Home Economics & Policy A promising partnership


A promising partnership

Matching real estate with retail needs

by Karl Nader

There is no shortage of super-regional and regional malls in countries of the Gulf Cooperation Council (GCC). Super-regional malls, such as Dubai Mall and Mall of the Emirates in the United Arab Emirates, as well as Villagio in Qatar, are major destinations and are filled with well-known and sought-after high-end retailers. In some of these malls — which often attract thousands of visitors per day — you can shop, visit artificial ski slopes and travel on a replica gondola.
In addition to their popular leisure offerings, these malls each comprise more than 200 shops, restaurants, and entertainment venues. Similarly, regional malls, such as Muscat Grand Mall in Oman and The Avenues Mall in Kuwait, provide residents with 100 to 200 shops, dining venues, and entertainment facilities that are multi-purpose in nature.

The GCC retail boom of the past 10 to 15 years spawned these shopping centers along with developments in almost all parts of the regional property market. However, the GCC market continues to evolve and this growth is paving the way for new opportunities. In particular, cities are flourishing and communities are expanding. This means that while super-regional and regional malls serve their purpose of providing a major anchor within cities across the region, they are far from becoming convenient one-stop shopping centers for everyone, especially given their lack of proximity to housing developments and cumbersome access. Ultimately, this gap in retail coverage offers canny developers and retailers an important opportunity.

Matching brands with bread

Essentially, malls attract tourists and families, but are not practical for fulfilling the daily needs of GCC residents. This is because they are situated in busy city centers, locations that are far from housing developments, making these malls inconvenient for everyday needs such as childcare centers, gyms, grocery stores, and other miscellaneous shops. At the same time, there are more and more large, isolated residential developments that lack nearby shopping centers and convenient retail space.

The mundane needs of local communities are an opportunity for retailers and real estate developers. The attraction for retailers is expansion via new channels. For real estate developers, such ventures can reignite development plans stalled by the property bust, and provide sustainable recurrent income essential for balancing their business models.

One current trend that aims to meet market needs is a fully integrated approach among large retail conglomerates and mall developers. In this model, a developer acquires, or organically develops, capabilities in retailing (such as major brands) — or a retailer develops the capabilities needed for property development. This ensures consistency of retail and property objectives as well as maximum returns.

This fully integrated approach, however, is operationally complex and financially risky. Nonetheless, successful regional examples include Azadea’s Le Mall branches in Lebanon, which have responded to community needs by offering malls that focus on convenience and present affordable retail and dining options in smaller-sized malls. The fully integrated approach has also been employed by retailers and developers looking to create large-scale mall developments. Alshaya’s The Avenues located in Kuwait and Majid Al Futtaim’s City Center properties across the region are both prime examples of this trend.

These examples of fully integrated models also demonstrate the substantial evolution among retailers and developers. Azadea and Alshaya have established themselves as franchising specialists, yet are now developing malls that showcase their wide portfolios of brands. At the same time, Majid Al Futtaim has made a name for itself as a mall developer, but is now growing its own retail portfolio of fashion brands and grocery stores (namely Carrefour).
These malls are all driven by their corporate owners’ need to improve negotiation positions and secure their share of the attractive retail market in the region. While sometimes successful, this model requires that retailers fully build capabilities in mall development and management, and that mall developers acquire retail capabilities in order to ensure that best practices are not overlooked. Otherwise, these malls may face challenges, such as design flaws, access issues or a narrower retail offering.

A better alternative

Yet there is another, more promising approach that could enable smaller retailers and developers to compete and capture a share of the retail gap without having to develop a complete set of new capabilities. In essence, non-integrated real estate developers and retailers should form alliances to develop convenience and neighborhood shopping centers geared toward GCC residents.

This model allows successful retailers, such as Al Meera and retail cooperatives in the UAE, to capture market share without the high capital costs of building new outlets. Instead, retailers will be able to rent store units in these vibrant, growing communities. Many of these retailers have found the right formula to attract customers at home, a feat that they believe can be repeated in adjacent markets.

These retailers will still need to adapt their value proposition to the specificities of this new channel, but by partnering with real estate developers, they will overcome the biggest hurdle — large upfront costs.

For real estate developers, such partnerships can position them for the eventual recovery of the property market. Real estate players are trying not to repeat the mistakes of the past when they focused on capital gains from property sales. Instead, developers need the recurring revenues that long-term rental leases provide, income that will give their investors a constant stream of returns.

Certainly, a convenient shopping center located within a residential development would increase its value and make it more attractive to current and future residents.

Both partners have much to contribute. First, real estate developers, such as UAE-based Emaar and Saudi Arabia-based Dar Al Arkan, own the residential developments that can host the community shopping centers. Second, these developers have expertise in designing and executing commercial centers, in raising capital, and in potentially managing the properties. As for the large retailers, they can become anchor tenants, attracting customers and smaller retail tenants.

Important differences between the partnership and the fully integrated approach are the concentration of risk in the integrated approach, and the partnership model’s dual availability of critical retail and mall development and management capabilities.

A strategic alliance

The best way forward in the partnership approach is an exclusive agreement in which developers and retailers agree to build a number of neighborhood shopping centers together. Given the small investment required, lack of community shopping centers in the region and ongoing trend of large, isolated residential developments, neighborhood shopping centers are in a position to thrive.

The keys for success in this model are full agreement on the center’s positioning in the market, its offerings and its target customers. This model is good for food retailers and large residential developers, who come together in a strategic alliance that allows each partner to focus on their core capabilities. The retailer obtains a secure client base — people are housed next to the shops. The developer builds an environment that is ready for retailers to move into. Sorouh, a leading UAE developer, uses this approach with its Boutik brand. Boutik is a series of retail centers inside Sorouh’s residential communities that offer a Waitrose grocery store and an attractive mix of other retailers.

The partnership model requires careful agreement between the retail and real estate sides on the center’s positioning, its target segments, and the division of responsibilities and rewards. The rewards will be worth the effort. With GCC governments embarking on large-scale housing projects, which include a program to develop complexes of affordable housing with a total of 500,000 units across Saudi Arabia alone, there is no better time for real estate developers and retailers to join forces and provide low and high-end convenience shopping centers.

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Karl Nader


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Ramy Sfeir


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Karim Abdallah


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