The Changing Face of the UAE’s Retail Sector

FEATURE The Changing Face of the UAE’s Retail Sector

The onset of the COVID-19 pandemic and subsequent lockdowns saw demand plummet in the UAE’s retail sector. At the height of the pandemic, total visitor numbers for retail and recreation locations were estimated to be 64.7% below their pre-pandemic baseline, according to Google’s mobility data. Whilst we did see demand recover in the second half of 2020, for the full year, total visitor numbers were 29.3% below their pre-pandemic baseline, resulting in store-based retail sales falling by 9.4% over this period. Non-store retailing on the other hand, increased by 46.8% and as of 2020 accounted for 8.1% of total retail sales, up from 5.2% compared to a year earlier.

Given this backdrop, it may not come as a surprise that the UAE’s retail sector, from both the landlord and occupier perspective, is facing some significant headwinds. However, these challenges do not stem solely from the pandemic, in fact, in most parts the pandemic was only the accelerator of existing shifts in market fundamentals.

Even prior to the pandemic, retailers in the UAE struggled due to sluggish economic growth and increased competition. In the five years to 2019, store-based retail sales only increased by 21.3% according to Euromonitor, compared to 34.9% for the five-year period to 2014. As a result, and amidst increasing levels of supply entering the market, occupancy levels and rental rates had seen compression across almost all segments since 2015. These trends were particularly prevalent amongst secondary assets, which traditionally lack strong demand drivers, such as quality entertainment or food and beverage facilities.

“with continuing developments in supply and demand trends, we will see significant fragmentation in asset performance going forward. ”

Anthony Spary

Director

CBRE | Advisory & Transaction Services

In an attempt to address anemic growth rates, we have seen retailers being able to adapt to new market realities, where they have become much more competitive in relation to both international and e-commerce benchmarks. In particular, certain categories, such as luxury and F&B have seen strong growth since the pandemic, benefitting from “in country” sales and revenge spending post the uncertainty that was temporarily imposed at the beginning of the pandemic. With such pivots by retailers expected to boost consumer demand, the UAEs recently promulgated 100% foreign ownership laws, are also beginning to attract a significant number of international retailers into the country. Forecasts show that in the five years to 2024, store-based sales in the UAE are expected to increase by 15.4% to AED 220.09 billion. Over this period, despite non-store retail’s 157.5% forecast growth rate, it will account for only 10.9% of total retail sales.

It is clear then, that bricks and mortar retail will continue to play a vital role in the UAE’s retail sector. However, with continuing developments in supply and demand trends, we will see significant fragmentation asset performance going forward.

Retail assets which offer suitable demand drivers, whether they are super-regional, regional or neighborhood in structure, will continue to attract demand and show relative levels of outperformance. Upcoming best in class assets such as Abu Dhabi’s Reem Mall and its swathe of new destination concepts and off-line and online retail integration will set new benchmarks. Secondary assets or assets whose offering has started to become dated, will now have to seriously consider repositioning their assets to remain competitive and viable. A core focus for such landlords will need to be around ensuring the tenant mix incorporates sufficient demand drivers and suitable core and periphery retailers, which will continue to attract consumers. The timing of enacting such strategies is key given rapid shifts we are seeing in both the supply and demand side of the equation, where undertaking off the cuff repositioning strategies is likely to be more detrimental than doing nothing at all.

CREATING COMMERCIAL ADVANTAGE

Offering landlords, developers, global brands, and regional home grown concepts, with comprehensive strategic and execution solutions across the Middle East’s dynamic retail landscape.

TENANT REPRESENTATION

• Existing portfolio review • Expansion/contraction strategies • Market research • Benchmarking • Competitor analysis • Cost analysis • Retail analytics • Availability schedules • Site selection • Landlord negotiations • Transaction execution • New to market consultancy/setup

LANDLORD SERVICES

• Scheme positioning • Leasing strategies • Re-positioning/redevelopment strategies • Category mix review • Rental reviews • Tenant canvassing • Marketing strategies • Leasing services • Market benchmarking • Lease negotiations • Comparative market analysis

RETAIL CONSULTANCY SERVICES

• Project vision and positioning • Concept/project design reviews • Merchandise mix recommendations • Project zoning and phasing • Unit mix and sizing • Indicative rental projections • MEP recommendations • Project circulation • Retail analytics • Asset management consultancy • Operational asset services • F&B consultancy

CBRE is the market leader for real estate consultancy services both globally and across the Middle East region. Operating in the region for over 15 years, CBRE has extensive experience providing dedicated retail services to support both regional and multi national clients with their real estate strategies.