Tourism, shopping fuel economy while home values, office property collapse
(DUBAI) Dubai’s developers, battered by three years of falling prices for homes and offices, are seeking refuge in retail assets as shopping tourism powers the economy.
Nakheel PJSC, the government-owned company that restructured US$16.1 billion of debt last year, is expanding its Dragon Mart shopping centre and trying to raise funds for a cluster of restaurants and stores at the tip of its Palm Jumeirah artificial island. Dubai Mall owner Emaar Properties PJSC is getting an increasing share of its earnings from shopping assets as home completions fall.
‘Most developers are looking to build recurring revenues because there are so few property sales happening right now,’ said Patrick Gaffney, an analyst at HSBC Bank Middle East. ‘The sectors that are doing best are retail and hotels because of strong tourist arrivals.’
Dubai’s malls and shops have become more attractive after home values fell by more than 65 per cent from their 2008 peak while retail sales have been rising since 2009. Developers that don’t already generate significant revenue from shopping assets will struggle to get a foothold in the market because little is being built or sold and banks are reluctant to finance any type of development in the emirate, including retail, Mr Gaffney said.
Retail revenue in the United Arab Emirates probably increased 5.3 per cent last year to 113 billion dirhams (S$38 billion), Business Monitor International estimated. That will probably rise to 120 billion dirhams this year and 157 billion dirhams by 2015, it said.
Majid Al Futtaim Holding LLC, the operator of Carrefour SA stores in the Middle East, is the largest owner of shopping malls in Dubai. The closely held developer this month raised US$400 million selling Islamic bonds for the first time as part of a US$1 billion programme. Last month the company reported an 18 per cent increase in revenue in its home market and said 2011 was its most successful year since being founded in 1992.
Majid Al Futtaim priced its US$400 million, five-year Islamic bond, or sukuk, at a rate of 5.85 per cent on Jan 31. The yield rose 4 basis points since it started trading this month to 5.66 per cent on Feb 10. That compares with a 7.4 per cent yield for Emaar’s 8.5 per cent Islamic notes maturing in 2016. Emaar, Dubai’s second-biggest retail operator, also builds housing and offices.
Emaar reported that 41 per cent of revenue and 68 per cent of pretax profit came from hospitality properties and leased space including shopping malls in the first nine months of last year. That compares with 24 per cent of revenue and 27 per cent of profit a year earlier. Owning the Dubai Mall, the world’s largest with rentable space equivalent to 50 football fields, also helped the company when it used the asset as collateral to refinance 3.6 billion dirhams of debt at a lower price.
Retailers including American Eagle Outfitters, Limited Brands and luxury watch seller Rivoli Group are opening shops in Dubai as consumer confidence rises. Macy’s, the second-biggest US department-store company, in January 2010 chose the Dubai Mall to open its first Bloomingdale’s store outside its home market.
Prospects aren’t as bright for developers that haven’t built up retail assets. Union Properties PJSC, which is mainly focused on homes and offices, this month reported a full-year loss of 1.57 billion dirhams. The company in January handed over ownership of properties including some in Limestone and The Index to settle 1.1 billion dirhams of debt.
PJSC, partly owned by Dubai Islamic Bank PJSC, has 234 million dirhams of debt coming due this year, compared with about 37.7 million dirhams of profit in 2011. The company had a loss of 2.9 billion dirhams the previous year.
Shopping accounted for about 30 per cent of Dubai’s gross domestic product last year, Standard Chartered Bank economist Philippe Dauba-Pantanacce estimated. The Dubai Statistics Centre said retail and wholesale trade rose by 9.3 per cent and hotels and restaurants increased by 4.4 per cent in 2010. It hasn’t yet released figures for last year.
Nakheel is in talks with banks to raise at least 300 million dirhams for its first new project since the debt-ridden company received a government bailout in 2009. The Pointe at Palm Jumeirah, across the water from the Atlantis hotel, will include 120 restaurants, 75 shops and landscaped areas for visitors with a view of an offshore fountain.
‘The retail sector is strategic for Nakheel,’ chairman Ali Rashed Lootah said at a press conference in January. He added that 60 per cent of an extension to Nakheel’s Dragon Mart mall was booked by retailers within a week of its announcement. The company plans to add 1.7 million square feet of retail space and 5,000 parking spaces to the mall.
Emaar, which opened Burj Khalifa, the world’s tallest tower, in 2010, derived about 23 per cent of its 2011 income from retail rents and is now focusing almost exclusively in Dubai on growing sales at its malls, HSBC’s Mr Gaffney said.
Dubai, the second-largest of seven sheikhdoms that make up the United Arab Emirates, racked up US$129 billion in debt transforming itself into a tourist and trade hub. While many developments were cancelled, attractions including Burj Khalifa and resort hotels like the Atlantis help bring in visitors who shop for goods that aren’t available in much of the region.
‘The local population is wealthy enough to be able to keep buying and the tourism growth was very strong in Dubai last year,’ said David Macadam, head of retail for the Middle East and North Africa at Jones Lang LaSalle Inc. He said Dubai shopping is bolstered by visitors from the Gulf region, Europe, China, the Indian subcontinent and the rest of the Arab world.
Buyers spent US$114 million in the first week of Dubai’s month-long shopping festival, a 53 per cent increase over the year earlier period, according to Karim Beg, Visa’s head of marketing for the Middle East and North Africa.
Dubai has 2.58 million square metres (27.8 million square feet) of mall-based retail space, according to a report by property broker Jones Lang LaSalle. About 173,000 square meters will be completed in the next two years, mostly in small shopping centres or strip malls, it said. — Bloomberg
Source: Business Times 14 Feb 2012