Dubai is one the cheapest destinations in the world for retailers, despite boasting the highest number of international brands of any city.
Bargains abound in Dubai shop rents
Dubai is one the cheapest destinations in the world for retailers - despite having the highest number of international brands of any city, according to a report by CBRE, a property services company.
New York has the most expensive retail rents in the world, followed by Hong Kong, Sydney, London and Zurich, but Dubai does not even make the list of the top 20.
"The effect of massive new mall developments [in Dubai] in recent years has impacted negatively on achievable rates and heightened competition to fill vacancies has acted to drive rates down," said Matthew Green, the head of research at CBRE's consulting division.
Prime rents in Dubai are about Dh400 (US$109) per square foot in the major shopping centres such as Mall of Emirates, Dubai Mall and Deira City Centre.
This compares with $1,900 per sq ft in New York's Fifth Avenue, the world's most expensive retail rental spot. Rates on the high street in Hong Kong have risen 53 per cent so far this year to $1,695, said CBRE.
Analysts say the vast difference in rental rates between Dubai and other global retail hotspots is due to a number of factors, including the dominance of mall-based shopping and the bargaining power of retailers that franchise numerous brands.
"The dynamic of the retail market in the UAE is dominated by mall-based concepts with more traditional souq and street retail types slipping in popularity and success as the focus of the market shifts further towards destination malls," said Mr Green.
International retailers with operations in the UAE say the dynamics of the market are completely different in the Middle East compared with other countries, where the big driver of fashion is the high street.
"A lot of [the top] rentals are based on high streets, whether its Fifth Avenue in New York or Oxford Street in London," said Ishwar Chugani, the executive director in the Middle East for Giordano, which has 2,500 stores in more than 40 countries. "Here, there's not any high street retail so it's very hard to gauge and compare."
The franchise nature of the region allows major retailers to drive down rates in malls, as major Middle Eastern players such as Alshaya, Landmark Group and Azadea, take multiple locations in shopping centres and can negotiate rents.
Meanwhile, in other retail bright spots, individual brands are fighting for space to add stores
"Major franchise companies in the region are able to more easily dictate their terms," said Mr Green. "With so many brands under their control, they have very strong influence on a scheme's potential chance of success."
Dubai topped a CBRE survey earlier this year of the international cities with the most retail brands, an accoladethe city shares with London.
More than half of the world's international brands are represented in Dubai, and combined with Abu Dhabi, it makes the UAE the world's second-biggest retail market, just behind the UK.
But the quality and availability of retail brands did not affect the amount of rent paid by retailers, Mr Green said.
"The level of brand exposure does not correlate directly with rental rates, which are more of a function of the supply and demand fundamentals within a specific market."