Real Estate

Helping breathe new life into shopping centres

From creating new shopping centres to reinvigorating older centres, McArthur & Company offers its global expertise to steer new regional developers in the right direction, reports Dennis Daniel

he two biggest mistakes shopping centre developers in the Middle East make are inadequate planning and formulating strategies based on intuition. The primary reason is lack of prior experience in shopping centre development. But things are changing as developers get more familiar with international standards and best practices and learn how to implement them in their facilities. The learning curve isnt easy to navigate. They need someone to advise them and point out their lack of preparedness. They need someone to help them build a longterm vision of what retail development is all about and create a roadmap of where they see themselves in the future. In other words, developers need to consult the right people with global expertise people whove tested the waters and seen both successful and failed retail ventures. New developers are increasingly seeking the guidance of shopping centre specialists who provide advisory services in development and design, merchandising, leasing, asset management and so on. These experts analyse market conditions, find opportunities, ask tough questions and get to the bottom of why a shopping centre essentially a real estate investment above everything else performs in a certain way or doesnt. Novice developers believe the same strategy applies to building residential, hotel and retail complexes. They couldnt be more wrong. Each project needs to be approached with a different strategy. Developing and managing a mall requires expertise, discipline and skill in making everyday judgements, points out Phil McArthur, managing director, McArthur & Company. McArthur has been in the shopping centre business since 1981, working with developers in North America and emerging

The companys list of illustrious projects include Deira City Centre, Mall of the Emirates and Dubai Festival City in the UAE, Guildford Town Centre and Metropolis at Metrotown in Canada, IFC Mall in Korea, and Muscat City Centre in Oman. More recent clients include Baghdad Mall in Iraq and Mall of Qatar in Doha.

Inexperienced developers can benefit from timely advice

McArthur feels retailers and landlords in mature markets such as North America have a clear understanding of their role and how they fit into a developers long-term vision. Things are different in the Middle East, where a clutch of inexperienced developers and retailers without any solid business strategy entered the business in the early 1990s. McArthur viewed this situation as an opportunity, given the sudden explosion of shopping centre development in the Middle East, particularly in the UAE, since the mid-90s. He had another reason for setting up base in the UAE shopping centre growth worldwide is currently happening outside North America and Europe, primarily in Asia - including the Middle East region, South America and Russia. The likes of Majid Al Futtaim and Emaar have raised the bar for shopping centre development in the UAE, setting standards in the region over the last two decades. But most other shopping centres lack the expertise or vision in terms of a strong business strategy built around real estate investment, marketing, leasing, customer service and so on, explains McArthur. When we deal with such developers, our brief goes beyond just designing the mall, selecting the tenant mix and leasing retail space to include streamlining the

Phil McArthur: hire the right people

markets in the Middle East, North Africa and Asia. So with over 40 successful shopping centre projects in his portfolio he understands retail and shopping centres, the heart of his approach being to create customer centric, well-executed shopping centres that generate strong returns for the investor. He founded McArthur & Company in 2011, with offices in Dubai and Toronto, to provide comprehensive advisory services to developers in new exciting global markets such as Dubai and Abu Dhabi (UAE), Muscat (Oman), Cairo (Egypt), Beirut (Lebanon), Riyadh (Saudi Arabia) and New Delhi (India), its basic philosophy being to add real financial value to each retail development project - ranging from development and design to merchandising, leasing, operations, marketing, branding and investment management.

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Real Estate

malls finance and operations departments as well as housekeeping and staffing, especially the number of people required to run the mall on opening day, he adds. Take the case of Mall of Qatar. Originally called Al Rayyan Mall, McArthur suggested the developers adopt a brand name that reflects their grand vision and is easier to market. The developers hadnt built or managed a shopping centre before Al Rayyan Mall. Their staff was inexperienced in this area of expertise; so they really werent up to the task and put in their resources to the best of their ability, says McArthur. There was an even more fundamental question that needed to be answered first. Does Qatar need a super-regional mall and will it face the risk of market saturation. With over 1.7 million sqft of GLA on three levels, Mall of Qatar will have 400 shops including a hypermarket, five department stores, over 20 international restaurants and an indoor streetscape with double height flagship stores. Add to that the 2.7 million sqft GLA Doha Festival City, which will feature over 500 shops offering a selection of international and local brands and more than 70 restaurants and cafes. A recipe for market saturation? This is where global expertise comes into play, feels McArthur. He believes theres space for all players, with super-regional malls having a certain traction thats missing in smaller malls. Its all about the variety and quality of stores and their execution in the mall. The Dubai Mall proved this when it opened over 1,200 stores spread across 3.7 million sqft of leasable space in the midst of a highly competitive market. That business model proves that people will drive past 10 malls to visit a superregional mall such as The Dubai Mall. So Doha will definitely benefit from having mega shopping centres such as Mall of Qatar and Doha Festival City, explains McArthur. We have received strong support from the retail community in our preliminary assessment of the Greater Doha and Qatar markets. The philosophy of the shopping centre project completely mirrors our vision to deliver a high quality retail experience for the malls expected 20 million plus customers a year. The modern

Mall of Qatar

consumer loves the opportunity to shop in an environment that is large enough to host all the great brands and offers a multitude of reasons to visit week in and week out, he adds.

Established developers, too, need to rework their growth strategies

Since super-regional malls will always be the biggest draw for visitors, McArthur feels smaller malls need to take a fresh look at how consumers view them in a retail scenario of equally good or better malls developed over the years. He warns such shopping centres not to see themselves in a single development cycle, pointing out that old, iconic centres in the UAE can devise new strategies to reposition themselves in the market so they continue to remain relevant to their consumers, both residents and tourists. A developer could get everything right, from buying land in the best location to designing the mall, leasing and managing it well. But then along comes a competitor who develops a bigger project nearby. So what can the developer do? There are ways for them to continue turning in a profit despite competition and loss of market share, McArthur observes.

His words of advice to both established and new developers: hire the right people with expertise if you wish to remain competitive. According to him, the management of big shopping centres should ideally have global experience in different markets, not just in one or two malls in a single market. They should have worked in difficult environments in both good and bad malls across several markets. McArthur also urges shopping centre developers to talk to their retailers on a daily basis. He warns that developers who are interested in only rents and are disconnected from the performance of their tenants do not have a future in the business. Developers should take an interest in tracking the sales performance of each tenant in a mall. Any conversation on sales will automatically lead to the issue of rents. So developers can be in the know and do not to need to push rents to levels their retailers cannot afford. On their part, retailers can agree to pay a certain percentage of their sales as rent depending on their sales margins. This helps build a stronger relationship between the landlord and tenant and automatically contributes to the long-term financial growth of the shopping centre, concludes McArthur. n

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