Leisure Is a Focus of Riyadh’s Mall-Based Retail Development


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Leisure Is a Focus of Riyadh’s Mall-Based Retail Development

  1. 1. proactive development V i s h a l Pa n d e yLeisure Is a Focus of Riyadh’s Mall-BasedRetail DevelopmentIn the past five years, changes the city from within and outside airport—shows that strong demandto the demographics of Riyadh, the kingdom. exists for this kind of product. New malls in the pipelinethe capital of Saudi Arabia, and an Along the northern periphery of The Rayadah Investment Com- could force some existinginflux of Western expatriates have Riyadh, four new developments pany (RIC), the property arm of theincreased demand for medium- to will help create demand and pro- Public Pension Agency, is under- facilities to upgrade theirhigh-end international brands, vide Riyadh businesses and resi- taking the most ambitious of thewhich has, in turn, affected the type dents with a new form of urban four new projects north of the city: brands, parking, andof retail offerings that have been environment. The differentiating the International Training Center attributes of these developments Complex (ITCC), a planned mixed- recreation offerings.developed. To satisfy this demand,retail concepts have started moving are their scale, cohesive master use technology complex; and theto large-format destination malls, plans, mix of uses, abundant park- King Abdullah Financial Districtmain street stand-alone locations ing, landscaped public spaces, (KAFD), a large mixed-use devel-(such as Olaya Street), and com- and secured environments. opment focused on the financialmunity/neighborhood malls in thecity’s suburbs (especially northernRiyadh) that can satisfy a range ofconsumer needs. The outlook for shopping malls Population growth, increased tourism, and demand for medium- to high-endin Riyadh is likely to remain strong brands are supporting demand forgoing forward because they are the retail space in the Saudi capital.primary source of entertainmentfor Saudi families. The mall-basedretail space has increased sig-nificantly over the past three years,with supply rising from 6.5 millionsquare feet (600,000 sq m) ofspace in 2005 to 11.8 million squarefeet (1.1 million sq m) this year. Anadditional 4.5 million square feet(417,000 sq m) of mall retail space Mixed-use developments haveis likely to be delivered by 2015, proved successful in Riyadh, asbringing the total to 16.3 million shown by Kingdom Centre andsquare feet (1.5 million sq m). That Faisaliyah Centre. Kingdom Centre,would be close in line with esti- the second-tallest skyscraper inmates based on population growth Saudi Arabia, is a mixed-use towerprojections that demand for retail with 13 floors of office space at thespace will top 16.1 million square bottom, a ten-story Four Seasonsfeet (1.5 million sq m) by 2015. Hotel above the offices, and five As development of Riyadh contin- levels of luxury apartments andues to push north of the city with the condominiums. Faisaliyah Centre,construction of large master-planned the kingdom’s third-tallest tower,areas, the retail market will begin to is located in the business districtbe dominated by retail malls that of Riyadh and has a retail mall,serve each master-planned scheme. a Rosewood hotel, and offices. And the recent leasing success ofRiyadh’s New Riyadh Business Gate—a commer-Business Districts cial complex that offers high-qualityRiyadh, which is primarily a busi- office space as well as retail andness destination, is now starting restaurant businesses in a low-riseto implement strategies designed business park near upper-incometo lure more leisure tourism to residential compounds and the September/October 2012 U r b a n La n D 159
  2. 2. development services sector. Both should see Techno Valley, an 18.3 million- their initial phases completed by square-foot (1.7 million sq m) sci- the middle to end of 2013. ence and technology park located Both projects will include a wide at the KSU campus; and the King variety of environments for offices, Abdullah Centre for Science and training, conferences, research Technology (KACST), the Saudi and development, and start-ups national science agency and its designed to create a cluster of national laboratories. Saudi technology businesses. The King Abdullah Financial The ITCC is located in the emerg- District is expected to emerge ing corridor in the Imam Saud and as the new city center of Riyadh. Prince Turki neighborhoods, close More than 60 buildings will be to the offices of the Communica- linked by air-conditioned skywalks, tion and Information Technology and the district will offer Riyadh’s Commission (CITC) regulatory first pedestrian zones and public agency; King Saud University transportation. Several attractions, (KSU), the largest higher educa- such as a national aquarium and a tion center in Saudi Arabia; Riyadh science museum, are intended to Above: The Faisaliyah Center in Riyadh. Left: Kingdom Centre, with residential, retail, office, and hotel space, is the second-tallest skyscraper in Saudi Arabia. make this an interesting destina- est in Saudi Arabia, housing 235 tion for local residents and tourists. shops in 1.5 million square feet The other two developments (140,000 sq m) of space. north of the city are the Princess Norah bint Abdul Rahman Univer- Retail Development sity, the first women’s university As is the case with the planned in the kingdom, and Granada developments, the forthcoming Housing and Business Park (GBS). retail development will largely be The GBS, located on the East Ring located on the Ring roads and in Road and North Ring Road and other suburban areas with easy being developed by the Saudi gov- access from high-speed arteries. ernment’s General Organization for As these developments progress to Social Insurance (GOSI), will house delivery, a substantial migration of ten office buildings with 1.4 mil- employment is expected from tradi- lion square feet (130,000 sq m) of tional, declining business districts space upon completion, expected such as Olaya, Malaz, and Bathaa. later this year. It will also include Saudi Arabia’s low retail gross townhouses, an 830-room Hilton leasing area per capita, combined hotel, and the existing Granada with high population and the growth Shopping Center, one of the larg- of religious tourism, makes the retail160 U r b a n La N D September/October 2012
  3. 3. market attractive to both tenants and ary roads will suffer as higher-quality l The number of showroom and Middle East and 1,300 storesinvestors. Recent and upcom­­ ing outlets are delivered to the market. community malls is increasing worldwide, still sees 90 percent oftrends include the following: l Retailers like H&M, Zara, Home across the new peripheral districts. its sales coming from Saudi stores.l Retail formats involving mixed- Centre, Mothercare, Splash, New Average mall vacancy rates vary In the online world, eXtra in Julyuse developments and hotels are Look, eXtra, Adidas, Givenchy, from zero to 30 percent for major 2011 launched the kingdom’s firstincreasingly being considered as Aldo, Fred Perry, Emporio Armani, malls, depending on location, the online retail website, providing thethe retail market becomes increas- Massimo Dutti, and Alsaif Gallery age of the mall, the type of mall, largest selection in Saudi Arabia ofingly competitive and saturated have acquired units in main street and other factors. Rentals and electronics and home appliances,with look-alike shopping centers. locations outside malls. vacancies in secondary locations with more than 3,000 products avail-l Average retail rents are rising, l The 2011–2012 period has been continue to suffer as retailers able in 90 cities within the kingdom.but several centers have be­­ come marked by a limited number of switch to the primary locations Riyadh’s retail market, asobsolete and are seeing revenues retailers setting up their first stores generating higher foot traffic. one of city’s biggest sources offall. This year, the average estimated in the city. Among the new retailers Looking beyond the kingdom’s entertainment and leisure, hasrental value for in-line stores in major that have entered the Riyadh market borders, Saudi Arabia–based proved resilient during the globalmalls topped 2,300 riyals per square are Victoria’s Secret, American Eagle retailer Fawaz Abdulaziz Alhokair economic downturn, with highmeter ($57 per square foot). Outfitters, Iconic, Boots drugstore, Co. in October 2011 announced disposable incomes, strong con-l Main retail areas of Olaya Street, and Destination Maternity. plans to open 400 new stores sumer confidence, and a lack ofTahlia Street, Uruba Street, and King l Among the new retailers entering within two years at home and alternative entertainment helpingFahad Road continue to attract retail- the Saudi market are the fashion abroad. But company officials do sustain growth.ers and command high rental rates stores Tesco and Garage, sporting not see demand in the kingdom Though the market still holdsbecause of their prime positions. goods and clothing store Decath- declining: the retailer, which cur- potential for additional retailHowever, retail offerings on second- lon, and luxury jeweler Tous. rently has 75 franchises in the developments, developers should Women in traditional dress shopping at a mall in Jeddah, Saudi Arabia. September/October 2012 U r b a n La n D 161
  4. 4. development consider trying concepts that will offer a combined variety of retail and leisure activities. A shift toward community- or neighborhood-sized developments may now take place, which will help boost dif- ferent retail formats. Conclusions The outlook for the Riyadh retail market looks healthy from the per- spectives of rents and occupancies. However, because significant mall supply is coming on the market over the next few years, pressure may increase on nonperforming malls with lower-grade facilities because tenants would prefer to upgrade to malls offering higher- quality space, a better tenant mix, and better parking facilities. Rents in the strongest-performing centers are expected to increase toward the second half of this year. However, average rents are unlikely to increase because many poorly performing centers exist that will need to reduce rents to retain tenants. Other centers may suffer because they are not unique in terms of shopping environment or shopping experience, brand selec- tion, mix of recreational options, quality of staff, or food and bever- age options. We believe that as the city’s size and population grow, the future of retail in Riyadh will be focused more on community concepts that provide service-oriented options in line with the needs of the local market and fast-changing con- sumer demand. UL Vishal Pandey is principal at Glasgow Consulting Group, a research-focused advisory firm based in Dubai providing market intelligence and strategic advice on a diverse set of industries across the Middle East, with a special focus on the retail sector.162 U r b a n La N D September/October 2012