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Shopping Centers Today -> May 2003
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DEVELOPERS STRIVE TO OUTDO EACH OTHER IN DUBAI
BY DONNA MITCHELL
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| BurJuman Centre boasts a who’s who of luxury retail, with such names as Escada, Ferragamo, Louis Vuitton and Polo Ralph Lauren. |
“Abu Dhabi has the cash, Dubai has the flash,” goes the saying around the United Arab Emirates. But is the latter about to overdo it on the mass?
One of a group of seven emirates, Dubai is considered to be the crown jewel of the United Arab Emirates, a world-class leisure destination offering miles of beautiful beaches, spectacular fishing and scuba diving, golf courses and luxurious hotels. But most of all, Dubai is known for its shopping, with each new development apparently striving to outdo the last in splendor. There are 32 existing malls, and at least eight more are under construction, with an additional five said to be in the pipeline.
All this, though, is happening in a sheikdom of just 910,000 people (the entire United Arab Emirates, which covers an area roughly the size of Maine, has only about 2.5 million people), and some question whether developers are getting carried away.
“Dubai is totally overshopped,” said Tim Weale, who heads the Cushman & Wakefield Healey & Baker office in Dubai. “Twenty-five percent of all shop units are empty, and another 5.5 million square feet of shop space is planned.”
The nonpublic structure of companies is helping fuel construction, Weale said.
“The developers are the local ruling families,” he said. “If they have coffee shops empty, so what? It’s not like they have shareholders to answer to.”
Because retail development firms in Dubai are largely private, and because shopping center owners withhold such details, it is hard to get an accurate reading of the entire market. But the vacancy rate is about 10 to 15 percent for second-tier shopping centers, according to Eisa Adam Ibrahim, president of both the Middle Eastern Council of Shopping Centres, or MECSC, and the Dubai Shopping Malls Group. That’s because the tenants are moving over to the first-tier malls, he says.
The government has played a big role in promoting retail construction, seeing it as an important part of the emirate’s leisure and tourism business. Duties on imported goods are low, and there are no sales or income taxes — or taxes of any sort in this oil-rich country, for that matter.
The government also sponsors such entertainment events as the Dubai Shopping Festival, an all-out push to put retailing on display that ran from mid-January to mid-February. All the city’s retailers offered festive discounts and daily contests and prizes. In a nod to the 140 nationalities that live in Dubai, the event was themed “One World, One Family, One Festival,” and included cultural festivities, said Ibrahim. The idea, he says, was to indulge consumers with Dubai’s array of consumer goods.
The government is gearing up for another promotion: Dubai Summer Surprises, meant to stimulate tourism and shopping during the summer months. Most activities slated for this will take place in Dubai’s malls, Ibrahim said.
This unqualified government support has encouraged developers to create malls that are on a par with the top centers in North America and Europe, said Ibrahim, adding that about six years ago, most stores were situated in Main Street centers. Consumers prefer malls, with their obvious benefits of air-conditioning, parking and entertainment areas, he notes.
BurJuman Centre is one such work in progress. The powerful Al Ghurair family that built Al Ghurair City, the first shopping center in the Middle East, also built this 300,000-square-foot mall in 1994. The Al Ghurairs are adding a five-building expansion that will enlarge the center to more than 1.5 million square feet of retail, restaurants and office space.
BurJuman, which the family expects to complete by the third quarter of this year, will increase its total retail gross leasable area to 800,000 square feet. The project will also offer 163 luxury apartments and a health club, said Ibrahim, who is the mall’s general manager.
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The center already features 180 retailers, including such high-end names as Escada, Ferragamo, Louis Vuitton and Polo Ralph Lauren. Saks Fifth Avenue will anchor the lineup of new retailers, among which will be Burberry’s, Fendi and Givenchy, said Ibrahim.
BurJuman has been one of Dubai’s dominant shopping centers since it opened. By itself, it accounts for about 10 percent of the retail sales in Dubai, said Weale. Exactly how much that works out to in dollars is unclear, because retailers do not report their sales figures, Ibrahim said. But retailers pay flat rents for center space in the country.
Other projects under way in Dubai include Souq Al Nakheel, being developed by Majid Al Futtaim, and The Gardens, a 1 million-square-foot regional mall in the southwest corner of the emirate, says Phil McArthur, who sits on the executive board of MECSC. Yet another is Dubai Festival City, a development along nearly two miles of waterfront in downtown Dubai that will feature a regional mall, a community shopping center, offices, residential units, hotels and golf courses.
But there is one-upmanship involved with some of these projects, observers say.
“There is an element of pride,” McArthur said. “Plus, they want to remain commercially popular with the ruling [al-Maktoum] family, which is very involved with the economic strategy of Dubai.”
For all the talk of overbuilding, however, top malls in Dubai have no apparent problems recruiting retailers.
“Retailers are on waiting lists for months, sometimes six months to a year,” Ibrahim said. Retailers that are not content to wait on a list for a certain center have been known to approach existing retailers in hopes of buying out the lease, he said.
Consequently, rents remain strong. Retailers sometimes fork over as much as $125 per square foot for the ideal spot in a top shopping center, said McArthur. An average shopping center might command $60 per square foot, including common area charges.
Market watchers expect tourism to keep expanding, fueling demand for future retail offerings. In another 10 years Dubai could attract about 10 million tourists annually, up from 5 million now, said McArthur.
“The industry is at its best time,” Ibrahim said. “Retailers are either already inside the malls or trying to get in.”
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