New Developments to Spur Growth in Abu Dhabi’s Retail Sector

Improving economic conditions, increased tourism numbers and the launch of two major development projects are forecast to support growth in Abu Dhabi’s retail sector, especially within the food and beverages (F&B) segment.

In late April it was announced that construction work had began on the $1.2 billion Reem Mall, a mixed retail, leisure and entertainment center located on Reem Island in Abu Dhabi.

Developed by local company Al Farwaniya Property Developments, the new mall will have more than 185,000 square-meters of gross leasable area available when it opens in late 2020. The site will include around 450 stores, along with other attractions such as a cinema, children’s entertainment area and the world’s largest indoor snow park.

A series of local, regional and international brands will have a presence in the mall, including the UAE’s Vox Cinemas, Middle Eastern fashion line Centrepoint, UK-based clothing store New Look and French hypermarket chain Carrefour.

The mall’s location on Reem Island, which is being developed as an upmarket residential district with a projected population of around 200,000, is expected to drive footfall, with local residents as well as visitors from elsewhere in the emirate coming there to shop.

Another development that will bolster offerings is Al Maryah Central, a 260,000-square-meter retail and leisure project on Al Maryah Island. With construction work 85 percent complete as of early May, the center is set to open its doors by the end of the year, hosting 400 retail stores. A key tenant will be US retailer Macy’s, which will open its first store outside its home market, and US company Bloomingdale’s, with its first department store in Abu Dhabi.

F&B segment to benefit from retail expansion

One area set to capitalize on the back of these new projects is the F&B segment.

Of Reem Mall’s 450 stores, 85 will operate in the F&B segment, while in the 400-store Al Maryah Central, 20 percent of overall development will be dedicated to F&B and 10 percent to entertainment.

On a broader level, research released by property consultancy CBRE in May found that 25 percent of global retail expansion in 2017 was in the coffee and restaurant category, an increase on the 16 percent recorded in 2016.  The report also found that the majority of new international retailers entering the Abu Dhabi market last year were in the F&B component.

Progress on these large-scale developments comes amid improving prospects for the retail sector.

Although down on the double-digit growth levels seen in the early part of the decade,  countrywide the sector is expected to expand at a compound annual rate of 4.9 percent until 2021, according to the Dubai Chamber of Commerce and Industry.

In Abu Dhabi, retail growth is likely to be boosted by increased tourism numbers. Last year the emirate welcomed 4.9 million hotel guests, a 10 percent increase on 2016,  while the year-on-year (y-o-y) figure for the first three months of 2018 was up 10.9 percent, with the number of international hotel guests increasing by 15.9 percent over the period.

While broader conditions should bode well for the sector, a potential cooling of consumer sentiment could hinder growth.

The Moneysmart Index, released by Abu Dhabi Islamic bank in May, found consumers to be taking a more risk-averse attitude to spending, with 51 percent saying they added to their cash reserves most months, compared to just 24 percent in 2014.  The figures coincide with a fall in oil prices—and subsequent state revenue—in recent years, and the introduction of a 5 percent value-added tax at the beginning of 2018.

This more cautious approach from consumers, coupled with the projected delivery of 1.9 million square meters of new GLA—equivalent to 18 percent of existing stock—over the next three years, could add pressure on retailers trying to maintain levels of footfall, as well as developers hoping to lift occupancy levels.

Average rentals of retail space in Abu Dhabi declined by 8 percent y-o-y in the first quarter of the year, according to CBRE, with the falls more notable in secondary and tertiary locations.

This Abu Dhabi economic update was produced by Oxford Business Group.