Although Dubai's retail sector has not experienced the same levels of performance decline as other sectors of the emirate real estate market, it is still undergoing a period of transition, Jones Lang Lasalle - a global real estate services firm specializing in commercial property management, leasing, and investment management - said in its “Pulse” report this month. The significant boost in new supply entering the market in recent years, declining sales, lower footfall levels and a drop in tourist growth in 2009 have put greater pressure on the industry and its players to reconsider their strategies to ensure future growth can be sustained, it noted. Recent changes in the retail sector have seen the Dubai market move in favor of retailers. This has resulted in owners becoming more amenable to retailers' requests for more flexible lease terms including, shorter term leases, break lease clauses, percentage of sales only rents and rent free periods. These tenant favorable conditions are expected to continue to characterize the market during 2010 and 2011. With financing difficult to achieve for new mall developments and some sectors of the market approaching saturation, several proposed future malls are likely to be delayed. This will result in much lower levels of expected future supply entering the retail market during the rest of 2010 and 2011, with no new super regional centers expected before the completion of the first stage of the Mall of Arabia which is expected to complete in 2013. This reduction in the delivery of new retail shopping centers will give the market the necessary breathing space to absorb the high levels of supply experienced in recent years. Mirdif City Center will be the last super regional center to open for the next 3 years. While it is clearly too early to assess the impact of this new center, it is expected to attract both spending and retail tenants from other centers in the northern regions of Dubai. Mirdif City Center also reflects a number of the other major trends impacting the market including the focus on local residents and the increased emphasis on value proposition. The future health of the retail market will be primarily driven by the speed with which retail spending increases across Dubai. Retailers and mall owners reported a typical decline of at least 20 percent in retail sales during 2009. Anecdotal evidence suggests that retail sales are now starting to recover, with increased footfall and turnover being reported by some retailers during the recent Dubai Shopping Festival. The Dubai Chamber of Commerce reports that total retail spending in Dubai is expected to increase by around 4 percent in 2010 and by more than 8 percent in 2011. For the remainder of 2010 and beyond, Dubai's retail market is likely to shift in line with the mainstream global retail market through an increased emphasis on competitive pricing, creative marketing programs, convenience shopping and value for money. The shift in the structure of the retail sector is occurring with the emphasis being on a back-to-basics approach. A number of prudent retailers are already looking at new strategies in this regard. This trend is likely to result in the repositioning of both existing and new retail centers away from the previous focus on luxury brands towards value merchandising. Owners and managers of shopping malls will have to consider implementing active management strategies to re-align these properties to retain value. Some obsolescent or underperforming shopping centers may be redeveloped or even in some cases converted to other uses - as has been witnessed in some US and European markets. Another continued development opportunity exists in the area of community-led retail development - a concept that has only been developed within a small number of infill projects across Dubai. New market entrants into the region will spur growth in the development of smaller community shopping malls with convenience and service the focus. While the focus is expected to switch to serving the needs of the resident population of Dubai and the surrounding emirates, the tourist sector will remain a significant component of retail spending in Dubai. Dubai remains an attractive destination for retail related tourism and the retail sector is expected to benefit from the continued growth in visitor arrivals (forecast to increase by 5 percent in 2010) and high levels of investment in developing the cities tourist infrastructure (e.g.: the growth and development of Dubai International Airport, the opening of Dubai Metro and the promotion of the city in international tourist source markets).
