Dubai: Retail on the rebound

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Underpinned by rising tourist arrivals and heating demand in the local economy, Dubai’s retail sector appears set to enter a period of solid growth. A recent study conducted by market research company RNOCS said that a strong tourism sector, combined with rising consumer confidence and soaring domestic consumption, would fuel growth in the retail sector across the UAE, with Dubai having become the focus of retail construction developments in the country.

By most standards, Dubai has an oversupply of retail space, with one of the highest shopping floor space-to-population ratios in the world. The emirate’s 2.4m sq metres of retail space – a total that is expected to increase to 2.9m sq metres by 2013 – is equivalent to 1.4 sq metres per person, well above 1 sq metre in the US and far above 0.25 in Europe, according to a survey by the Kuwait-based Gulf Investment House (GIH). However, much of Dubai’s shopping space has been designed to target tourists rather than locals.

The rapid inflow of foreign retailers was spurring expansion in shopping mall development, with the number of facilities having multiplied at the fastest pace during the past few years, according to the RNOCS report, which was released in early July. The retail industry in Dubai and the rest of the UAE was anticipated to have a compound annual growth rate of around 8% per year through 2014.

The report said that Dubai’s retail mall segment had performed well in the second quarter of the year, with rental charges having reached the bottom of the current cycle. They now have the potential rise in line with expected growth in demand, fuelled in part by the increase in tourist arrivals.

Jesse Downs, the head of management consulting at international real estate investment firm Jones Lang LaSalle, said that the retail sector was in a position to take advantage of the improving economic environment, with many retailers expecting an even better third quarter. “While recovery will be gradual, the bottoming out of two main sectors, hospitality and retail malls, is positive and reflects buoyant tourism and economic trends,” he told local media in early July.

At least some of the buoyancy in the tourism sector that has flowed on to retail sales has been the result of the unrest in other parts of the region, which has enhanced Dubai’s reputation for stability. According to Alex Kyriakidis, global managing director for tourism, hospitality and leisure for international consultancy firm Deloitte, Dubai and its retail sector has been a major beneficiary of the Arab Spring.

“Tourists, particularly upscale tourists, who would have gone to Egypt and to Tunisia, are now coming to Dubai. Saudi nationals who would have gone to Bahrain are now coming to Dubai,” Kyriakidis said in an interview with Reuters on July 7.

However, while tourists may be flocking in increasing numbers to Dubai’s vast array of retail outlets and malls, not all of the available space is in use. Vacancies for retail outlets make up 20% of the emirate’s leasable shopping area, according to a GIH survey conducted at the end of June.

Even though demand from retailers is sluggish at the moment, developers have been pushing ahead with new projects across the city, with 50,000 sq metres of floor space being added to the existing stock in the first quarter of this year. Much of this will be concentrated around the Dubai International Financial Centre (DIFC). Following the global economic downturn in 2009, a number of projects were halted or postponed, with completion dates pushed back. Now, with the local economy again on the rise, stalled projects have been dusted off and new developments have been launched.

These efforts to bring more retail space on line reflect the improving consumer sentiment in Dubai and the rest of the UAE. The results of the most recent consumer confidence survey conducted by the online employment and research site said there had been a 5.8-point surge in the country’s consumer confidence index in the first quarter of 2011. Nearly 30% of respondents said their living conditions had improved compared to the previous year, while 54% said they believed the local economy would improve in 2011. Roughly the same percentage also expected their personal financial positions to improve this year.

Dubai retailers will be keeping a watchful eye on events in Europe, with concerns that a renewed bout of fiscal instability on the continent could impact on tourist numbers from the eurozone to the Gulf, and erode sales and confidence. However, rising local sentiment and demand could help sustain the sector in the medium term, even if customer flow from the West dries up.

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