Smaller Dubai malls feel the pinch of saturation as mega shopping centres dominate

According to a new report by the property broker Core Savills, Dubai’s once booming retail market is starting to show signs of market saturation.

Larger malls such as Ibn Battuta Mall are retaining customers – but footfall is dropping at smaller ones. Pawan Singh / The National
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The tills may still be ringing in Dubai’s three massive super malls, but with a clutch of new giant shopping centres due to be built over the coming three years and retailers struggling from a strong US dollar and a slowdown in the local economy, many of the city’s smaller malls are starting to feel the pain.

According to a new report by the property broker Core Savills, Dubai’s once booming retail market is starting to show signs of market saturation.

It predicts that a glut of more than 800,000 square metres of new shops is set to be built in Dubai over the coming three years as projects such as The Dubai Mall expansion, and Nak­heel Mall and Pointe on the Palm Jumeirah start to complete.

Dubai’s total retail stock increased by 8 per cent in 2016, pushing the total market size to nearly 3.2 million sq metres. That is forecast to grow by 25 per cent over the coming three years.

New malls are expected to open just as retailers are feeling the effects of lower oil prices in the GCC, the strong US dollar, to which the dirham is pegged, is making Dubai a more expensive place for tourists to shop, e-commerce is eating away at high street sales and the country is preparing to introduce value-added tax next year.

As stretched retailers scramble for the most prestigious pitches and move out of loss-making stores, Core predicts that the shopping centre market in Dubai is set to become more segmented.

Smaller malls in outer areas or which lack public transport access will suffer from falling rents and high levels of vac­ancy while the three mega-malls – The Dubai Mall, Mall of the Emirates and Ibn Battuta Mall – continue to reel in the punters.

“The warning signs of market saturation have started to show,” said David Godchaux, the chief executive of Core Savills. “We foresee the retail sector to progressively segment itself with higher and lower performing assets created by a process of natural selection by retailers. A gap is anticipated to form between these two subcategories, reflected through heterogenous rents and vacancy levels – a case similar to Dubai’s two-tiered office market.”

“Retailers are expected to optimise footprint and mark a flight to quality towards perceived high-functioning malls, while the slower-performing assets may see a cascading effect of rising vacancy levels caused by this shift,” he added.

Al Khaleej Centre, situated on Bur Dubai’s Mankhool Road, is one of the city’s smaller malls being forced to rethink their tenant mix. In 2015, the centre changed its focus to an open souq concept built around technology support and fast food, dropping its rents from Dh85,000 a year to Dh75,000.

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