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Malls proliferate across the Middle East, helped by trade liberalization

By Curt Hazlett

Phil McArthur knows a few things about big projects. After all, Dubai Festival City, the spectacular mixed-use development he is helping bring to life in the booming United Arab Emirates city of Dubai, will cover 1,600 acres three times the area of Monaco — and contain 3 million square feet of retail, all in a luxurious marina setting.

Yet even McArthur, a Canadian who has lived in the Middle East for nine years and is Dubai Festival City’s director of leasing and marketing, seems impressed by the frenzy of retail projects in the region. Dubai Festival City is but one of five shopping centers slated to open in Dubai between now and 2008, bringing a total of 16 million square feet of new retail. Western-style centers are blossoming also in Bahrain, Egypt, Kuwait, Lebanon, Oman and Qatar, and there are so many new malls being planned for Saudi Arabia, McArthur says, that the Middle East Council of Shopping Centres is unable to keep track of them all.

“In the Middle East, now is the time to build shopping centers,” he said.

It may be surprising that one of the biggest retail-development booms in history is taking place in a region that seems, at least from a distance, to be troubled by religious schisms, political conflicts and persistent warfare. But that impression underestimates the size and diversity of the Middle East. “People tend to think of the Middle East as problems in the Gaza Strip or the invasion of Iraq, but that’s only one small portion of it,” McArthur said.

Indeed, the Middle East is a big place, ranging by most definitions from Algeria in the west to Iran in the east, a distance of some 3,000 miles. Roughly 300 million people live there, about the same as the population of the United States. The region is mostly affluent, holding two-thirds of the world’s oil, and rising world demand is making it richer by the day.

The Middle East also needs more retail at the high end, at least so far, McArthur says. “There is a lack of supply of quality retail space,” he said. “People have high disposable incomes. They want goods and services, and shopping centers have proven to be the most effective way to distribute goods and services. So why would it be any different here?”

What is different about the retail boom in the Middle East is the speed with which it is racing through the region. The first Western-style mall opened in 1980, in Dubai, and the next was not built for a decade following. Now there are about 200 such centers in the Persian Gulf region alone, according to Retail International, a London-based consulting firm that focuses on the Middle East, Central Europe and Asia. “The Gulf is a rapidly developing market, and it is a constant battle to keep up to date with all the new projects,” said Simon Thomson, managing director of Retail International.

The epicenter of the growth is Dubai, on the southern shore of the Persian Gulf. With oil exports of some 2.5 million barrels a day, the South Carolina-size United Arab Emirates has a muscular economy. Much of its wealth is being put to use in Dubai, which according to Thomson, “is on course to become possibly the most densely shopped city on the planet.” Among the city’s current projects are:

• Dubailand, a 35,000-acre “leisure destination” whose retail component, the 7 million-square-foot Mall of Arabia, is slated to open in 2007. The project is being developed by Dubai-based I&M Galadari Group.
• The just-opened Mall of the Emirates. At 2.7 million square feet, this is the world’s third-largest mall and features an indoor ski slope covered with real snow. The developer is Dubai’s MAF Investments.
• Dubai Festival City, an $11 billion waterfront project whose main retail component, The Crescent, is to open next year. Al Futtaim Group, also of Dubai, is the development firm. When the project is finished, some 77,000 people will live or work at Dubai Festival City.
• The Dubai Mall, 3.8 million-square-foot centerpiece of Downtown Dubai, a mixed-use project being developed by the local, publicly traded Emaar Properties.

In addition, the gung ho spirit of the development community came into focus in September when Emaar, which calls itself the world’s largest real estate company by market capitalization, announced plans to develop 100 malls in the Middle East, North Africa, India and Pakistan over the next five years.

The retail fervor can be seen clearly in Saudi Arabia. Retail International’s Thomson notes that major malls, mostly anchored by such hypermarkets as French retailers Carrefour and Géant and locally owned HyperPanda, have been built not only in the largest cities, such as Riyadh, but in the secondary markets as well. “I think we’re seeing a shopping center opening every month in the Kingdom of Saudi Arabia,” said McArthur. “It has unbelievable potential.”

That potential offers opportunities for Westerners, but probably not on the development end. “There are definitely opportunities for retailers, but the Saudis don’t need a lot of cash,” said McArthur. “What they need are good architects, good property managers, good development managers, good leasing managers and good marketeers.”

Even in Egypt, where retail has long been hampered by government restrictions on the importation of clothing, developers are pressing ahead — not surprising, given that Egypt has the region’s largest population, at 76 million.

“Egypt’s biggest problem is Egypt,” said McArthur, who was president of Egyptian development firm Golden Pyramids Plaza SAE before moving to Dubai. “The customers with money travel around the world, and they come home and there’s nowhere to shop, because the Egyptian government has such restrictive rules on the importation of ready-made garments. If you don’t have fashion, you don’t have a shopping center.”

Such restrictions are being relaxed, though, and last year Golden Pyramids opened Citystars, a major mixed-use project in Cairo that includes a 1.8 million-square-foot mall called Stars Centre. Now several large, Western-style malls are in the planning stages, including one by McArthur’s firm, Al Futtaim Group, that will be anchored by a hypermarket on a 700-acre site near the international airport.

Wealthy Gulf states such as Bahrain, Kuwait and Qatar are witnessing the boom too. Even Yemen, one of the poorest countries in the Arab world, has gotten into the act. Sanaa, its capital, has a five-story shopping center that McArthur says is slated for expansion. Just south of Saudi Arabia on the Arabian Sea, Yemen’s future looks all the brighter because of its pleasant climate, which could help it develop its tourist industry. “I think you’re going to see a lot more things happening in Yemen,” McArthur said.

Thomson, though, sees the greatest potential for retail development in the less stable nations. He calls Iran “a country of great wealth and a major potential market.” Iraq offers similar opportunities — “if normality ever returns,” he says. Both countries possess sources of capital through their oil, as well as large, highly educated populations.

Even less-prosperous Jordan “is receiving quite a lot of attention from Gulf investors and developers, with some new malls opening in Amman soon,” Thomson said. To the north, he says, Lebanon is “slowly but surely” seeing a resurgence of retail development despite political upheavals this year that included the assassination of former Prime Minister Rafik Hariri.

There is even a modest two-story shopping center in Ramallah, in the violence-torn West Bank.

How different is the Middle Eastern shopping experience? In the final measure, not very. As in the West, most residents want to be able to drive to the mall — “not more than 15 minutes” — and park easily, then enjoy browsing through trendy fashions in a cool and family-friendly environment, Thomson says. “I am not a sociologist, but I guess the conclusion that can be drawn is that we are all the same when it comes to shopping,” he said. Besides, the mall concept is certainly not foreign to the Middle East, where souks — urban, often enclosed marketplaces containing hundreds of shops — have thrived in cities for millennia.

“For the countries where they’re built, shopping centers are an amenity that the country has managed to produce for its citizens,” said McArthur. “For the owners, they’re a very strong financial investment. For the community, they’re an efficient way to distribute goods and a focal point, just like they are in North America. I don’t think they are significantly different from the role they play anywhere else in the world.”