RESEARCH

UAE INDUSTRIAL &LOGISTICSRESEARCH REPORTH1 2015

RESEARCH

A MARKET SNAPSHOT IN THE EVOLVING UAE RETAIL LANDSCAPE

RETAIL FOCUSRESEARCH REPORTAUTUMN 2015

RETAIL SUPPLYAs the UAE witnesses additional upcoming supply (Dubai and Abu Dhabi), the retail market needs to mature and position existing and future supply. With an existing and upcoming supply of over 10 million sq m (107 million sq ft), the retail provision per capita continues to be one of the highest in the world.

• The decline of oil prices and a strengthened US $ against many of the world currencies is affecting the overall spending of residents and tourists.

• However, the growth expected in the UAE’s non-oil economy over the next 5 years is an unmistakable opportunity for international retailers.

• As per the IMF, non-oil growth in the UAE is projected to slow to 3.4% in 2015, before increasing to 4.6% by 2020, supported by the

Please refer to the important notice at the end of this report

Yas Mall

Al Maryah Central

Retail supply ⬈Retail demand ➡

Consumer confidence

Estimated rental values ➡

Mall occupancy

Market growth

Source:Knight Frank Research

FIGURE 1 Dubai & Abu Dhabi Market Indicators

Mid-market

implementation of mega-projects and private investment in the run-up to Expo 2020.

• The wholesale and retail sector is estimated to account for 29% of Dubai’s total GDP and 25% of the total workforce.

• UAE population is forecast to increase by almost 20% from 2015-2020. Tourism is a key driver of shopping figures and is rising sturdily with almost 40% of Dubai Mall’s footfall in 2014 accounted for by non-residents.

Dubai Design District (d3) Phase 2

Dubai Recent retail development/supply in Dubai has focused on new mall expansion projects (such as Mall of the Emirates and Ibn Battuta) while other projects included community focused, niche shopping centres such as d3 and Me’aisem City Centre.

The recent expansion of Mall of the Emirates and Dubai Mall also indicates the continued demand for super regional malls in Dubai as well as the repositioning of the tenant mix.

The Mall of the World, a 743,000 sq m (8 million sq ft) master planned development in the heart of Dubai,

Abu Dhabi Abu Dhabi’s supply continues to be focused on larger projects including regional malls, such as Reem Mall and Maryah Central. This is in addition to planned mall expansion projects such as Marina Mall.

Abu Dhabi retail is currently segmented with c.10% community retail and c.80% regional and super regional. This clearly highlights the significant change in retail format since 2012, when super regional malls did not exist and regional malls were more primitive in their offering.

Yas Mall, which opened in late 2014 provides Abu Dhabi with a new super-regional mall (238,000 sq m) which, with surrounding attractions such as Yas Waterworld and Ferrari World, will help ease off the flow of residents to Dubai, as well as attract tourists to the capital. Abu Dhabi continues to witness the delivery of new hotel developments which is creating potential demand from leisure and business visitors alike (Figure 4).

Source:Knight Frank Research

4,000,000

3,500,000

3,000,000

2,500,000

2,000,000

1,500,000

1,000,000

500,000

0

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

FIGURE 4 Total Mall Supply, Abu Dhabi

Existing Upcoming

Current supply

RESEARCHUAE RETAIL RESEARCH REPORT

DUBAI AND ABU DHABI RETAIL DEMANDRetail demand in the Emirates will be driven by resident population growth and tourism from the Gulf and beyond.

UAE retail sales are set to grow by 32.9% from US$ 31 billion in 2011 to US$ 41.1 billion in 2015.

The UAE’s population is 9.5 million and is expected to grow to c. 15 million by 2050 according to the United Nations (Figure 5). Higher consumer confidence and disposable income amongst Emirati’s and expatriates, compared to other retail hubs, has helped the UAE to develop a burgeoning retail sector.

The GCC nations, the top source of UAE’s inbound shopping tourists, have a high GDP per capita (Purchasing Power in Parity) with an average of US$ 69,792 across the six nations. This has the potential to be translated into high consumer spending.

However, lower oil prices and imple-mentation of potential taxation policies could impact the retail spend in H2 2015

and 2016. This may be reflected in the Nielsen Consumer Confidence Index, which has fallen by 8 basis points in the first three quarters of 2015 (Figure 6).

The importance of air traffic to the UAE is significant for retail growth; Dubai International overtook London Heathrow as the world’s busiest airport with c. 70 million passengers and Abu Dhabi increased to over 20 million passengers in 2014 (Figure 7). Both cities must develop their infrastructure, tourism and retail offering to increase overnight stays as well as increase the retail conversion rate.

Dubai currently witnesses an average visitor stay of 3.8 nights compared to an average of 7.7 nights in London. A total of 13.2 million foreigners headed to Dubai in 2014, an increase of 8.2 % compared with the previous year.

The Dubai Expo 2020 is seen as future growth for tourism (20 million tourists per annum by 2020) and retail demand which will be a focus for retailers expansion.

Dubai has seen a 41% rise in Iranian visitors in 2014. The lifting of the Iranian sanctions is envisaged to directly impact trade and tourism in Dubai leading to greater expenditure. While the flow of Iranian tourists, businesses and goods will help increase retail returns, potential growth of resident spending is expected to prevail against the overall falling number of tourists this year.

Abu Dhabi has seen a 14% increase in guest nights in 2015 to August compared to the previous year. The total number of guests increased 20% over the same period highlighting the resilience of tourism in the Emirate. It is noted that although Russian visitors, usually associated with luxury retail spending, declined by 10%, Chinese tourists increased by 68%. These figures strongly suggest that tourism and spending in Abu Dhabi is on the rise.

Retailer insight• A number of brands operated in

the UAE are controlled by the larger retailer groups. Between them the largest five companies franchise or operate in excess of 350 brands.

• An indicative portfolio is weighted

Source:Knight Frank, A.T. Kearney, Nielsen, Dubai International Airport, BMI, Abu Dhabi Tourism Authrortiy

FIGURE 7 Historic & Forecast Passenger Movements

Source:: Abu Dhabi Airports Company, Dubai Airports

100

80

60

40

20

0

Pass

enge

r Mov

emen

ts (M

illion

s)

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

98

3229262320171512111097

8983

7770

6658

5147

413734

Dubai International Airport (DXB)

Abu Dhabi International Airport (AUH)

2020

FIGURE 5 Dubai & Abu Dhabi, Population (2014-2020)

Sources:Knight Frank Research, Statistics Centre of Abu Dhabi (SCAD), Dubai Statistics Centre (DSC), United Nations (UN)

2014 2015 2016 2017 2018 2019

4,500,0004,000,0003,500,0003,000,0002,500,0002,000,0001,500,0001,000,000

500,0000

ForecastAbu Dhabi

Dubai

highlights the potential growth for the retail sector in Dubai at the super-regional level and the high level of confidence held among developers. The development will be completed in phases to meet the evolving retail and tourism market for the region.

The Dubai retail market continues to be dominated by super-regional malls, representing 52% of the existing supply, whilst new developments focus on regional and community retail projects accounting for 12%. The latest trend is toward a mid maket retail offering which caters to the resident population while destination malls, in addition to that, target inbound tourists.

Al Maryah CentralLocated on the master-planned, Al Maryah Island, the new financial free zone of Abu Dhabi.

Al Maryah Central will be a 150,000 sq m (1.6 million sq ft) development which will be integrated with the existing Galleria, a 24,000 sq m (258,000 sq ft) luxury mall.

Scheduled to open in 2018, the project has commenced ground works and will become the pre-eminent urban shopping destination in Abu Dhabi.

The mall will comprise over 400 stores; incorporating the first Macy’s in the UAE and the first Bloomingdales in Abu Dhabi, as well as cinema, entertainment centre, food hall and sports area.

The project is master planned to incorporate a hotel and residential tower to complement the existing ADGM Square which consists of five office buildings and two hotels; in addition to the Cleveland Clinic and Al Maryah Tower which are completed on the island.

FIGURE 6 Nielsen - UAE Consumer Confidence Index

Source:Nielsen

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

Q3

2014

Q4

2014

Q1

2015

Q2

2015

Q3

2015

116

114

112

110

108

106

104

102

FIGURE 3 Total Hotel Guest Nights (2007-2014), Abu Dhabi

Source:Abu Dhabi Tourism Authority (ADTA)

2007

2008

2009

2010

2011

2012

2013

2014

8,789,215

10,463,137

4,275,063

4,673,494

4,318,504

5,132,323

6,269,682

6,996,724

Dubai Design District (d3)d3 is a three phase master-planned mixed use development, comprising office, residential and retail accommodation, providing the creative industries with a hub in the heart of Dubai.

Phase 1 handover was completed in October 2015 with eleven buildings and over 18,000 sq m (200,000 sq ft) of retail ready for occupation.

The street level retail inspiration will provide an alternative shopping experience to malls and will offer a unique all-day destination for office workers and visitors alike.

The retail element is focused on incubating new-to-market brands and concepts, which can benefit from 100% foreign ownership within the free zone.

The Creative Community (the phase 2 element currently under construction) will provide a collaborative mix of workshop, design studio, mezzanine office and ground floor retail space to create a genuine work/play destination. Expected delivery 2018.

Source:Knight Frank Research

27% toward F&B which has been seen as an attractive sector in the UAE.

• There is growth in home grown brands for both F&B and apparel which is creating a new market

segment and is dynamic within the retail scene, with particular emphasis on concept store creations.

• Retailers are looking to community mall projects to help facilitate expansion within the Emirates.

• Changes in consumer spend such as a fall in Russian tourists, Chinese spend (currency fluctuations) and lower oil prices, have contributed to a reduction in luxury goods spend. However, double digit growth of tourists from emerging markets, the potential effect of Iran’s economic comeback and the increase in resident spend should all translate to an increase in retail spending.

• Growth of retail sales is expected at 5% in 2015, while leasing rates over the next quarter are expected to stabilise for retail accommodation.

7,000,000

6,000,000

5,000,000

4,000,000

3,000,000

2,000,000

1,000,000

0

FIGURE 2 Total Mall Supply, Dubai

Existing Upcoming

CurrentsupplyG

LA (s

q m

)

GLA

(sq

m)

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

RESEARCHUAE RETAIL RESEARCH REPORT

FIGURE 10 Existing Retail Developments Split by Type (2014), Abu Dhabi

FIGURE 11 Upcoming Supply, Split by Retail Type (2015-2025), Abu Dhabi

Source: Knight Frank ResearchSource: Knight Frank Research

Convenience

Neighbourhood

Community

Regional

Super-regional

Neighbourhood

Community

Regional

Super-regional

FIGURE 8 Existing Retail Developments Split by Type (2014), Dubai

FIGURE 9 Upcoming Supply, Split by Retail Type (2015-2025), Dubai

Source: Knight Frank ResearchSource: Knight Frank Research

Convenience

Neighbourhood

Community

Regional

Super-regional

Neighbourhood

Community

Regional

Super-regional

52%24%

13%

9%2% 3%

8%

1%

88%

1%7%

11%

36%

45%

36%

12%

8%

44%

Knight Frank Research Reports are available at KnightFrank.com/Research

AGENCY - Abu DhabiMatthew DaddPartner+971 56 6146 087Matthew.Dadd@me.knightfrank.com

AGENCY - DubaiWilliam Neill Partner+971 56 4202 312William.Neill@me.knightfrank.com

DEVELOPMENT CONSULTANCY & RESEARCHHarmen De JongPartner+971 56 1766 588Harmen.DeJong@me.knightfrank.com

Diaa NoufalAssociate Partner, MENA Research+971 56 4552 747Diaa.Noufal@me.knightfrank.com VALUATIONSStephen FlanaganPartner+971 50 8133 402Stephen.Flanagan@me.knightfrank.com

CAPITAL MARKETSJoseph MorrisPartner+971 50 5036 351Joseph.Morris@me.knightfrank.com

UAE RESIDENTIALMaria MorrisAssociate Partner+971 56 4542 983 Maria.Morris@me.knightfrank.com

INTERNATIONAL RESIDENTIALVictoria GarrettAssociate Partner+971 56 7835 523 Victoria.Garrett@me.knightfrank.com

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