Experts are calling for turnover rents, where rates are subject to retailers’ revenue
Dubai is known for its iconic and largest shopping malls, with its soaring rents in Dubai’s most popular malls are in danger of stifling the emirate’s retailers, Dubai-based property analysts have said.
Smaller firms and entrepreneurs in particular risk being marginalised by high prices, which could prevent them from debuting in the market or increasing their number of branches, experts have said.
“Dubai remains one of the highest costs to retail within the GCC and indeed the regional market,” said Stuart Gissing, a UAE retail property analyst at Colliers.
“Many malls and developers are still reluctant to take on a new product that is not perceived as main stream and widely recognized. This situation will suppress smaller brands and more entrepreneurial outlets from flourishing. Retailers say high prices for property continues to be their biggest challenge.
Last month, managing director of UAE electronics retailer Sharaf DG told Arabian Business he had seen rents in prime locations increase on average 10-15 percent every year, and the issue was exclusive to bigger shopping centres.
“It’s just going up and up every year – I’m talking about the main malls. The other malls we can squeeze them a bit but the main malls no,” said Yasser Sharaf.
“I’ve signed documents and all of them have increased in rental, none of them have reduced rental, none of them capped the rent, all of them the rentals have increased.”
French hypermarket chain Geant also acknowledged the problem, and said that plans to develop a wave of smaller convenience stores were largely dependent on whether high rental rates could be offset by sales.
“Rents are key in the food business, as margins are small,” said Arif Shaikh of Retail Arabia, which holds the franchise rights for Géant in five Gulf states.
“There is a direct pressure to have high per square meter sales and make the best of every inch of space in the business. In cases where the rent is high, the decision [to open a store] is made on whether the location can generate a high rate of sales per square meter.”
To combat the problem of overpriced rents, analysts are calling for landlords to offer ‘turnover rent’ agreements, where retailers pay a base rate plus an additional fee subject to turnover.
“The one thing I would love to see is turnover rents,” said Attwell. “Some people hate it, but it is a much fairer way of doing things. The retailer benefits and so does the landlord.”
Cosmetic and perfume retailer Paris Gallery, some of whose rents are based on this arrangement, said retailers and mall operators needed to work more closely to increase footfall to offset rising costs.
“Very rarely shopping management is aware and understands what the retailer is going through, especially when it comes to their prices or when it comes to a slow trend,” said Mohammed Ar Al Fahim, Group CEO of the firm; “very rarely they understand, all they want is the rent.”
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