If all goes to plan, the GCC will spend about $110bn on rail projects over the next decade. At the heart of the six countries’ development goals is a huge 2,200-kilometre passenger and freight network linking the member states.
Once the main project is completed, it could change the way the states interact forever. It would promote greater economic links and make it easier for GCC citizens to travel and work within the bounds of the bloc.
It could also change the way the region’s leisure-seekers and consumers spend their weekends and holidays. Saudi Arabians will find it easier to cross over into Bahrain or Qatar for a weekend of shopping, sightseeing, and nightlife, while Gulf pilgrims will have more travel options at their disposal. In the UAE, shoppers from Ras al-Khaimah, Sharjah and Abu Dhabi without access to cars will be able to enjoy a day out in the malls of Dubai.
Passenger purchasing power
It is not just shop-owners in Dubai who stand to benefit from the changing patterns in travel and consumption created by the rail projects. Retailers are already eyeing the opportunities that millions of wealthy travellers using the new rail developments could create. But that interest is tempered by a poor understanding of exactly who will use the region’s rail services and what their spending patterns will be.
“All eyes for now are on Dubai,” says Andrew Goodwin, head of Middle East and North Africa (Mena) retail services for London-based real estate adviser DTZ.
“It is an interesting question, how retailers will do because of some of the cultural issues with how people use the rail in Dubai. People weren’t quite getting who was using the trains, and there was also the banning of food and drink on the trains. But we have seen a growing understanding as the metro becomes part of standard transport for shoppers at malls.”
The Red Line of the Dubai Metro, which is run by the emirate’s Roads and Transport Authority (RTA), opened in September 2009. It has seen strong growth in passenger numbers, with an average of up to 130,000 people a day using the service in 2011, compared with 80,000 a year earlier.
The RTA has not released any statistics on how successful shops on the metro have been since opening, and most retailers have remained tight-lipped on whether or not captive footfall has converted into sales.
“[Sales have been] slow,” says the UAE head of one food retailer with metro outlets. But he says that there has been some improvement in 2011’s sales as people got used to the idea of buying food on their way to work. Other retailers have expressed concern in the past over the RTA ban on the consumption of food and drink within their services.
“The telling comment for me was when we were invited to lease a lot of the shops and the concern I had was that one of the leading groups, a coffee shop group, was only taking two units out of an available 50,” Goodwin says.
Rail retail success story
However, one metro-related retail success story has been the Mall of the Emirates, which fully integrated its Red Line station into the mall premises, setting up a purpose-built link bridge. It also encouraged major shops including the US’ Borders Books and Paperchase along with Finnish telecoms firm Nokia to set up stores next to the entrance.
Retailers have a poor understanding of who will use the rail services and what their spending habits will be
The mall management says these stores experienced huge footfall increases when the metro opened in 2009. However, it has not commented on how many new shoppers the link has created since then and some stores have closed down.
Goodwin describes the overall impact of the link as “really positive” on the mall, both in terms of creating new shopping opportunities and growing the mall’s identity as a brand.
“Other malls in Dubai are taking note of the opportunities offered by the metro, he says.
Wafi Mall’s new general manager, Richard Billington, is said to be embracing the opportunities posed by the opening of the Dubai Healthcare station, a five-minute walk away from the mall. The station will open in September as part of the emirate’s second metro line, the Green Line.
A bigger question is how heavier long-distance rail networks, rather than light urban rail services, will fare in the future and the opportunities they could create for retailers.
The region’s only major cross-country rail passenger services is in Saudi Arabia, and links the capital, Riyadh, with the Gulf coast city of Dammam, passing through the smaller towns of Abqiq and Hufuf along the way. In service since 1951, it runs four times a day. The stations currently house small local shops and restaurants, but one local businessman says the biggest opportunity the railway could offer would be an open tender for catering services on the train.
Gulf rail retail profits
The hope for retailers is that the GCC-wide network will mean the creation of huge train stations that operate much like airports. Here, travellers would arrive well in advance of their train departing and would pass into waiting areas containing restaurants and shops. This could emulate the success of duty-free areas in the region’s bustling airports.
Goodwin says that international travel has not been hugely conducive to retail sales in railway stations elsewhere in the world. However, he says it could boost retail sales and tourism within the region.
“It is difficult to believe that the stations alone would provide more shopping opportunities,” he says. “It hasn’t been a specific generator elsewhere, but it still relates to high footfall in general.”
Where some states, or cities could benefit, others could stand to lose, he adds, highlighting the case of the UAE. Shoppers from Abu Dhabi, already flock to Dubai to shop even though most of the brands they are buying are available at home, shows DTZ research.
“There will be more shoppers in Dubai than ever if there was a train link in place, but that would mean an even greater loss from Abu Dhabi,” he says.
|UK train station passenger statistics|
|Annual footfall||Dwell time||Average age|
|Edinburgh Waverley||19.2 million||17||42|
|Gatwick station||9.8 million||22||42|
|Glasgow Central||38 million||22||39|
|Liverpool Lime Street||24.4 million||22||36|
|London Victoria||136.8 million||15||35|
|Source: Network Rail|
Station retail sales trump high street sales in UK
Sales at railway stations can be an important revenue stream for retailers, with shops in major transport hubs being especially lucrative. Station retail sales in the UK have also proven more resilient than the high street during the recent economic turmoil, benefiting from the constant and captive footfall.
According to figures from Network Rail, which owns and manages 18 of the biggest stations in the country, station retail sales rose 5.17 per cent year-on-year in the first quarter of 2011, while sales in the high street fell 0.8 per cent in the same period. This continued the trend of last year, when trading growth in outlets at stations outperformed the high street each quarter.
The strongest growth in station retail sales in the first quarter of 2011 was recorded in food and grocery stores, led by supermarkets, specialist food catering brands and restaurants. The figures emphasise the attraction of convenience stores and fast-food outlets at stations to customers and the benefits to retailers in leasing units in transport hubs. The best-performing stations were in the UK’s capital London, where passenger volumes are highest, but strong trading growth was seen throughout the country.
Network Rail leases out more than 560,000 square feet of retail space (493 units and shops) at its stations, which currently benefit from a combined annual footfall of more than a billion. This figure is expected to double over the next 30 years.
The highest footfall is seen at Liverpool Street in London. Nearly twice as many people use the station each year than Heathrow Airport, with more than 75,000 people passing through the station during the morning rush hour. The average time spent at the station is 19 minutes and the average age of passengers is 37.
In 2010, Network Rail earned £244m ($389m) from property rental income, mainly from small and medium-sized businesses and retail tenants at the major stations. In addition to the income from leasing retail units, Network Rail also derives revenue from advertising space at stations.
Retail opportunities brought by rail in the Gulf
Manama is already a key destination for Saudi Arabian tourists looking to shop and enjoy the city’s more liberal approach to nightlife. The GCC railway could link Bahrain to Saudi Arabia and Qatar, but little has been done on the Saudi project and relations would appear to have broken down with Qatar on the second scheme.
The Bahrain government also hopes to award contracts for a $7.9bn monorail and tram scheme in 2012, although this project has also been held up by a combination of the recent unrest in the country and budgetary issues.
Kuwait plans to build a cross-country heavy rail network, linking Umm Qasr in Iraq and Salemy, on the country’s border with Saudi Arabia. It is also working on a metro system that will cover much of Kuwait City and surrounding areas. In total, these projects are projected to cost about $7bn.
The biggest commercial opportunity could come from establishing better trade and commercial ties with Iraq. Many in the country question the need for the urban rail system, although Kuwait City suffers from congestion due to heavy traffic. Both the cross-country and urban rail networks have suffered from the state’s notoriously combative political system.
Oman’s plans to develop a 500-kilometre rail network have moved extremely slowly to date, although the government is in the process of tendering the contacts to design the scheme. Little more will be known about the sultanate’s plans until 2012. France’s Systra and the local National Engineering Office have carried out the feasibility study for the proposed railway, but the project appears to have been stalled by the cabinet reshuffle that Sultan Qaboos organised in March following the protests.
Real-estate advisers see Qatar’s rail plans as the region’s most concrete. Retailers will be keen to bring shops and cafes to the 98 stations planned for the country’s light rail network before the Fifa World Cup is staged in the emirate in 2022. The first contract on the project was awarded in July 2011, and will see eight underground stations linked by the third quarter of 2014. An advisory deal on the leasing of retail units is currently under tender.
Retailers will be keen to set up in Qatar’s 98 planned rail stations before it hosts the Fifa World Cup 2022
Qatar was set to be integrated into the GCC railway via a $4bn road and rail bridge crossing over to Bahrain. But this project has been on hold since June 2010, reportedly because of financing issues in Manama. A second freight link is under planning which would connect with the GCC railway through a line running from Mesaieed and Ras Laffan into Saudi Arabia. It is not clear whether or not this could now include a passenger service.
The region’s biggest economy is also one of its biggest tourist destinations thanks to the holy cities of Mecca and Medina, which are also major retail centres. A monorail is already under construction in Mecca, with metros planned for Riyadh, Jeddah and Medina.
The development of the GCC railway along with the cross-country $7bn Saudi Landbridge project – linking Riyadh on the Gulf Coast with the Red Sea city of Jeddah – would make it easier for regional pilgrims to make their way to Mecca and Medina for Hajj or lesser pilgrimages. The development of the Landbridge scheme has been slow, however.
A consortium led by Spain’s Renfe was awarded the main $7bn contract to build the Haramain high-speed railway, which will eventually link Mecca and Medina via Jeddah and King Abdullah Economic City. This should boost the number of pilgrims visiting the cities every year, and together with general passenger traffic should provide considerable opportunities for retail outlets at stations.
Dubai still leads the region in terms of developing a light rail system, with its $3.8bn Red Line operating since 2009 and a second $4bn network, the Green Line, inaugurated in early September. No official statistics have been gathered on the revenues generated by commercial units along the red line, but retailers are becoming more and more aware of their customer base. Malls are also seeing increasing advantages to integrating with the metro.
Abu Dhabi is still studying the feasibility of its own metro system, while the greatest retail opportunities could be offered by the planned federal rail network being developed by the UAE’s Etihad Rail. Etihad is planning a network that will link the seven emirates with routes to Saudi Arabia and Oman. Dubai, already a top destination for the region’s shoppers, could benefit from a greater number of tourists and UAE consumers using the train for shopping holidays, especially if its metro service is well-linked with the federal network.