RETAIL GUSHER

SAUDI ARABIAS RETAIL SECTOR IS UnDERGOInG A MAJOR GROWTH SPURT

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T NIGHT THE MALL OF ARABIA LOOKS LIKE A SPACESHIP about to lift off, with all those gleaming, translucent windows and its curving facade ringed by green and blue lights. The four-floor property, built by Arabian Centres Real Estate in 2008 in Jeddah, Saudi Arabias second-largest city, boasts some 300 shops and about 1.1 million square feet of gross leasable area. This makes it one of the largest malls in town though perhaps not for much longer, given what is now in the pipeline. Meanwhile, Saudi retail figures have been climbing. Retail sales grew by 25 percent year on year in the first quarter, according to Jones Lang

THE 1.1 MILLION-sQUArE-FOOT MALL OF ArAbIA, IN JEDDAH

LaSalle. The Economist Intelligence Unit values the retail sector at some $90 billion and says that could hit $139 billion by 2017. Saudi Arabia has roughly 20 percent of the worlds petroleum reserves in its eastern province. And the country has a young and affluent population that is eager to spend. Some 60 percent of the 30 million Saudi people are age 30 or younger. Salaries have jumped by about 55 percent between 2009 and 2012, according to HSBC, thanks in part to employment in the public sector and to a new minimum wage. Real GDP grew by 6.8 percent last year on high oil production and expansionary fiscal policies. Consequently, the signs of development are just about everywhere in Saudi Arabia these days. Jeddah, with its population of 3.8 million, has several big projects in the works. The total retail stock could grow from about 9 million square feet today to nearly 11 million square feet by 2016, according to Jones Lang LaSalle. The Flamingo Mall, which Castle House Investment & Real Estate Development built in the western part of the city on Prince Majid Road, is the newest to open. Jeddah-based SEDCO Development is planning to open the Galleria, on Tahlia Street in Jeddahs business district, later this year. This elegant building with classic stone columns, balustrades and arches is a combination luxury mall and five-star hotel, managed by the Elaf Group.

In the citys seacoast resort area, known as Jeddah Corniche, Zahran Real Estate Investment & Development Co. has been building the Lamar Towers, which will combine luxury housing with the high-end Lamar Mall. The project will comprise a 13-story podium containing the mall, a luxury spa, and a parking garage; twin glass towers, each providing a view of the Red Sea, will rise an additional 50 stories. Originally begun in 2007, the project languished until its restructuring and refinancing this year. The new completion date is 2015. Jeddah benefits from being a major gateway to Mecca, to which some 2.5 million Muslim pilgrims from around the world come on their hajj each year. The city itself is seeing new development with the opening of Arabian Centres Makkah Mall in 2011. Jabal Omar Development Co. has started work on a 24 million-square-foot project near The Grand Mosque, a project that will contain 38 hotels and reportedly become the largest shopping center in Saudi Arabia once it is completed in 2017. Riyadh, the capital city, with nearly 6 million people, has projects of its own that are now under way or nearing completion. Fawaz Al-Hokair, which owns Arabian Centres Real Estate, announced an aggressive expansion in that city. Besides its Al Nakheel Mall, set to open next year, the firm is planning to complete two additional major retail centers there: the Al Hamra Mall and the Malaz Mall. Fawaz Al-Hokair also says it hopes to build a Mall of Arabia in Riyadh in 2015, despite the existence of the one in Jeddah. Majid Al Futtaim, one of the most prominent development firms in the Middle East, anThe Economist nounced the possibility Intelligence Unit of a regional or superregional mall of its own values the Saudi in Riyadh. retail sector at some The most ambitious undertaking in Riyadh $90 million is the King Abdullah and says that could Financial District, a joint venture of the hit $139 billion Capital Market Auby 2017. thority and the Public Pension Agency, which will feature shops, palmtree-lined promenades along indoor waterways, sports fields under retractable roofs, a business school and a monorail on its 1.3 square-mile, teardrop-shaped site. This nearly $10 billion project, originally launched in 2006, is intended to help the kingdom consolidate its position as the Middle East financial capital. Tenants
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were expected to begin moving in this year, but response has been slow. Elsewhere the scale of malls seems to be shifting, according to Craig Plumb, head of MENA research for Jones Lang LaSalle. The emphasis will move toward small local centers as the major cities become increasingly crowded with major malls, he said. There is room for still more regional centers, he says. Indeed, Arabian Centres is looking at underserved smaller cities. We have been witnessing a shift in the development vision of the mall investors from poorly planned centers to a more sophisticated international retail development approach, said Phil McArthur, president of Dubai-based McArthur & Co., which handles development, leasing, operations and marketing for shopping centers in the region. Large suburban centers located on major arterial roads are now opening at a rapid pace. Its quite exciting to see the sales performance of the market. The disposable income

gains among the younger people and their increasingly demanding tastes are driving the retail expansion, he says. The trading dynamic in Saudi Arabia has been changing significantly in the last three to four years as international retailers have begun to discover that the core wealth, population density and consistency of business during any economic period is in fact in Saudi Arabia, said Simon Wilcock, CEO of Arabian Centres. Saudi Arabia is keeping up with the booming United Arab Emirates, at least when it comes to shopping, he says. There is very little difference in the nature of consumer habits between the Gulf states, he said, Only [in] what they have access to. Plumb says the current retail landscape is dominated by Western brands, but there is encroachment coming from Saudi names, as well as merchandise coming from China and India. Interestingly, these retail-spending gains are coming despite the religious

edicts of this conservative Wahhabi Islamic society: movie theaters and concerts are banned, and women are not allowed to drive and they must cover themselves from head to toe when they are out in public. None of this is keeping the ladies from shopping, though. Saudi women have no problem getting to the malls, as many have drivers or family members to take them, said McArthur, whose firm recently completed a 50-mall tour of the country to rate the best shopping centers on behalf of a major U.S. retailer. We noted the malls are extremely busy in the evenings, with families and women shopping like anywhere else in the world, he said. Another positive development he notes is that many Saudi women are employed in the retail sector as sales assistants and cashiers. And these retail workers are staying busy, to be sure. The malls are filled with young families and other shoppers eager to see what the world has to offer. SCT
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