‘The landlord is king’ but the crown is slipping
Delayed openings and lack of legislation are issues that need to be addressed if retail phenomenon in Middle East is to be sustained says experts at Retail City
Experts speaking at the three-day Retail City Exhibition and Conference which opened on Sunday 1st June at the Dubai International Exhibition Centre have given their recommendations to try to avert the late delivery of retail projects and the lack of clear retail legislation.
Tackling legal issues, Sallie Bowtell, a real estate lawyer with Trowers & Hamlins made a detailed comparison of legislation prevalent in more mature retail markets, such as the US, Western Europe and Australia, with current law in the Middle East.
“There is limited retailing legislation in the Middle East at this stage, although this is surely forthcoming. Legislation tends to be more tenant-friendly in the mature markets, there are certain disclosure requirements with legal consequences for non-disclosure,” said Bowtell.
In sharp contrast, landlords in the Middle East can sometimes benefit from the lack of enforceable legislation, often to the detriment of the tenant.
“In other words the landlord is king,” added Bowtell, “Services can be estimated, with limited restrictions on costs recoverable from tenants. No minimum terms are required by law with limited rent controls in place.”
Bowtell went on, “If you look at insurances, for example, the landlord should be responsible for the common areas and the tenants should cover the fixtures within the leased retail space.”
Unfortunately project delays are a common feature throughout the region which presents a number of issues, where both landlord and tenant lose out.
Tenants suffer losses because they have to extend their leases elsewhere, they do not have the additional sales revenue to support further growth. Naturally all of these delays have financial implications, according to Walter Kleinschmit, President of R2E Consultants Inc Canada.
“Typically a three year mall project which opens one year late loses 10% of its potential return. It’s the same impact as adding approximately 20% to capital expenses. So if a one billion dollar project is one year late – it is equivalent to spending up to an extra US$ 200 million,” he stated.
To avoid delays as much as possible, Kleinschmit outline a series of questions that landlords should ask themselves, when embarking on retail projects.
“Is the design and construction schedule realistic and agreed by all? Is the leasing programme defined and timely? Does the construction contract allow for concurrent construction? Are reciprocal penalty clauses in place in case of delay?” said Kleinschmit who signed off with another interesting point. “A soft opening is not a strategy it’s an admission of failure. To truly open on time developments should be 95% leased and operating.”
Retail City 2008 which closes today (Tuesday 3rd June) brings together global retailers, investors, shopping centre developers, franchise networks, shopping centre management, architects and regional authorities to focus on all aspects of the retail development cycle.
Retail City 2008 has received solid backing from key industry players such as Saudi Arabia’s Mohammad Al Habib Real Estate Co. and Kinan International Real Estate Development Co. who have both taken Platinum sponsorship and AMS and Latin Organics who have taken Gold sponsorship. Silver sponsors include Beyoot Real Estate & Marketing, Duncan Private Wealth Management, LLC and Grand Optics
