Are high rental costs making UAE retailers victims of their own success?

iMall is having its grand opening in Sharjah on Wednesday with Burger King as one of its food and beverage offerings. Jaime Puebla / The National

Another mall is opening. Called iMall and spread across 125,000 square feet of retail space, it is having its grand opening in Sharjah on Wednesday, on the first day of Eid Al Fitr.

The newcomer offers free Wi-Fi, 42 shops focused on consumer tech, a department store and a host of tried-and-true food and beverage offerings such as Burger King and Texas Chicken.

“We couldn’t have picked a better date to launch the mall as it provides people in UAE a new shopping and entertainment destination during Eid Al Fitr,” enthused Monir Lotfi, the director of the mall, which was developed by Sharjah-based Nice Home Real Estate.

This is not simply a case of new-mall gloss. The UAE’s retailers are boundlessly optimistic, through thick and thin.

And although this year is hardly a golden era, statistics suggest the sector is still growing solidly.

According to a forecast from the retail consultancy Euromonitor, retail spending in the Emirates is on track to increase by 7 per cent this year to US$53.7 billion.

The property consultancy CBRE reports that Abu Dhabi and Dubai have a combined 626,887 sq metres of retail space under construction, up by 11 per cent on a year ago.

But if there is one factor that is tempering retailers’ hopes these days, it is the high costs of leases for mall outlets.

The luxury retailer Chalhoub Group, which suffered a 2 per cent drop in sales in the first half of this year compared with a year earlier, released a “white paper” on May 25 detailing the pressures on retailers.

“Rental costs across the region are definitely something that retail companies have to carefully monitor,” said David Vercruysse, the former general manager of Sephora Middle East, a Chalhoub brand.

He said leasing rates were reaching unprecedented levels.

“In a region where the retail culture is immensely reliant on mall presence and flagship developments, managing these costs requires more discernment and agility,” he said. “With each renewal term comes the difficulty for retailers to negotiate leasing contracts and conditions as well as mitigate the pressure rental hikes induce.”

This is a case in which popularity has its price.

The surge in rents can, it seems, be explained by the desire of global brands and businesses to enter the UAE's markets. CBRE, in the latest edition of its How Global is the Business of Retail? report, showed that Dubai has the presence of 57 per cent of international retailers, second only to London at 57.9 per cent and followed by Shanghai at 54.4 per cent.

While Abu Dhabi did not rank as highly on the list, it had a greater degree of uptake among Europe-based international retailers, with 40.6 per cent of them in the capital’s market last year.

“Dubai has become synonymous with retailing and home to many of the world’s prestigious and coveted brands,” said Nick Maclean, the managing director of CBRE Middle East.

He said that Dubai had cemented its position as the location of choice for international brands looking to enter the region and widen their footprint to roll out their brands and concept stores.

At the same time, “Abu Dhabi is growing its footprint with key international retailers. We see more luxurious schemes coming into the capital, making Abu Dhabi more complementary to the Dubai market.”

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