Threatening its way towards Oman for nearly a week, tropical cyclone Gonu had luckily leveled to a category-1 storm when it finally hit the coast of Muscat on June 7. Gonu’s weakened state, however, was not enough to hold back the ravaged city’s inevitable economic costs of $3.9 billion, according to early government estimates.

Gonu, which means “bag made of palm leaves” in the Dhivehi language of the Maldives, shut Oman down for days after it battered the sultanate with torrential rains, wind gusts of 83 km/h (51 mph) and waves 10 to 12 meters high.

The Ministry of National Economy sent an army of surveyors to assess the resulting damage in the badly hit regions of Muscat and Sharqiyah. In addition to the 60 lives it claimed, Gonu caused the displacement of 20,000 people and the destruction of 70,000 homes.

The insurance industry will assume the massive rebuilding costs, as most insured Omani properties have storm and flood coverage, according to a June 13 report by BankMuscat on the cyclone’s economic impact. Large insurers will be exempt from making claim payments, as 90% of property risks are reinsured. This is expected to bring on more economic headaches as reinsurance rates rise and minor insurers are not “able to pass on the entire cost to the consumers, due to competition,” BankMuscat said.

The government will step in to control cement prices to facilitate reconstruction. Oman Cement, the sultanate’s largest provider, escaped damage to its facilities but lost gas supply, cutting output that will shave 2% off profits for 2007.

Not much damage, just costly

Oman’s infrastructure took several hits, including the demolished main water pipes in Muscat and 12 kilometers of the main Wadi Adai highway. The excessive flooding led the government to plan the construction of three dams and a large canal to contain future flood waters, at a cost of $62 million.

The Muscat Securities Market closed for three trading sessions, after technical problems closed the bourse the Sunday after the storm.

Fortunately for the heavily invested tourism sector, it escaped with minimal damage. The Grand Mosque was temporarily closed, along with certain shopping areas and some inaccessible beaches. Although flooding rendered many roads traveled by sightseers unusable, “post-cyclone tourism in Oman is healthy and going full-fledged,” Mohammed bin Hamdan al-Toobi, under-secretary of tourism, said at a June 18 press conference. “There wasn’t any major damage to hotels or resorts during the cyclone, except a few minor incidents that are being rectified and things are going back to normal in a quick pace.”

A report released in May by London-based think tank Global Futures and Foresights put Oman’s current investment in tourism at $464 million, an amount expected to rise to $904 million by 2017. The report said Oman’s goal is to raise tourism’s contribution to GDP from 0.3% in 2007 to 3% by 2020.

Seeb International Airport temporarily halted flights, but the main gateway has since bounced back, with most regional and international carriers resuming normal flight schedules.

But this fluke storm, as it is being widely referred to, begs the question, what’s in store for the Arab oil industry as global warming looms ever larger? Although there is no direct evidence linking Gonu to climate change, some wonder why such a storm made it to a region typically immune from climate fury; and what happens if this is just a sign of what’s ahead?

When Gonu hit, it caused the Sur liquid natural gas terminal southeast of Muscat and the Al-Fahl oil terminal to stop shipments for three days, costing $200 million in lost revenues, according to government estimates. If similar or more intense storms are to be expected in the area, offshore oil refineries could be irreparably damaged, oil exports would become intermittent and costly, not to mention the punitive damage of consuming nations responding to increasing price hikes. This might leave oil-producing nations to wonder whether it wouldn’t be wiser to throw their full support behind such measures as the Kyoto Protocol.

The Middle East and budget aviation were writ large last month when the world’s air industry met at the venerable Le Bourget airfield near Paris. The circle of Gulf-based full service carriers (FSCs) from Emirates and Qatar Airways to Etihad committed to important orders for new wide-bodied jets needed to carry out their various long-haul network expansions ­— and with their large-scale orders delivered equally important good news to brighten the mood among executives and employees of the large plane manufacturing duo, Boeing and Airbus.

Right next to the region’s big names and their prominent aspirations to rank higher among the world’s long-haul carriers, the Middle East’s emerging low-cost carriers (LCCs) added a splash to the aviation news circus with sizeable orders and buying plans in their market segment: single-aisle aircraft.

Jazeera Air, the new Kuwait-headquartered budget airline, on the first day of the Paris Air Show committed to buying 30 new A320 planes from Airbus, expanding its order volume to 40 aircraft. Sharjah-based Air Arabia, while not signing any contract in Le Bourget, said it wants to buy 34 new jets from Boeing or Airbus by the end of the third quarter of 2007, also in the single-aisle category.

Budget airlines poised for expansion

More than any marketing statement or regional aviation report from an investment bank, the new orders by the two operating Arab LCCs manifest how confident the discount carriers are in their rapid expansion. Estimates by aviation analysts put the (discounted) cost for 30 A320s at around $1.4 billion.

This means that Jazeera, which only in April could announce that its first full year of operations in 2006 resulted in black figures with a profit of $8.7 million, will spend in the range of $2 billion on its fleet purchases in the next few years. Air Arabia, which is slightly more seasoned with a three-year operational track record, also could spend more than $2 billion on new aircraft.

In unit numbers, the two carriers are looking to boost their fleets by multiples in the coming eight years, from Air Arabia’s current nine to 52 by 2015 and from Jazeera’s five to 45 planes that will serve the budget airline passenger demand within the Middle East and to neighboring regions, especially the Indian subcontinent.

The surge of Gulf-based LCCs marks a departure from a past in which the Middle East was a desert-like space for air travel. With poor options for intra-regional travel and fractious regional networks, it was ruled solely by opulently staffed flagship carriers whose service levels were usually directly inverse to their employee count.

The budget flight business model, while not at all new in the airline industry, has matured greatly in the past 15 years with the first success stories in the United States and Europe where LCCs could benefit from market segmentation and introduction of open-skies policies.

In the Middle East, the voracious growth of LCCs is linked to the boom economies in the Gulf region and the hunger for labor. As oil prices peak and GCC countries use this money to diversify their economies, more expatriate workers from Lebanon, Egypt, other regional countries, and Asia move to the Gulf for work. With the decent salaries expatriates make, they are able to return to their home countries, making this group a focal consumer base that FSCs and LCCs compete over.

“In the Middle East [LCCs] target workers in the GCC that want to go home,” Eric Chang, Senior Associate for The National Investor (TNI), a UAE investment company, told Executive in a phone interview.

The region’s discount flying market is still in its infancy. The LCCs’ share of the market is under-penetrated compared to Europe and America where 2006 market penetration was 23% and 27% respectively. In comparison, the Middle East’s LCC market share was 1.4% according to the Official Airline Guide (OAG).

By providing flights for half the cost due to their ‘no frills’ model, which cuts operational costs by 63%, LCCs are gaining ground. Unlike FSCs, in-flight meals are not offered, special VIP lounges are not available and all seats are economy class, providing more seats and thus tickets to be sold.

For travelers who last month could find a roundtrip flight this summer between Beirut and the UAE below $350, according to price quotations on Air Arabia’s web site, the concept would have been appealing.

Room for more

Passenger traffic for Jazeera in 2005 was 500,000 and increased by 20% to 600,000 in 2006. Air Arabia’s 2005 traffic reached 1,132,900 passengers, increasing to 1,600,000 in 2006 — a 41.2% surge.

Jazeera is building a second hub in Dubai to complement its existing Kuwaiti one, which will up the ante for Air Arabia as it is based in Sharjah.

Two new arrivals that latched onto the LCC market came out of Saudi Arabia this year, Nas Air and Sama Airlines. Both plan to focus on providing low-cost flights within Saudi Arabia and cautiously speak of building up their domestic aviation market before advancing into the market regionally.

As the Middle Eastern aviation industry will grow by 6.4% every year until 2015 according to the International Civil Aviation Organization (ICAO), there is room for more LCCs and FSCs to emerge. The OAG pegged the 2006 LCC market share at 0.8% — almost doubling this year to 1.4%.

The numbers will soon increase as Air Arabia and Jazeera expand their routes, while Nas Air and Sama Airlines are making their first steps in serving the Saudi domestic market since February and March of this year.

Rethinking the strategy

The strong LCC growth is making FSCs rethink their business strategies. “Conventional airlines feel the pressure from LCCs and are trying to narrow down their ticket costs,” said Kareem Murad, Senior Research Associate for Shuaa Capital, an UAE investment bank.

Emirates Airline is the first to show signs of trepidation over LCCs. Emirates’ vice chairman, Maurice Flanagan, in April hinted to the press that the airline may open an LCC unit in the coming years to complement their regular FSC service.

The scramble to grab a share in the Middle East’s LCC market marks a shift in the aviation industry’s consumer base. TNI, in a March report, largely attributes the industry’s growth to the swelling middle class fuelled by GCC petrodollars being invested to diversify the economy and create jobs.

Investors see potential in LCCs, too. In March, Air Arabia listed an IPO of 55% of its shares with equity of $713 million, which was quickly oversubscribed. Though less successful, Jazeera Airways launched its IPO in 2006, offering 70% of its shares with an equity offering of $24 million.

“The success of the IPO reflects the belief of the investors in LCCs and their business model,” said Murad.

Budget travel has an additional bonus in the fact that cost-consciousness is increasingly understood to be smart and vastly different from “cheap.” This has created a segmentation of air travel also in the business realm where LCC business-class-only carriers Silverjet (UK) and Maxjet Airways (US) have opened successful routes between Europe and the US East Coast. According to recent reports, both business-only LCCs are considering routes to Dubai. The companies will offer tickets for roughly half the cost of an FSC business class ticket and the same price as an FSC economy class ticket.

But the lack of Middle Eastern open-skies agreements hinders LCC growth, making inter-regional air travel more costly than in Europe and providing fewer flight choices. For LCCs to continue growing, they must pressure governments to liberalize their skies as FSC customers can swallow high prices, as opposed to LCC consumers.

In May 2006, 17 states from the Arab Civil Aviation Commission signed open-skies agreements, but “the full and proper implementation of liberalized policies has not yet been adopted by most countries,” says Murad. “However, several countries are holding the grants of permits for use of their skies and hubs until they begin restructuring their own national carriers.”

As the steep discounts for aircraft purchase orders at the Paris Air Show — estimates speak of 40% price reductions against list prices for large orders — demonstrate, LCCs encounter a supportive environment within the international aviation industry and the regional budget airlines appear to have chosen a good time to enter the market.

But they will have to succeed in the long term in a new phase of passenger air transportation that is leaving behind the old business paradigm of economizing by cramming as many human sardines as possible into a tube subdivided into 20 to 50 rows of pain and a few rows of pleasure.

Air carriers are looking at years of a tight cost environment of high oil prices to which most recently also ecological concerns over limitless travel growth have been added. In the end, customers will judge by comfort, price, and social — which is largely environmental — acceptability of the carrier when they get on a plane.

It is a universal sigh of traffic participants on congested streets: where do all those cars come from? Across the Gulf region, the answer increasingly is, from East Asia via Dubai. Whether it is a used Hyundai cruising the streets of Qatar’s capital Doha or an almost new Nissan in Benghazi, Baghdad, or Isfahan, chances are that the vehicle was shipped through Dubai.

In the UAE’s economic boom of late, passenger cars have been swept into the country in a rising stream with compound annual growth rates of 30% from 2001 to 2005, documented by the thickening traffic in the country’s major population centers that led most recently to the introduction of road tolls on Dubai’s main artery.

But the even more interesting story from regional perspective is that Dubai has become a trade hub for cars, with annual growth rates of vehicle re-exports exceeding growth of car imports. A recent study by the Dubai Chamber of Commerce and Industry (DCCI) examined this trend as it developed from 2001 to 2005.

Although vague on details and lacking 2006 figures, the study showed a strong definite shrinking share of domestic consumption in all of Dubai’s vehicle imports. Local termination of vehicle trade contracted from 85% in 2001 to 66% in 2005, meaning that by the end of the period one in three cars shipped to Dubai, was re-exported.

The market research firm Business Monitor International estimates Dubai re-exported around 70,800 vehicles in 2006 with a forecasted 80,000 set to ship out in 2007.

According to statistics by US-based research firm Global Insight, the emirate’s main vehicular trade flow originates in Japan but Korean-made cars and vehicles assembled in Australia also contribute significantly to annual car and truck imports. Main markets for re-exports include Qatar, Iran, Iraq, and Afghanistan but also Libya, the DCCI said.

In overall merchandise trade, Dubai is the world’s third largest re-exporter behind Hong Kong and Singapore by import to re-export ratios. While part of this performance, the emirate’s regional car trade is until now not more than a good footnote in the global automotive trade which the World Trade Organization assessed at $914 billion in 2005.

But Dubai’s growth in this trade fits with the shift of automotive trade into emerging markets and the importance of staying alert to new trade patterns. This is a country that has next to no automotive production, yet exports of vehicles and motorcycles made up 9% of total exports in 2005.

Light vehicle sales highest in the world

The market prospects for automotive sales are enormous in the region that is serviced by Dubai as trade hub. With a total increase of close to 120% between 2001 and 2006, the growth rate for sales of light vehicles in the Middle East were higher than anywhere else in the world for that period, followed by those in Africa, industry analyst Stephanie Vigier from Global Insight told Executive via e-mail. In the coming five-year period to 2011, the research firm forecasts that the region’s growth rate for car sales will remain above world averages and rank third globally.

In regional statistics for the six GCC countries, the UAE automotive sector ranks second in size behind Saudi Arabia. Foreign trade within the UAE automotive sector — including trade in vehicles, parts, accessories and motorcycles — hit $6.6 billion in 2005, said the DCCI report. With over 2,660 companies at the end of last February, the automotive sector employed 4,127 people and earned combined net profits of $1.5 billion.

The Gulf states’ mix of high population increases from labor migration and high population growth powers the demand — which, however, could even be higher if social and legal parameters were different. Namely, the gender inequality that prohibits women from taking the wheel on Saudi streets has the kingdom see a massive number of potential drivers coming of age each year without having the opportunity to operate a vehicle.

Owing to Saudi Arabia’s incessant population growth, the pool of eager new motorists still holds about 95,000 young men who reach driving age each year, estimated the kingdom’s National Commercial Bank in a recent review of the Saudi automotive market. NCB characterized it as the Middle East’s largest with a value of $11 billion and a volume of 650,000 cars and trucks in 2006. For comparison: new vehicle sales for 2006 in the UAE totaled close to 190,000 and are expected to exceed 200,000 units in 2007, Global Insight said.

The domestic used car markets in the UAE and Saudi Arabia are said to be minor, amounting to around 15% of annual car and truck sales in Saudi Arabia. In the UAE, used car purchases since 2003 have remained below the threshold of 50,000 units per year.

However, the Japan Auto Appraisal Institute, a group that values used cars from Japan, said that 200,000 units in 2005 were exported to Dubai from the island nation in 2005, — making it the second largest destination of used Japanese cars behind New Zealand. These numbers from the Japanese car industry suggest that the size of used car shipments to Dubai is much higher than given in local statistics, which would indicate both understated vehicle trade figures from UAE sources and an even larger hub function for the country.

Factors that support Dubai’s rise as regional trade hub include free trade agreements with countries outside of the GCC as well as the emirate’s physical and legal infrastructure ranging from its massive port and free zone established since the 1970s to the creation of the free-trade Dubai Cars and Automotive Zone for the sole purpose of re-exporting used cars in the year 2000.

In a two-birds-one-stone move car makers are able to feed multiple markets from one spot. In an illustration to the international trade’s valuation of the hub’s growing role, Dubai’s Port Rashid last autumn was a port of call on the maiden voyage of the world’s largest car carrier, a specially enlarged and refitted mammoth cargo vessel with capacity for transporting a shade under 8,000 trucks and cars.

Spare parts market is on the rise

Recent developments in the new car market may further boost re-exports. UAE residents began losing their appetites for new car purchases in 2006 — sales growth fell nearly by half to 23% in 2006 from the 42% seen in 2005, based on BMI figures. Growth is expected to slow further to between 13 and 15% in 2007.

The dip is attributed to increasing costs of living, with rents some of the highest in the world, more widespread use of public transportation and higher levels of foreign workers sending wages back to home countries, managers at UAE car dealerships recently told local media. The implication is an even greater importance of re-exports.

In addition to outbound vehicle trade, Dubai spots a flourishing re-export of spare parts and accessories. The aftermarket industry in Dubai — buying and selling of any parts or accessories not originally part of the car — is very popular, Vigier said.

Like almost everywhere else in the world, people in the region like to modify their cars — adding flashier rims, louder exhaust, spoilers, etc. This is also helping boost the re-export of spare parts from Dubai, she explained. Finally, “the demand for spare parts is high due to the increasing number of road accidents, which is a serious problem in the region.”

The UAE has very small production capacities for spare parts; again allocating most of the country’s trade in automotive parts to re-exports. A serious commercial problem for international brand manufacturers in this business is counterfeits.

Production capacity

The market outlook for the automotive trade in the Middle East and Africa suggests that imports — and, in case of Dubai, re-exports — will supply the mainstream of both new and used vehicles for many years to come. In all of the Middle East and Africa, car assembly and manufacturing capacities amount to about 2.5 million units per year in 2006 and 3 million units in 2010, poised to representing not more than 3.3% out of the global manufacturing capacity of 90 million units in 2010, according to the automotive institute of PriceWaterhouseCoopers.

These production capacities are and will be concentrated in Iran, followed by Egypt. They comprise joint ventures with big-name manufacturers but also Iran’s own Khodro Industrial Group which has an annual output capacity of more than 550,000 cars, trucks, buses, minibuses and vans using licensed technology, own designs, and partnerships with Japanese and European — and more recently also Chinese and Indian — car makers. In March, the Iranian company opened a production plant in Syria that manufactures the “Sham” line of Khodro’s Samand sedan.

In GCC countries, ownership of exclusive auto firms has found its lovers as proven by the large financial investments of Kuwait’s Investment Dar and Adeem in the aristocratic British marque Aston Martin this spring. But these are investments abroad; production and customization of cars in the GCC is for the current time limited to micro-ventures like one by a German luxury sports-car workshop, RUF Automobile GmbH, in Bahrain that aims to produce vehicles strictly for a tiny circle of collectors and sports-car enthusiasts.

What can be expected is that the demand for luxury and international brand-name cars in new car markets and the demand for used East Asian models by buyers will supply Dubai with years of business as import and re-export hub for automotive trade.

Shopaholics of the world are in for a super-sized fix as the city that is the home of 21st century superlatives adds not just one, nay two “shopping-est” to its list of epithets. Dubai, having construction already underway on the world’s largest shopping mall, has just made a move to one-up itself in matters retail. In early May, a state-owned development company announced it will start building the “world’s largest shopping area.” It is to be a stretch of retail with shops upon malls upon hotels in a continuous commercial carnival called Bawadi –— offering, in total, 3.7 million square meters of retail space.

The Bawadi development was, until the retail announcement, a 10-kilometer road lined with 51 hotel projects located within the huge Dubailand development that covers a total of 278 square kilometers (equal to about a quarter of the size of Greater London or over five times the surface of Manhattan).

Dubai’s ruler Sheikh Mohammed Bin Rashid Al Maktoum ordered the retail space added to the hotel development almost one year to the day after he initiated the launch of Bawadi LLC in May 2006 as the project company to own and operate hotels, convention centers and retail and entertainment locales.

Moreover, the princely initiative doubles to $54 billion the investment volume of the Bawadi development that will form one axis of Dubailand, which is being built as the emirate’s future entertainment heart — and nota bene, the world’s largest leisure zone-to-be.

Retail space will now be added within and between the hotels in the form of malls, boutiques, street-level shops all connected by subterranean hallways which will be, you guessed it, lined with retail outlets so shoppers can hop from spot to spot without having to go outside. The underground passages were decided on to encourage walking but beat the heat, which can get unbearable in Dubai, explained Bawadi CEO Arif Mubarak.

Malls getting bigger and bigger

The Bawadi company in charge of the project is, also in typical Dubai fashion, a subsidiary of another company, management and real estate development firm Tatweer — which in turn is a member in the corporate family of Dubai Holding, the emirate’s conglomerate of multi-billon dollar enterprises.

Shopping malls will be integrated into the Bawadi project on a massive scale and, like for the hotel projects, the concept bets on intense private sector participation. Less than a month after the retail plan was announced, Bawadi could announce that it inked a joint venture agreement to build the first of the malls with Al Ghurair Investments, a company belonging to the group which opened Dubai’s first shopping mall in 1983.

While he did not say how many square meters of gross leasable area (GLA) this mall will bring to the market once it is completed, Mubarak told Executive that the mall’s first phase alone will be an AED10 billion ($2.73 billion) undertaking expected to reach completion by 2012 with a GLA in the range of 370,000 square meters — this would allow the Phase One to claim the number four spot for largest malls worldwide, based on today’s figures.

By the middle of the next decade, however, the malls of Dubai will have opened in dimensions that will demote any shopping center below 500,000 square meters of retail area to second tier in terms of size.

Currently, two shopping centers on earth advertise themselves as having more than 500,000 square meters GLA, both in China. But the Mall of Arabia, currently dubbed the world’s largest shopping mall project, will have 10 million square feet (930,000 square meters) in GLA after completion of the project’s second phase. It is also located in Dubailand, although in a different part of the development.

Infrastructure and pilings for the Mall of Arabia are in place and the owners intend to start building the structure within a few months’ time. Myra Searle, vice president for retail with the I & M Galadari Group which owns the complex, told Executive the first phase of the mall will take 29 months to complete and have 4 million square feet (372,000 square meters) of GLA. Phase two will be ready five to seven years later and put Dubai at the top of the large-mall food chain.

The developers have projected Mall of Arabia’s total cost at AED32 billion ($8.7 billion). That is a high price for stealing the crown for queen of the world’s malls when compared with the current title holder, South China Mall in Dongguang, a city in the Pearl River Delta. That complex, which opened in 2005 with some 660,000 square meters of floor space, carried a construction price tag of comparatively paltry 2.5 billion Yuan ($327 million), 26 times cheaper than the Mall of Arabia. 

One characteristic of the South China Mall is that its more than ten buildings, each three to five floors and themed, are not enclosed under one roof, making it more comparable to the Bawadi development in structure than to other world-leading shopping malls where promoters stress the aspect of offering a single continuous retail area. Bawadi officials on their part avoid the trap of risky “largest mall” record claims through their verbiage of marketing their project as history’s “largest shopping area.”

It’s not the mall, it’s the attractions

Bawadi’s Mubarak predicts that soon more veteran mall developers will jump on the opportunity of adding an outlet in this meta-realm to their portfolio of locations. “You will notice in the coming two months in terms of the names that are going to sign with us, as far as joint ventures or partners, these people have done it before and they know [the mall] business and they have current businesses operating,” he said.

He better be right, because Bawadi’s heralded deluge of retail space — the equivalent of over 544 World Cup regulation football pitches — amounts to over two-and-a-half times Dubai’s total GLA at the end of 2006. If laid out lengthwise, those football pitches would stretch over 57 kilometers and take an Olympian record walker more than five and a healthy average person over 11 hours to walk end to end.

Top ten largest malls

Although size-superlatives help in selling a mall to the public, being the world’s largest mall or shopping area is clearly insufficient to guarantee economic success. That is why management and development firms have dug deep into the ideas box for rolling out attractions that will do better than seasonal sales signs in drawing crowds. A telltale example is Dubai’s current largest mall, Mall of the Emirates. It opened its doors less than two years ago in 2005 with 223,000 square meters of GLA and can already count down the days to when it will lose the top rank in local size.

The Mall of the Emirates’ selling points that set it, at least for a few more years, apart from any competitor, are its indoor skiing area with five slopes and a fountain and man-made lake displaying flame-throwers that spurt fire up to 3 meters, and water jets. The mall is ready for the competition, said general manager Fuad Sharaf. “When you have competition it makes you more creative,” he said. “It makes you come up with more ideas.”

While he declined to let Executive in on any of the new ideas the mall has planned, he said the mall’s non-retail attractions are visitor magnets, and people just come to watch the water-and-fire show every half hour with the flames starting at 7 p.m.

Developing non-shopping attractions and gimmicks like themes are what will set Dubai’s new malls apart as more pop up in the future, opined Himanshu Vashishtha, managing director of market research firm ACNielsen in the UAE. The firm conducted several polls for mall owners to study consumer behavior and opinions.

Mallgoers second in the world

“If shoppers have a choice between two fairly good malls that have everything to offer, then they will get into that next level of, ‘so what else can I get if I go to this mall,’” Vashishtha said.

This kind of value-added destination branding of course is also an important factor in ballooning the costs of a mall project. But neither Mall of Arabia nor another newbie, Dubai Mall, appear to shy away from the extra investments, fully aware that they will determine the projects’ appeal to the public and salability to retailers.

With this in mind, Mall of Arabia has slated construction of a dinosaur theme park along with Phase One. Searle explained that the only way to enter the park will be through the mall. Then one is not to forget Dubai Mall, a project by Emaar Properties which is under construction at the foot of Burj Dubai, the world’s tallest building.

On its web site Emaar describes Dubai Mall as, oh yes, the world’s largest mall. Representatives of Emaar Properties were not available for interviews when contacted but it is known that Dubai Mall will add 344,000 square meters of GLA to the emirate’s retail mix when it opens, as scheduled, in 2008. For special attractions, it is planning a three-story aquarium with tunnels so guests can walk underneath the various sea creatures.

Supplying the malls with a home base of clients is important and it is more than a stroke of luck that residents of the UAE are serious shoppers. A 2005 ACNielsen poll found 80% hit the mall once a week or more “for something to do.” This is the second highest rate in the world behind Hong Kong.

“The trend is more or less the same [today],” Vashishtha said. “If anything, the proportion of people who do shopping for entertainment, or ‘shopertainment’ as we term it in this part of the world, has only increased.”

“Six months of the year you have very hot weather and people definitely tend to seek indoor entertainment,” he said.

 “Couple that with the fact that 74% of shoppers enjoy shopping. This is true even when they are just visiting the hypermarket … And it becomes an outing.”

On average, Vashishtha said, those flocking to the mall indulge there for three to four hours each trip. In monetary terms, residents of the emirate spend on average $109 per trip, or just under $5,700 per year.

But for all that shopping space to flourish in future, this is not going to be enough. In a recent publication, the Dubai branch of real estate consulting firm Colliers International projected that per capita GLA in Dubai will amount to 2.35 square meters in 2010, requiring annual sales volumes of $8,400 per capita for retail sector profitability — a 140% increase of what is currently available.

So is all this mall building a viable plan?

“That’s the million-dollar question,” said Searle. “Put it this way: A developer will know that Dubai is over-malled when the retailers no longer lease … At the moment, we have seen no evidence of that taking place.”

Colliers, in the business of marketing real estate opportunities, assuringly said in its report that this forecasted required per capita spend “is not excessive in itself when compared to other markets” — citing average annual retail spends of $8,000 and $12,000 per capita in Europe and the US.

However, while Dubai’s per capita income is at par with highly developed countries, income distribution seems rather different from what is common in an EU country with similar per capita GDP. Although international handbooks hold no information on the number of people below the property line or the distribution of wealth and purchasing power for the top and bottom 10% of the population, the available evidence shows the UAE as stratified into social layers of nationals and expatriates which are subdivided into disparate income groups.

Asians who make up the body of the blue-collar workforce — and a significant share of the overall population — live and shop in subculture zones that are a half-world apart from the ritzy projects such as the new downtown and Dubailand. Given their commitment to send remittances home and the UAE’s high increase rates for rents and basic cost of living, it seems more than doubtful that the low to middle expatriate income groups will submit their hard-earned dirhams to the high spending habits required to make the new super-malls reach their sales targets.

Mega-malls with their oversized investments, high-priced special attractions, and arrays of 600 to 1,200 and more posh retail outlets per mall will create social challenges for the people of the UAE. The Dubai Chambers of Commerce have recently voiced first concerns that the emirate’s retail development is at risk of imbalances, by warning that the retail market is becoming “elitist.”

The from a retail perspective upside and un-scaled forward potential of the Emirates’ huge retail space investments lies in the regional and international visitor streams that the UAE want to tap into. By the projections in the Colliers International report, by 2010 non-residents would offload enough cash in local malls to reduce the required retail spend per resident by one-third, to about $5,500, some $200 below the current annual average amount.

“Build it and they will come”

Although the predicted increase in Dubai’s GLA to 2.35 square meters per capita in 2010 is more than doubling the GLA supply at the end of 2006, this is not the end of the planned expansions. The mother of all shopping miles in the Bawadi development will come onstream in the century’s second decade; so will the second phase of the Mall of Arabia and a number of other huge retail projects in Dubai. But the fact that these mega-investments will balloon the GLA of local retail even further is more than a play after the motto “build it and they will come” with the added twist “and make it the biggest ever.”

Tourism, by the course of state planning and investments which Dubai has chosen from constructing Burj Dubai to buying the QE2 as floating hotel, will have to supply the indispensable lifeblood of the emirate for decades.

 The Bawadi retail boulevard in Dubailand is the logical expression of the aim to fill the world’s largest hotel and 50 others (all to be built in Bawadi) with paying customers by offering them the largest and newest man-made leisure space on earth as an integrated entertainment-and-shopping destination right outside the hotel doors. The plan spans the century, with completion of Dubailand scheduled by 2025. Until then, Dubai is betting on building a whole new class of purchasing-based attractiveness, where shopping becomes the thrill.

It is said that 100 years ago, Dubai — with its two districts of Deira and Bur Dubai — totaled about 400 small shops and 4000 date palms.