Maarad Street hasn’t looked this vacant since 2000. Here, in restored downtown Beirut, is where luxury retail, dining and living should meet. At lunch time, the roads should be filled with business executives from multinational companies taking their guests out for a bite. But a reality check in June reveals shy footfalls for the upscale areas and many empty offices. With the economic situation still in a downward spiral and with few tourists on the horizon for this summer, how long can commercial operations in the heart of Beirut remain viable?
Rebuilt in the 1990s after Lebanon’s devastating civil war, downtown Beirut has weathered difficult times. From 1998 until 2002, development in the area slowed as regional tensions rose over Palestine. Then, the July 2006 war was followed by more than 18 months of sit-ins and protest camps that stifled commerce before business boomed again in the high tourism years through 2011. Throughout the ups and downs of the recent past, there were always signs of commercial activity.
Downtown offices are increasingly empty
Today’s absence of tourism, the bread and butter of retail ventures downtown, has taken its toll on these spaces, as a Saturday morning stroll on the luxurious Foch-Allenby street shows. “The current figures of our outlets in downtown Beirut are below our initial forecasts, which is mainly attributed to the slowdown in footfall,” says Jamil Rayess, general manager of Hamra Shopping and Trading Company. “[The drop in tourism] has had a major impact on the retail businesses in general and especially in downtown Beirut."
Luxury retailers in the area developed their concepts with the assumption that there would be foreign shoppers. “We have been living for the past two years just on [visiting Lebanese] expats and on the Lebanese living in the country, and it is very hard to survive on these clients,” says Joseph Mouawad, head of Mouawad Investment Group.
As sales have slumped, closures and relocations of luxury retail outlets have become quite frequent, but international brands provide some respite, says Claudia Kassab, a specialist in retail and shopping center strategies and managing director of Retail Consulting Group.
High prices scare off buyers
According to Mouawad, office spaces in downtown are faring slightly better than retail spaces but heavy prices deter potential clients. “People are shying away from buying office space in prime areas in downtown Beirut because the price is very high,” says Mouawad. When he brought the Atrium Building, a high-end office tower in downtown, to market 10 years ago, he sold the office space for $2,500 per square meter (sqm). Today office space in the area sells for $7,000 to $8,000 per sqm and prospective tenants look for other solutions. “When prices were low, people were buying but when prices are high [as they are now], people tend to rent. Companies often rather lease and pay $300 per sqm than buy and pay $7,000.”
Low demand has impacted prices, making downtown office spaces again more attractive. Rents are not as high as people think, says Ussama Makarem, director of Berytus Building, an office building in downtown. Referring to very high prices of $1,000 per sqm in annual leases in certain areas of downtown, he says that in “other areas, like Bank Street, rent can be $400 per sqm.”
The migration of demand in uncertain times gives an edge to office spaces where clients can take advantage of flexible services. Regus, an international provider of office space with services for temporary use and small companies, has a portfolio of 58 offices of different sizes on two floors of the downtown Azarieh Building and 41 offices in the Beirut Souks. The company says they are at 91 percent occupancy and performance is in line with expectations, because businesses in the current economic turmoil resort to flexible solutions such as short-term leasing or serviced offices.
For now, retailers are going to have to get used to more tumbleweeds than tourists, waiting for tensions to tail off and travelers to return.