The GCC retail industry is poised for a healthy growth. “The retail industry has been one of the fastest growing sectors in the Middle East for the last few years. It is the second largest sector in the oil-rich GCC region, and is considered to be the most preferred means of promoting diversification and sustained economic development in the region”, said Sameena Ahmad, Managing Director of Alpen Capital.
The forecast retail sales in the GCC to grow at a CAGR of 8.3 percent between 2010-2015, reaching $240.3 billion by the end of the forecast period. Growing per capita GDP and disposable income, expanding population base and consistent inflow of tourists will boost the region’s retail sector going forward. Retail sales of supermarkets and hypermarkets in the GCC are estimated to expand at a CAGR of 10.7 percent between 2010 and 2015, thus outpacing the broader retail industry.
Given a larger size of the population base, Saudi Arabia will continue to account for the largest slice of the GCC retail industry.
Based on projections, Saudi Arabia is forecast to grow at a CAGR of 9.4 percent and increase its share in the total GCC retail sales from approximately 42 percent in 2010 to 44 percent by 2015. UAE and Qatar are expected to show a robust growth at 7.9 percent and 7.7 percent respectively CAGR between 2010-2015.
Approximately 5.4 million sq m of area was under planning and development in 2010 in the GCC, which is likely to be gradually added to the existing GLA of 10.3 million sq m by 2015. As per our projections, around 65 percent of the pipeline will be added to the current stockpile by 2013. Assuming an 80 percent occupancy rate (Medium Growth scenario), total occupied retail GLA in the GCC is forecasted to reach 11.1 million sq m in 2011 before expanding to 14.6 million sq m in 2015.
Current demand for high quality retail space remains strong in the GCC and new shopping malls are likely to enjoy healthy absorption rates. The demand and supply factors therefore seem to be in balance and we believe that supply of new GLA in the future will be sufficient to meet demand for retail space over the next five years.
There are several factors that are contributing to the growth of the retail sector. Largely urbanized consumer class with a young age profile is likely to drive demand in the retail market. The number of high net-worth individuals in the Middle East increased 10.4 percent y-o-y in 2010, while their financial wealth increased 12.5 percent during the same period. The number of individuals in the GCC with more than US$ 50,000 in onshore liquid assets is expected to increase and this will also contribute to the growth of the retail industry.
The region has seen substantial investments in the development of world class infrastructure, tourism, and hospitality sectors. Saudi Arabia is expected to see 9.3 million new visitors between 2011 and 2015, while there will be approximately 3.6 million new arrivals in the United Arab Emirates (UAE) during this period. There are a growing number of tourists from China and India and Chinese travelers have increased their total spending in the UAE by 155 percent y-o-y. in 2010. Various retail categories including the luxury segment are witnessing a robust demand from Chinese tourists.
Strategic geographic location and government focus on attracting tourists have given a massive boost to the growth of passenger traffic in the GCC. Apart from overnight tourist arrivals, the region’s airports are also witnessing a significant inflow of international transit passengers, making airport retail a flourishing business. Dubai Duty Free is already the single largest airport retailer in the world and Qatar Duty Free has also shown a very high growth rate.
The retail sector is witnessing increased competition which has posed several challenges to companies in this highly fragmented market to maintain market share and keep attracting patrons. Heightened competition has forced retailers to consider product diversification, attractive pricing, and convenient location. Positioning shopping malls as complete entertainment centers and not just as shopping outlets have become imperative to maintain increasing footfalls.
There is a shortage of skilled labor in the GCC region and it is a challenge for the companies to attract and retain a qualified work force. Further, stricter norms for issuance of new credit cards and lowering credit limits not only curbs the discretionary consumer spending but also impacts the overall consumer confidence. Cost of leasing retail space accounts for a significant portion of the overall costs for retailers. As the economy is moving back on track, rents are expected to increase thereby reducing retailer margins and creating a new set of challenges for them.
Consumer demand for luxury and discretionary goods is set to increase at a faster pace in the near future on the back of improving economic growth, high oil prices and pent-up purchases.
Development of the retail space has been mostly restricted to the main regional cities namely, Dubai and Jeddah. Other important cities like Abu Dhabi, Doha and Makkah & Medina have historically experienced a shortage in development of retail space. However, with significant development plans in place for these other cities, the GCC’s retail sector is expected to experience a more balanced expansion in the retail space going forward.
Online retail is a relatively new concept in the GCC retail market however, online sales in the Middle East have registered a significant growth, and are believed to hold a strong potential in the future. “We expect the GCC retail sector to continue its pace of growth leading to diversification and sustained economic development in the region,” the report said.
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