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Dubai shopping centre rents to fall further on strong US dollar

Dubai shopping centre rents are set to fall further as the strong dollar and a glut of new space force landlords to work harder to keep tenants.

While super-prime shopping centres such as The Dubai Mall and Mall of the Emirates can still command the highest rents, smaller centres face a tough time.

Al Khaleej Centre, situated on Bur Dubai’s Mankhool Road, is one of the city’s smaller malls that are being forced to rethink their tenant mix.

It recently changed its focus with an open souq concept built around technology support and fast food.

“When we launched the open souq in January we were asking Dh85,000 pa but we dropped that to Dh75,000 per annum in July,” said Hanan Kamal, leasing and marketing manager for Al Khaleej Centre.

“We have leased 18 of the 29 kiosks but other interested parties are not committing because they think there is another drop in rents coming.

“Our footfall is about 80,000 per month, which is good for the area and our size, but the big malls have taken their toll on the malls on the ‘wrong’ side of Dubai which means rents have to drop – you have to change to make people come.”

But even tenants in some of the city’s mega-malls are starting to feel the impact of a strong dollar on their sales as the purchasing power of tourists from the euro zone diminishes.

Slowing retail sales growth was cited recently by the electronics chain Plug Ins, which operates in locations that include The Dubai Mall and Ibn Battuta.

It reported a 16.5 per cent fall in customer spending in its September consumer survey.

The fortunes of the city’s malls are beginning to mirror that of its hotels, which have also been forced to drop room rates.

“Hospitality has a huge impact on retail,” said Matthew Green the head of research for CBRE. “The fall in Russian visitors, who are traditionally heavy spenders, has a huge impact on mall operators and retailers. This will have an effect on rents, however mall operators have instituted turnover rents as commonplace now which can be 3 to 10 per cent, depending on the category.

“This ties the operator into creating a viable sales environment. Dubai is still the darling of retail in the region.

The UAE’s retail sector could be subject to divergence, with prime and super-prime malls demanding increasing rates but other less successful malls having to use rental price as a driver for commerce.

“Shopping centres which do not enjoy a high footfall are currently contending with significant challenges in the retail market,” said David Macadam, the chief executive at International Council of Shopping Centres and Middle East Council of Shopping Centres.

“High retail sales in a shop normally equates to higher lease rates. Lower sales, lower lease rates. Downward pressure on lease rates may occur in shopping centres when the retail sales are diminishing.

“Lower retail sales are not always attributable to one or two factors, but generally many issues may contribute to the slowing of the sales.”

A report from JLL released last week said that sluggish growth in retail sales in the emirate had meant landlords “are now having to adopt more realistic and rational approaches to leasing in order to retain their tenant”.

It expects rents to drop again in the final quarter of the year and into next year.

During the third quarter, Mall of the Emirates added another 25,000 square metres of gross leasable area, while Majid Al Futtaim’s City Centre Me’aisem created another 23,850 sq metres of shopping space.

The broker expects another 136,000 sq metres of space to be delivered in the remainder of the year, comprised mainly of extensions to existing super-regional malls.

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