One week into the opposition demonstrations that effectively paralyzed commerce in the capital throughout much of December, a few hardy businesses in the Beirut Central District (BCD) cautiously opened their doors – despite the presence of the Lebanese Army and its armor, dogged protesters, and coils of razor wire – to holiday shoppers. They hung their Christmas decorations and slashed prices in a last ditch effort to woo shoppers. It capped off what has been, by all accounts, a disastrous six months for Lebanon’s luxury retail and hospitality sectors.
Indeed, the commercial fortunes of tenants in the BCD, where rents average $1,000 dollars per square meter per year, have been in the epicenter of the bruising political events of the past two years that began with the assassination of Rafik Hariri. After bumper years in 2003 and 2004, the demos and funerals of 2005 saw business in the BCD drop by 50%, while in 2006 that dip has increased to 70% due to the summer war and more demos, funerals and sit-ins.
Dying a ‘slow death’
This trend will surely continue into 2007. Retailers were reportedly in the midst of scouting alternative, less economically vulnerable locations in December, and said they would be forced to move if the deadlock continued into the New Year. The Lebanese finance minister said that each day of demonstrations has cost the economy $70 million in losses, and according to some estimates up to 70% of businesses in BCD are in danger of collapsing. At the time of writing, Jihad Murr, the owner of the Virgin Megastore – not just a shop, but a landmark that at one point epitomized the retail magic of the BCD – declared that they were dying a “slow death” and may be forced to shut down.
Paul Ariss, the president of the Hotel, Café, and Restaurant Syndicate, confirmed that many members of his association have been considering a change of venue since the war and some have begun to expand elsewhere in the region, namely Saudi Arabia, Egypt, and Qatar, but said it was too early to estimate the number of departures from the BCD.
“In 2005 BCD was closed for at least 40 days following the death of Hariri, and I don’t know how many days for the assassinations afterward,” he explained.
“Then there were 70 days for the national dialogue and the Council of Ministers meetings. Then 43 days during the war, and now the sit-in. Add all this up and no commercial venture would survive. Businesses are either paying operating costs out of their own pocket, selling shares, or whatever is necessary to stay afloat.” He explained that investors were in too deep to just pull out. “Right now, everyone is just hoping that things will get better.”
Solidere preferred not to comment on the situation, with General Manager Mounir Douaidy saying it was “premature to determine the impact of political events on Solidere.”
Though rents will probably remain unchanged, Solidere did exempt tenants from two-months of rent for July and August. According to Sami Hochon, owner of a Lina’s franchise, a popular BCD café, Solidere has indicated its willingness to do so again if the current stalemate continues into February 2007.
Hochon was one of many high-end business owners to attend the launch of an advertising campaign to kick-start the holiday shopping and tourist season held at the Phoenicia InterContinental in Beirut in mid-December. He said that many foreign companies have closed their Beirut branches since the war, and feared he would have to follow-suit if the situation continued for three or four months.
“People are not spending money so none of my locations are doing well, but business (at Lina’s BCD location) has dropped 80% from last year,” Hochon admitted.
The outlook is better for Beirut’s malls, which could benefit from the potential exodus of retailers and restaurants from Solidere, assuming they have the vacant space. Ariss said some in his syndicate are interested in relocating to the Ashrafieh branch of ABC, which is already 90% occupied, and the mall’s operations manager confirmed that inquiries have surged since the sit-ins began downtown.
At City Mall in Dora, also 90% occupied, the number of inquiries into temporary leases for the holidays is below the expected level, according to the mall manager Rony Aoun. They have, however, received 12 applications from retailers looking for permanent space during the last quarter of 2006, although Aoun insisted the increase in demand was not necessarily linked to the political situation in the BCD.
Meanwhile Solidere – the biggest company listed on the Beirut Stock Exchange – saw net profits in the third quarter of 2006 drop by 81.5% from the same period of 2005, from $23 million to $4.25 million. Douaidy tried to put a brave face on the figures, saying they did not show the true picture. But, at the end of the day, chaos is not good for business. Just ask Jihad Murr.