tenant mix to attract footfall?
Mall operators are absolutely more conscious of that. UAE developers are focusing now on the central pull factor – whether that is an indoor ski slope, or kids’ entertainment brand – to bring footfall in, before talking about the product mix. It’s the primary concern. If you look to first-tier malls in markets such as the US, they are built around anchor attractions. Cinemas no longer account for this; there has to be more of a wow factor to pull people in.
What challenges will the retail sector face in 2013?
Regional and political stability is obviously a key issue. Another is the supply of good quality retail brands. For many of the franchise operators we do business with, one of their frustrations is accessing new brands to bring to the UAE, simply because so many are here already. With an existing portfolio, you need the adrenaline shot of new brands to ensure the momentum is maintained.
If we were to look several years ahead, I think the UAE will be one of the top three – if not the top – retail locations globally. Conversely, I would think because of that attractiveness, there will be more challenges. I don’t think high profit margins will be as easy to come by. I also think the franchise model will be less accepted by the big international brands, who will want to move towards a self-operating model. That is a material trend in the industry that needs to be watched closely.