(MENAFN- Khaleej Times) Overcoming strong headwinds posed by weaker macroeconomic conditions and the growth of e-commerce, the UAE retail sector remained vibrant in 2017, and appears quite upbeat about 2018, a leading property consultancy said.
In 2017, through a range of 'super sale' promotions, and helped by a weaker dollar and continued growth in levels of tourism from more diverse range of source markets, the retails sector has overcome the challenges, analysts at Knight Frank said in their UAE Market Review and Forecast 2018.
Taimur Khan, senior analyst at Knight Frank, said weaker macroeconomic conditions and the growth of e-commerce in the form of Amazon (Souq.com) and Noon, had proved to be a strong headwind for the retail sector in the UAE. However, the outlook is bright as demand from international brands to open outlets in the UAE remains strong with the UAE ranking as the seventh-most popular destination of choice for expansion amongst international retailers, with many preferring Dubai as an entry point into the region, the Knight Frank report said, while forecasting that the country's gross domestic product growth was to slow to 1.7 per cent in 2017 and gain momentum 2018 to 3.3 per cent.
Particularly in Dubai, retail demand remains strong with many of the prime units with the major retail centres operating at or very close to 100 per cent occupancy. "The integration of demand drivers [within retail areas] such as Ski Dubai [Mall of the Emirates], Dubai Aquarium & Underwater Zoo (Dubai Mall) or more lifestyle-orientated schemes such as The Beach at JBR or Box Park has meant that the retail sector has remained relatively resilient," said Khan.
He said it is also important to note that given the extreme weather conditions in the summer and the wide range of family entertainment on offer, bricks and mortar retail will continue to have a strong presence in Dubai.
However, the major concern for operators is oversupply, but for retailers this may provide some relief on compressing profit margins, through downward pressure on rents in the short to medium term. Retail destinations within developed residential communities and good transport links are least likely to be impacted by this potential development, said the report.
In the hospitality sector, 2017 marked another year of softening given market performance to date, said the report.
"While average occupancy levels have remained constant or even increased in the majority of emirates, these have been offset by downward trending average rates, resulting RevPAR [revenue per available room] declines across the board.
"Visitation to the UAE has continued to increase, but in light of a more cash-constrained guest profile, hotels have had to price more competitively in order to maintain market share," said the report.
"Looking at demand, India and China remain major growth markets in 2017, and the expectation is that this will continue throughout 2018," said Khan.
"Given the growing middle class, increasing flight connectivity and physical proximity to both markets, it is likely that we will see the development of quality internationally-branded midscale hotels that cater to this segment," he said. From an operational perspective, in a market of softening performance, Knight Frank analysts saw an increasing number of hotel owners scrutinising operators in a way that was previously uncommon.
"This has most often come in the form of operational reviews, enforced headcount reduction, or even a change in operator as developers try to maintain yields on their assets," said the analysts.
"The continued strengthening of the dollar and the introduction of VAT will certainly limit the potential to drive attainable rates in the short term, this trend is further exacerbated by the aforementioned developing demand profiles," they said.
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Issac John Associate Business Editor of Khaleej Times, is a well-connected Indian journalist and an economic and financial commentator. He has been in the UAE's mainstream journalism for 35 years, including 23 years with Khaleej Times. A post-graduate in English and graduate in economics, he has won over two dozen awards. Acclaimed for his authentic and insightful analysis of global and regional businesses and economic trends, he is respected for his astute understanding of the local business scene.
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