May 2010

The retail sector is leading from the front in the regions ambition to move away from oil dependency towards a diversified economy. The industry is buoyed by factors such as healthy population growth, rising per capita income, growing middle class, enhanced service sector and a burgeoning travel and tourism sector. Moreover, the modern shopping malls anchoring state-of-the-art hypermarkets, highly developed free trade zones, various shopping festivals/events and favorable taxation provide further growth impetus to the sector.

Currently, retail mall projects of about 6 million square meters of Gross Leasable Area (GLA) are underway scheduled for completion by 2012. The race for more retail space in the GCC is not restricted to local participants; many foreign retailers have initiated retail operation in the region to leverage on the substantial growth prospects.

The rising GLA in the retail space is expected to be matched by demand growth in the sector. Alpen Capital estimates GCC retail demand growth at a CAGR of 9.5% in 2010-12. For 2010, the report projects the industry growth of around 8.3%. Growing population (CAGR of 2.9% until 2012) and rising per capita expenditure (CAGR of 5.6% until 2012) are key underlying reasons for this demand growth. Moreover, Alpen Capital expects robust growth in retail demand from travellers in transit (airport retail) and tourists. Pharmacy and electronic sales, although small in terms of contribution to the total retail scale, are also posting signs of healthy progression.

Non-discretionary retail segment to lead growth frontier

Alpen Capital expects the non-discretionary retail segment to continue to register healthy growth momentum in 2010 while the luxury discretionary segment is likely to remain subdued. The report expects revival in demand generated from tourists and passengers in transit to provide a further boost to retail sales in 2010.

Retailers with focus on non-discretionary goods will continue to outperform in the short term while those promoting discretionary products, large ticket items in particular, may face challenging market conditions for a while still. However, over a medium to longer term horizon, Alpen Capital foresees investment merit also in more cyclical discretionary goods segments.

Growth in retail space to match growth in demand

Assuming that the occupancy rate of 60% for the incremental organized retail space in the GCC region in 2010, 65% in 2011 and 70% by 2012, Alpen Capital's moderate growth scenario projects that the GCC occupied retail space would grow at a CAGR of 9.9% in 2010-12, in-line with its demand side estimate.

For more details please click here to access the complete version of the GCC Retail Industry Report 2010.