As rents drop, some UAE retailers find this is 'best time to expand'

Originally published on Jan 07, 2021 | Gulf News

It’s not only apartment rents that are under intense pressure in Dubai – even rates for ground floor stores are dropping. Even by as much as half in the same location as retailers rush to book space on terms that would have been deemed impossible even a year ago.

Landlords are even willing to consider longer term leases to retailers, which too is a first in that category of the retail market. “We are talking about fixed contracts for five or six years as against the annual renewals of the past,” said Dhananjay Datar, Chairman and Managing Director at Al Adil Group, which is opening four locations this month, including one in Abu Dhabi.

“These are on offer at established and emerging locations in the city – the way I see it, this is the best time to expand in street locations. And if retailers can convince landlords, ensure these lower rental costs are carried forward for years.” (Al Adil operates more than 40 locations now, and Datar confirmed there are no moves to exit any of the current ones.)

More to fill up

Landlords are willing to listen… and be convinced. At least when setting terms with new retail tenants.

This is a crunch year for high-street retail as well as new retail space coming up as part of new buildings and communities. More supply will keep pushing rents lower, which is exactly what’s happening in the residential space.

“As new buildings are delivered, no developer wants to see vacant stores greeting potential tenants for the apartments,” said an estate agent. “This is why it’s so important to have a highly rated retail brand as an “anchor” tenant on the ground floor.

“These days it’s not retailers chasing landlords to pick up space and thus cater to residents in a building or community. Landlords want them to better convince prospective apartment tenants they should rent there. Vacant ground floor spaces will impact prospects.”

Picking up

It’s not as if the pandemic happened and suddenly landlords started getting all generous on their rental terms. The drop in retail rents first started showing up in the final weeks of 2020, especially when negotiations started for newly delivered buildings.

Prior to that, landlords were not in the mood to slash rents, and only willing to give rent waivers for the months when commercial activity was suspended to counter the COVID-19 spread. But it was a stance they could not continue with as market realities became amply clear.

By then, developers/landlords too realized that given the market situation, they will have difficulty in getting enough demand to fill up the apartments. If a newly delivered mid- to high-rise building picks up 40-50 per cent occupancy on the residential side, it would have done well.

Despite the grim realities, landlords are yet to show a flexible mindset

- Deepak Soni of Marhaba Jewellers

But Deepak Soni, CEO of Marhaba Jewellers, one of the city’s oldest names in the trade, feels only new retail tenants are benefitting from this landlord generosity.

“What we are seeing is that they don’t budge much when negotiating with existing tenants,” said Soni. “Despite the grim realities, landlords are yet to show a flexible mindset.”

Exits and entries

This reality is in evidence at the Deira Souq, where rents in the last nine months have dropped on average by 5-20 per cent. But vacated premises are signing up new tenants at 25-30 per cent lower rents.

“For now, there are so many locations showing sharp rental differences, even between adjoining buildings,” said Datar. “But it can’t continue for long… rent drops will become uniform, and that’s why retailers offering in-demand services should be adding more now… than later.”

 

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