The GCC countries enjoy some of the highest GDP per capita levels in the world and this general wealth enables the retail market to achieve growth rates typically not found in mature markets such as the US or the UK, a report said.

This has allowed the market to evolve, moving into a more refined, experience-based environment, which is likely to remain the basis of successful retail in the region, added the report “GCC Retail Growth” from PKF The Consulting House (PKF-TCH), a leading business advisor to the hospitality, tourism, leisure and real estate sectors based in Dubai.

“It goes hand in hand with the influx of tourists to destinations such as Dubai and thus the need to create integrated retail destinations for visitors to enjoy,” explained Jobby M Rajan, a consultant with PKF-TCH.

Time has changed and traditionally retail developments (souq/bazaar/shopping strip) in the region have now evolved to compete globally, he said.

Gross leasable area (GLA) per capita in UAE cities and Jeddah ranges from a minimum of 0.23 sq m to a maximum of 1.16 sq m and Dubai is the regional leader and most mature market. This shows that several major GCC cities offer significant growth potential when compared to Dubai or other global counterparts.

Dubai, despite having retail GLA per capita 4.5 times higher than UK average, could still accommodate an additional GLA of 2 million sq m to reach comparable US levels. This is particularly true as tourists are a major end user segment for retail in the Emirate.

So, how much is “too much”? As a rule of thumb, three key factors commonly studied in-depth to drive decision making if a market has reached saturation levels:

1. GDP per capita, representing the spending power of local population;

2. Tourist retail spends, representing the tourism-related additional retail potential; and

3. Current local GLA per capita compared to that of mature markets.

Dubai stands out compared to other traditional retail markets due to the fact that it also caters to a high influx of tourists, which exceeds its resident population by nearly six times. According to a recent MasterCard survey, 40 per cent of the tourists landing in Dubai are driven to the Emirate with shopping as their primary purpose of visit, therefore significantly enlarging the local resident retail 'base'.

When considering the cumulative resident and tourist shoppers, Dubai's retail GLA per capita would actually equate to a low 0.35 sq m and thus indicating a solid demand potential for additional retail space in the Emirate.

Demand is further supported by a high level of expatriates (85 per cent) in the population and a very high spending power amongst white-collar workers.

With maturity levels still behind those of the US and other global markets, developers in the Middle East continue their expansion plans for modern retail malls in order to cater to the local pent-up demand. In addition to traditional shopping centers, new mixed-use developments often include extensive retail components, which ultimately add to competitive landscape.

In order to differentiate supply, avoid cannibalization and drive additional footfall, a new generation of malls often focuses on concepts, such as FEC’s (Family Entertainment Centre’s) and a wide range of Food & Beverage (F&B) offerings as well as key tourist attractions with a “wow” factor, in order to appeal to their identified target segments.

“But in reality these developments are uniquely positioned 'destinations' with core attractors added to what is no longer just a mall: ski slopes, ice rinks, aquariums, zoos, architectural landmark designs and more,” said Rajan.

GCC countries’ retail sectors are growing at differing rates, with Dubai continuing to take the lead as the best practice within the region. Whilst the table above shows that GDP growth in Qatar, Bahrain and Kuwait is projected to exceed that of the UAE, the retail GLA per capita – especially in Dubai – is going to be significantly ahead of other MENA locations, especially with recent major mall announcements, including the “Mall of the World” project for some time to come.

As the prominence of malls grows, gauging the right amount of retail space and footfall drivers will help developers to put a long-term strategy in place, which will ensure that new mall supply evolves alongside future consumer demand trends.

Rajan cautioned that dependence on oil and the impacts of price fluctuations (and ongoing low rates as forecasted for the short-term) have already affected local economies, leading to GDP growth decreases.

On top of this, the potential introduction of VAT and corporate tax (in some GCC countries) in the near future will probably affect spending patterns of the local population and therefore enhance the retail sector's dependence on tourism demand (which also currently experiences challenges in its own rights, e.g. weaker currencies in some of the source markets).

Notwithstanding with entertainment activities differing from many Western countries (Gulf markets typically see 'shopping' as a key leisure pastime), the future of the retail sector remains buoyant.

With all countries showing increases in population and tourist arrival growth and the fact that tourists commonly spend at higher levels than residents do, the forecasted increase in arrivals could be sufficient to offset any potential decreases in local spending.

GCC countries seem to be moving in this direction with Dubai getting closer to its objective of reaching 20 million tourists by 2020, Oman aiming at 12 million over the same period, Qatar for 7 million by 2030 whilst Saudi Arabia is forecasting to 30 million (including religious) tourists by 2025.

All of this will firmly support a shift in the current real estate paradigm towards retail becoming increasingly dependent on future tourism patterns - as for hospitality before. Yet, with a track record of superlatives, the audience in the GCC region is spoilt – hence, mega and giga malls with increasingly more unique attractions wrapped around them are the trend and architects and designers will retain a promising playing field.

“New markets such as Iran will offer the next big opportunity – so watch this (geographic) space,” Rajan concluded. – TradeArabia News Service