Big is getting bigger

Mega-malls dominate the retail market as major players move in

Increased competition in the retail sector has ushered in a new era, whereby malls have become the major players, as exhibited by the increased demand for space and rising rental prices. But there is little doubt that upcoming malls will irrevocably change the rules of the game in terms of operations, services, rents and fees. The price of doing business is definitely on the up. 

“The cost of construction [has] reached peak levels, leading shop rents to the highest point ever and newcomers [malls] are modifying their prices,” said Michel Abchee, chief executive officer and chairman of ADMIC, the builder of City Mall in Dora and parent company of retailers BHV and Monoprix. 

Already, Beirut is home to the third most expensive retail rents among 13 cities in the Middle East, according to a September 2011 survey by property consultants Cushman & Wakefield. Beirut’s retail stood out as the only city in the region where retail rents in general increased, while the report zoned in on ABC Ashrafieh’s retail rents, which increased by 33.3 percent over the year ending June 2011. But it was a report released in the second quarter of 2011 by Ramco Real Estate Advisors (RREA) that exposed the trend of steady rises in mall rents, while pointing out that surrounding retail areas outside of the mall had stabilized. 

Considering the added pressure of new supply and the impact of a seemingly impending wage hike, local retailers will have to play it smart if they are to compete with large retail groups and international stores.

In with the new

Despite several established retail areas, some believe that supply is still limited. According to RREA, 95 percent of retail space in Hamra, Verdun, Ashrafieh and Gemmayze was occupied, as of July 2011. New mall operators will likely look to fill much-needed supply in areas outside the capital. Hazmieh will be home to Lebanon’s largest mall as Dubai-based mall developer, Majid Al Futtaim Properties, will deliver 60,000 square meters (sqm) of Gross Leasable Area (GLA) when the Beirut City Center opens this year, which will include more than 200 shops. 

Acres Development, a subsidiary of the retail group Azadea, will deliver its third installation of the Le Mall brand with a new mall in Dbayeh, which they intend to open in August. Although the Dbayeh building offers 25,000 sqm of GLA, more than double that of the existing Sin El Fil location, it is already sold out of retail space “even for a stand,” according to a representative at Acres. The mall is aiming for high foot traffic by the inclusion of attractions such as an eight-screen movie complex, along with two floors of food and beverage outlets. It has also been successful in luring new entrants to the Lebanese market. Several European and American brands have taken up the largest swaths of retail space; international apparel giants Decathalon and The Gap have both booked sizable space at 3,000 sqm and 900 sqm respectively. 

Go big or go home

Although tourism fell 23.6 percent last year compared to record numbers in 2010, according to the tourism ministry, tax-free purchases by tourists actually grew by 10 percent for the year, according to Global Blue, the reimbursement firm, although that was lower than the 21 percent growth recorded in 2010. However, if tourism numbers continue to fall and the retail market is flooded with more malls, it will likely force retailers to improve their services, and offer better prices. More than ever, increasing competition will push out low performers to make room for newer or international brands. “At renewal time, some [tenants] are asked to leave because there’s a waiting list… and malls want to improve their tenant mix,” said Abchee. 

According to the owners and managers of the Verdun 730 and 732 retail buildings, Aliamad Group, ground floor retail space always has a waiting list of around 10 companies with rents starting at around $700 per square meter. While each mall caters to a different category of shopper in various geographical areas, whether retail rents will stabilize across the board as new supply enters the market is something that only time can tell. But according to Abchee one thing is certain: “Those who are not client-oriented will fade out and lose their market share.”

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