May 29, 2020

Quarterly Report Dubai Q1 2020: Retail Market Overview

The closure of retail malls has heaped pressure on operators and retailers, with e-commerce replacing traditional shopping habits

The retail market, alongside the hospitality sector, was severely hit by the COVID-19 outbreak. Shopping malls, with the exception of supermarkets, pharmacies, and co-operatives, were ordered to shut down in late March as a precautionary measure to prevent the spread of COVID-19. Most retailers are now facing more pressure as a result of increasing costs and reduced income. The government has released an economic stimulus package that includes 15 initiatives focused on the commercial, retail, and external trade sectors.

Major mall operators introduced relief packages to support their tenants during the shutdown period. These include Emaar Malls, who offered a waiver of contractual base rent, service charge, yearly marketing fees, and a 70% flat discount on fixed chilled water charges. Al-Futtaim Group has set up a fund of AED 100mn for retailers at its Festival malls in Dubai. The fund will cover up to three months’ rent relief for “eligible” tenants, who run the risk of being caught in business disruption and slowdown. Nakheel also has introduced an AED 230mn economic relief package for its clients following the COVID-19 outbreak.

KPMG’s latest retail report showed a significant increase in e-commerce and online sales in the UAE. The report highlighted that online retail sales, including groceries, grew by 20%-40% during the first half of March compared to the same period last year. Online marketplaces also saw surging demand, particularly for laptops and tablets (due to online learning and remote working requirements) as well as gym equipment. Sales at most luxury and fashion retailers declined by 20%-50% in the first half of March, while sales in F&B outlets declined by 30%-80%.

No notable new retail space was delivered in Q1 2020. Cushman & Wakefield estimates the existing supply in the city to be 3.87 million sq m GLA. An additional 721,280 sq m of leasable retail space is in the pipeline for 2020. As with other market sectors, we expect the delivery of some of this supply to be pushed back to 2021.

Despite the closure of malls and disruption of retail business in Q1 2020, the latest 2019 annual review showed occupancy levels across super-regional malls remained healthy. Malls like Dubai Mall, Mall of the Emirates, Deira City Centre and Ibn Battuta Mall still enjoy occupancy levels of 90%-95%. Vacancy in other ‘mid-sized malls’, however, is widening, amongst weaker demand and declining sales.