Players adjust to retail trends while adding to Abu Dhabi's mall supply

With a strong pipeline of retail space under construction, including major regional destination malls and shopping developments to serve untapped communities, Abu Dhabi’s consumers can look forward to new experiences, fresh brands and greater choice. Existing operators are re-thinking mall management to give more prominence to food and beverage outlets, such as fine dining and the latest fast-food concepts, to reflect the changing tastes of a cosmopolitan population.

Licensed Traders

Retail has a key role to play in the business environment as part of the emirate’s strategic shift towards a more diversified economy as described in the Abu Dhabi Economic Vision 2030. Entrepreneurial Emiratis are currently behind many of the enterprises that form the bedrock of the sector. Data published by the Abu Dhabi Business Centre (ADBC) – a central point of contact between investors and government entities under the Abu Dhabi Department of Economic Development (ADDED) – showed a 3.6% increase in new economic licences in 2017, rising from 9089 the year before to 9412, and a 5.9% increase in economic licence renewals, growing from 77,706 in 2016 to 82,325 in 2017. Registered economic licences from all three regions of the emirate rose by 178% to 116,986, which includes 94,599 commercial licences.

Furthermore, the number of e-transactions completed on the ADDED website and the ADBC’s App also rose significantly to 149,300, up from 53,632 in 2016. In 2018 ADDED said it would work with the Telecommunications Regulatory Authority to issue electronic trade licences to encourage and control e-commerce. The department said existing traders would be allowed to add electronic trading activities to their existing licences and that official recognition would create greater trust between traders and consumers operating through websites or social media.

Sector Significance

According to the latest data from Statistics Centre - Abu Dhabi (SCAD), in 2016 retail and wholesale trading accounted for approximately 5.9% of GDP, 8.1% of non-oil GDP, and its gross output and capital formation equated to 8.4% and 0.5% of GDP at current prices, respectively. In 2016 total compensation of employees in the sector grew to Dh14bn ($3.8bn) compared to Dh13.1bn ($3.6bn) in 2015, and up from Dh8.3bn ($2.3bn) in 2010. In 2016 the sector accounted for 4.7% of all employment; 3.5% of male and 1.5% of female citizens’ jobs; and 5.8% of male and 1.1% of female non-citizens’ jobs.

Regulation

Retailers operating in Abu Dhabi require licences from ADDED, but are also subject to a wider regulatory framework enforced by agencies including the Ministry of Interior, the Abu Dhabi Food Control Authority and the Department of Municipal Affairs and Transport. In recent years these government entities have worked together to address the operations of small, independent baqala (grocery) stores in an effort to protect consumer rights and enforce food safety and handling standards across the emirate.

Implementation of new regulations began in the Abu Dhabi City region and was subsequently applied in Al Ain, with store owners given until July 2017 to comply or close down. The rules were introduced in the Western region in October of that year. The retail oversight project identified 1366 baqala stores in Abu Dhabi City and within a year over half had complied with the new standards, and the remainder were closed down. A new corporate image was created with a baqala logo that was to be used on all of the signage and uniforms of approved stores, with a space on the front of each sign for the individual name of the shop.

It is hoped that these higher standards will create investment opportunities for Emirati citizens and an attractive environment for global retailers interested in operating convenience outlets selling and delivering food, drinks and other necessities. Although the federal Ministry of Economy had pledged to review the UAE Commercial Companies Law in 2018, foreign companies operating in most sectors outside free zones must give local partners at least 51% of the equity of any business established to trade in the country. In practice, the international retail brands seen in Abu Dhabi’s malls have traditionally either formed joint ventures with local partners in Abu Dhabi or sold exclusive franchising licences to UAE companies such as Majid Al Futtaim, Ahmed Seddiqi & Sons and retail groups including Landmark, Rivoli and Apparel.

Value-Added Tax

In January 2018 a 5% value-added tax (VAT) was applied to rents and services in malls as well as to goods sold in shops, but a number of operators have said most stores and consumers have taken the new tax in their stride. “VAT has had a very minimal impact on retail spending and I don’t think the new tax has had a major impact on shopping trends,” Bassel Zein, head of leasing at Marina Mall, told OBG.

Furthermore, the Middle East Council of Shopping Centres (MECSC) reports a similar response to the tax in malls across Abu Dhabi. “In our organisation we have found it is business as usual, but perhaps people buying cars or other bigger ticket items such as home furnishings or white goods will tell you that some customers have become a bit more cautious,” David Macadam, CEO of MECSC, told OBG. Data from SCAD comparing prices for the first seven months of 2018 to the same period in 2017 showed an overall increase in the consumer price index of 3.8%, with prices rising for food and beverages by 3.3%, clothing and footwear (15.9%), transport (9.9%), and furnishings and household equipment (5.1%). The impact was tempered by a 3.5% fall in housing and utility prices.

Mature Malls

In terms of the number of malls and shopping districts in the emirate of Abu Dhabi, the MECSC 2018 Directory lists 37 existing malls, eight planned malls and one mall undergoing expansion, with seven of the established malls located in Al Ain.

The vast majority of the emirate’s shopping centres have opened in the 21st century, and more than a dozen developers and retail businesses have been behind their construction. Sheikh Suroor bin Mohammed Al Nahyan, a senior member of Abu Dhabi’s ruling family, is the owner and developer of two of the emirate’s most iconic mixed-use developments: the World Trade Centre Abu Dhabi and Etihad Towers. In April 2001 the 220,000-sq-metre Abu Dhabi Mall opened, with 232 retail, food and entertainment outlets over four levels, and a gross leasable area (GLA) of 76,000 sq metres. In 2012 the Avenue at Etihad Towers began operations, and is home to 38 luxury boutiques and food outlets spread over 6900 sq metres of GLA.

Real estate developer Aldar Properties, headquartered in the emirate, has built nine malls in the Abu Dhabi region alone. One of its largest and busiest developments is Yas Mall on Yas Island, which reported 18m annual visitors in 2017 to its 376 outlets, eateries and entertainment venues. The mall is built on three levels with 220,768 sq metres of GLA. The mall at World Trade Centre Abu Dhabi, meanwhile, has 234 outlets sharing a GLA of 78,252 sq metres with an annual footfall of 12.9m in 2017. Many of Aldar’s other malls service its developments, such as the seven stores and eateries at Al Bateen Park to the 100 outlets in Shams BOUTIK at the foot of Sun and Sky Towers on Al Reem Island.

Some industry players in Abu Dhabi have chosen to operate just one mall, and in some cases these are regional or super-regional shopping centres. The mixed-use development Bawabat Al Sharq Mall, which has 7m visitors annually to the more than 300 outlets occupying its 148,000-sq-metre site in Abu Dhabi City, was built by Baniyas Investment & Development Company and opened in December 2011. The developers, a joint venture between Al Hail Holding and Investment Holding, opened the Dalma Mall in October 2010, with 450 outlets on a 255,000-sq-metre site, a GLA of 151,000 sq metres and an annual footfall of 16.5m.

National Investment Corporation built the 400-outlet Marina Mall, which has 16m visitors a year to its 235,000-sq-metre site, while Mubarak & Brothers Investments is behind the Deerfields Mall, which has 80,000 sq metres of GLA. Government-owned entities Mubadala Real Estate & Infrastructure and the Tourism Development & Investment Company (TDIC) are behind luxury retail centres at the heart of new planned communities. TDIC opened nine waterfront stores and eateries on Eastern Mangroves Promenade in 2013 and 28 units occupying 7000 sq metres of GLA at The Collection shopping mall, near St Regis Saadiyat Island Resort. Mubadala Real Estate & Infrastructure and Gulf Related built and manage The Galleria, a 53,000-sq-metre mall with 130 outlets on two levels that was opened in August 2013.

Lulu Group

Abu Dhabi is home to one of the region’s biggest home-grown retail success stories, with LuLu Group International growing from one small shop in the 1970s into a diversified business with an annual turnover of $7.4bn, and over 48,600 staff across 152 hypermarkets in 31 countries in 2018. Furthermore, the company is building several new shopping centres in India and Saudi Arabia, among other countries. LuLu Group has hypermarkets anchoring many malls, and also develops and manages its own shopping centres, such as the 305,000-sq-metre Al Wahda Mall, which sees 30m visitors annually, and Madinat Zayed Shopping Centre and Gold Centre.

Other Regions

The Al Ain and the Western region are also home to a range of shopping centres. LuLu Group maintains the Ruwais Mall and Barari Outlet Mall, which currently have annual footfalls of 2.6m and 2.2m, respectively. Aldar Properties operates the Al Jimi Mall in Al Ain, with current expansion pegged for the fourth quarter of 2018.

Currently, Al Jimi Mall has 187 retail outlets, while ADCOOPS opened the Makani Zakher Shopping Centre in Al Ain with 84 outlets in August 2017. Al Ain Mall Management owns and operates the Al Ain Mall, a 232,350-sq-metre development with 13.5m visitors a year that was opened in 2001 and subsequently expanded in 2011 and 2017. Bawadi Mall, which has 400 outlets, was developed by Nayel & Bin Harmal Investment, while Hili Mall has 161 retail outlets over three levels and an annual footfall of 4.8m.

Community-Based

New mixed-use communities are being developed with construction under way on a combination of super-regional destination malls and retail, dining and entertainment districts. For instance, Manazel Real Estate began redeveloping Capital Mall in 2017, and once completed the 250,000-sq-metre development will sit alongside a hospital, hotel and residential properties. Al Maryah Central (AMC), a $1bn 267,677-sq-metre super-regional mall, is managed by Gulf Related. Across The Galleria and AMC, there will be 500 tenants, as well as a 21-screen VOX and IMAX cinema. “An Insight study commissioned by Gulf Related reported that 90% of people in Abu Dhabi visit a mall once a week, and we see that as a fundamental reason to be confident about the future of retail,” Kevin Ryan, managing director of Gulf Related, told OBG.

Increased Mall Offering

New malls coming to Al Reem Island include Paragon Bay with 24,155 sq metres of GLA that is being developed by Tamouh, and the 270,000-sq-metre Reem Mall from Al Farwaniya Property Developments. On Yas Island, West Yas Mall will be a 3000-sq-metre community mall and is being developed by Miral Asset Management. Abu Dhabi’s iconic green development, Masdar City, will feature the My City Centre Masdar mall. Majid Al Futtaim is developing the shopping centre there with 18,725 sq metres of GLA. However, although the number of malls under construction demonstrates a high level of overall confidence in the market’s dynamics, the reduction in the expatriate workforce witnessed from 2016 to 2018 has created concerns among some industry players that retailers in newly completed malls may find themselves competing for a shrinking market.

Changing Habits

Many existing malls and new developments are giving increased space to food outlets, with MECSC noting food and beverage outlets have risen from 10-15% of mall space to 19-25% in some places. Furthermore, expansion plans at Marina Mall Abu Dhabi will add some 300,000 sq metres, with much of it given over to fashion and food. “People who come to the malls want to eat and be entertained, so the proportion of food and beverage is growing as the mall is not only a place to shop,” Zein told OBG.

E-Commerce

The UAE saw some significant developments in online retail in 2017 with Amazon paying $580m for souq.com. In addition, investors led by Mohamed Alabaar, chairman at Emaar Properties, launched noon.com as a $1bn retail platform initially serving Saudi Arabia and the UAE. Traditional brickand-mortar retailers in Abu Dhabi know the potential threat of e-commerce cannot be ignored, but they remain optimistic that they can adapt and continue to flourish alongside online marketplaces.

“Reviewing surveys on the impact of online shopping on the apparel sector and found that while approximately 3-5% is being purchased online in this region, compared to 9% in the US, we still have some way to go to match US shopping behaviour,” Macadam told OBG. Zein notes that it is difficult to measure the full impact of new omni-channel retail alternatives. “We think of e-commerce as an enhancement of existing retail rather than a competitor,” Zein told OBG. “As a result of the research people can do online before they shop or dine, retailers must be aligned with the requirements of these new customers.”

Outlook

The global real estate consultancy JLL noted in its “2017 Year in Review” report for the UAE that even as new supply was being built in Abu Dhabi, rents in the retail market were stable at an average of Dh3000 ($817) per sq metre, due to lower spending, with contributing factors including the strength of the US dollar, which is pegged to the Emirati dirham, and a reduction in population as a result of the austerity measures introduced after the global fall in oil prices. It noted the total supply of GLA in Abu Dhabi had remained around 2.6m sq metres from 2015 to 2017, and anticipated approximately 75,000 sq metres would be added in 2018 and 200,000 sq metres by the end of 2019. “I am very optimistic about retail in Abu Dhabi in the mid-term when you consider the growth in the local population, the fact that 60% are under 30, and the high GDP per capita,” Macadam told OBG.