Economic Update

Published 26 Feb 2017

Last year saw Dubai’s retail space grow by 26,000 sq metres, though revenues could remain muted this year as slower economic growth and a stronger US dollar impact trading.

Room to grow

The growth in floorspace, the highest seen since 2010, takes the emirate’s existing retail space to 3.4m sq metres, according to real estate consultancy JLL’s “The UAE Real Estate Market Review”.

This figure is set to be dwarfed by the 350,000 sq metres scheduled for release in 2017 and the 367,000 square metres listed for completion in 2018. 

Though retail vacancies grew by only one percentage point in the fourth quarter last year to 9%, there are concerns that this rapid expansion could lead to a glut of formal retail space in the short term.

Muted growth

Some of these worries derive from the mixed performance of the retail industry last year in comparison with the wider Dubai economy. While some players continued to see growth, others saw sales level out or weaken. 

Speaking to local media earlier this month, Sheikh Ahmed bin Saeed Al Maktoum, chairman of Dubai Airports and president of Dubai Civil Aviation Authority said that Dubai’s GDP grew by about 2.7% in 2016, with this figure expected to rise to 3.1% this year.

In contrast, the most recent figures from Dubai Statistics Centre put wholesale and retail trade growth for the first three quarters of the year at 1%. Meanwhile, the transport and storage sector grew by 4.5%, while the hospitality industry posted an expansion of 9%.

Refocusing required

Since the UAE’s era of rapid economic expansion peaked a decade ago, the deceleration in the high-end retail segment in particular is not unexpected, according to Patrick Chalhoub, CEO of luxury retailer Chalhoub Group.

“Obviously the luxury retail segment has slowed down over the past few years,” he told OBG. “This is partly because of the regional slowdown, but also because Dubai has matured as a market.”

As a result, players need to respond quickly to new consumer demands to remain competitive and relevant, according to Chalhoub. 

“Dubai is still a large platform for retail, but there is a need to focus more on targeted growth, as well as the way that retailers organise their distribution and structure their businesses,” he said. 

Dollar weighing on tourist spending

The strength of the dirham, which is pegged to the US dollar, has been cited as one reason some retail sales, particularly those to tourists, slowed in 2016.

Despite an increase in visitor traffic, retailers at Dubai’s two international airports reported a 3.2% dip in sales for 2016 to $1.85bn. This was on the back of a 1.5% decline the previous year. Officials cited the reduced purchasing power of the euro, ruble and pound, along with the slowdown in the economies of the GCC, as a factor in the fall.  

Though currency fluctuations may continue throughout this year, JLL’s recent report states, “as the regional economic situation improves, an increase in GCC tourism is expected to contribute significantly to the recovery of the hospitality and retail sectors”.

This mirrors the view of Colm McLoughlin, executive vice chairman and chief executive of Dubai Duty Free, who is expecting a rebound for the retail sector after a challenging 2016.

“Our sentiment remains cautious, but still we have positive expectations for 2017, since our industry has always proven to be a very robust one,” he told local media in early January.  

Filling the pipeline

While there may some over-supply in the short term, developers appear confident that medium-term prospects for retail space will be strong, with more than $3.5bn worth of new retail developments set to be inked in 2017, according to estimates by Middle East Economic Digest (MEED).

The value of contracted work allocated this year will be seven times the $502m awarded in 2016 and more than four times the 2015 figure of $812m, according to MEED, signifying industry expectations of far higher demand for premium retail space. 

Indeed, despite the decline seen in revenue from tourists, consumer confidence in the UAE itself is still high. In the most recent Nielsen global survey of consumer confidence released in November last year, the UAE was ranked fifth in the world, registering a score of 108, with any figure over 100 indicating optimism.