The cost of oversupply
Oversupply does more damage than vacancy alone. When a scheme provides more retail than its catchment can support, tenants cannibalise one another, turnovers weaken across the board and rents come under pressure. Stronger operators leave or decline to open, and the space is filled by weaker ones, eroding both the destination's appeal and the rents it can command.
Developers facing vacancy often respond with incentives such as fit-out contributions, operating-cost support and favourable rent terms, but these seldom change the outcome.
Robert Thomas, Head of Agency at Cushman & Wakefield Core, said:
More retail does not necessarily create more value. We have seen restaurant operators turn down sites that were offering substantial fit-out contributions and rent support, because they did not believe the footfall was there. Experienced operators look at the catchment first. If the location cannot support sustainable turnover, the incentives will not change their decision.
The more reliable remedy is usually to reduce the quantum. Fewer, stronger clusters supported by recreational and community uses tend to outperform a larger offer spread thin.
Control and the long view
The case for retaining ownership is strongest in premium schemes. Selling retail units individually brings in early proceeds, but it hands tenant selection, shopfront standards, operating hours and merchandising to many separate owners. In high-end residential schemes, a handful of poorly chosen uses at street level can undermine the positioning of the towers above, and once the units are sold the developer has few levers to correct it. Retaining strategic retail lets the developer shape the mix as the community matures and protects the value of the residential product it was built to support.
Premium buildings still need a supermarket, a pharmacy, everyday food and basic services. The format and branding can be tailored to the address, but removing these uses because they seem insufficiently prestigious makes daily life harder for the residents the scheme was built to attract. In these projects retail is part of the brand and the amenity offer, and is worth holding for that reason.
Retail takes longer than feasibility thinks
Feasibility studies also tend to understate how long retail takes to mature. Some of the region's most successful malls went through early periods in which operators struggled and some wanted to leave, before visitation settled and demand for space reversed. Retailers face a choice of their own: commit early and accept weaker trading to secure the best units, or wait until a destination is proven and pay considerably more to enter. Feasibility models that assume stabilised rents from opening push developers to fill space quickly with whoever will take it, and tenant mixes agreed under that pressure are hard to undo.
As the next wave of UAE master plans moves from drawings to delivery, the developers who cluster retail around genuine anchors, plan access from the outset, phase supply behind population and keep control through the ramp-up will own the centres people return to. Those who allocate retail by ratio may spend the following decade re-letting it.
About the authors
Robert Thomas, Head of Agency, Cushman & Wakefield Core
David Abood, Co-CEO and Head of Capital Markets, Cushman & Wakefield Core
