Restaurants with strong concepts and efficient business models need not be concerned with high rents from landlords in Dubai, according to the CEO of Dubai Retail, the retail management arm of Dubai Holding.
“Look at Dubai. It’s a very tough, competitive environment, but the concepts, whether international or homegrown, that are performing well have good operating models,” Nabil Ramadhan said in an interview with Arabian Business. “They are not complaining.”
Dubai Retail’s restaurant management company, Sarood Hospitality – formerly known as JRG Dubai – has a portfolio of 25 F&B brands, including 11 homegrown concepts. Its restaurants include The Noodle House, Al Nafoodah, Pierchiec, Khaymat Al Bahar, Trattoria Toscana and Flow.
While Ramadhan declined to comment specifically on other landlords in Dubai, he said “it’s all about supply and demand”.
“If you, as an operator, run your business efficiently and effectively….it all comes to sales,” he added.
Ramadhan acknowledged, however, that high rents in some cases led to slower growth, but said that restaurants with efficient business models will still grow.
“The growth percentage probably drops, but not to negative,” he said. “If they were at 7 or 8 percent, they are at 3 to 5 percent.
“At the same time, you have certain landlords who have adjusted to the market,” Ramadhan added. “We need to be fair to the landlord.”
Additionally, Ramadhan said restaurants that find themselves with rent to sales ratios of 50 percent, the “model is wrong”.
“That’s the challenge. It’s not the landlords’ fault if the rent to sales ratio is too high,” he added. “There is something wrong with your concept or the way you promote it, or the original business model. It’s a two-way street.”
Concerns in Dubai
In the past, a number of Dubai F&B operators have expressed concern that high rents have led to some concepts not surviving.
In January, for example, Samer Hamadeh, the founder and managing partner of Aegis Hospitality, a Dubai-based nightlife and restaurant management company, told Arabian Business that the industry faces a serious challenge from a minority of “short-sighted” landlords and “inexperienced operators who accept ridiculous terms.”
“High rents are a reflection of lack of experience, instead of being a reflection of something more logical, like guaranteed footfall,” he said.
“New hotels, malls and locations with zero footfall charge rent based on ‘market rates’, which I find ludicrous in a developing market. Rents should be charged based on formulas and not ‘what the neighbours charge’.”
These issues, along with a lack of financial planning, have led to businesses failing early on, and, according to Hamadeh, are in turn a reflection of a lack of relevant experience, which he said is “the most important factor” in a place such as Dubai.
In March, another operator – BB Social Dining co-founder Spero Panagakis – said that landlords often demand that F&B tenants pay the “highest price possible” for rent, and sometimes request that F&B outlets submit quarterly cheques in advance, resulting in tight cash flow.
“Landlords need to be more flexible with their tenants and should be working together to support the communities,” he said. “They are still striving for the highest price possible…we are the one of the only regions in the world still paying by cheque and also paying quarterly in advance, which puts too much pressure on cash flow.”
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