Shopping malls in Makkah set to triple on higher pilgrim numbers

Shopping mall supply in the holy city of Makkah is expected to increase from approximately 280,000 sqm to 338,000 sqm in 2020, to reach 804,000 sqm by 2025 – a growth of almost 4 times, according to a report by real estate advisory firm Colliers International.

Increasing pilgrim visitations coupled with the completion of major infrastructure projects are expected to drive the development of shopping malls in Makkah city, mainly within close proximity to the Holy Haram, the report added.

Colliers expects this trend to intensify in the medium to long-term, as key retail projects in the planning stages are scheduled for construction in the coming years.

There are several strategic infrastructure and transportation projects, which have a clear focus on increasing pilgrim capacity and improving connectivity with key projects, including the Holy Haram Expansion, Haramain High Speed Railway, and King Abdulaziz International Airport.

These projects, alongside Vision 2030, are shaping the city’s real estate landscape and stimulating the development of several large real estate projects in their surrounding areas, including King Abdulaziz Road, Jabal Omar, Thakher City and Ru’a Al Haram. These projects are creating opportunities for the development of various retail formats that target pilgrims.

Makkah has a shopping mall supply of 140 sqm per 1,000 persons. This is significantly lower than other primary cities considering that the holy city received around 8.5 million international pilgrims in 2017 (around 6.8 million Umrah pilgrims and 1.7 Hajj pilgrims), the report added.

The city has considerably lower shopping mall density than Madinah (-32 percent), even though Makkah has a larger population base (43 percent), a higher number of international pilgrim visitations, and shares similar demographic and income level structure.

Makkah’s market is nascent and lagging behind, suggesting that there is either untapped potential for the development of shopping centers or market conditions are challenging to support supply growth.

77 percent of Makkah’s retail supply is fragmented, comprising traditional souqs and line shops, whereas showrooms and organized retail (i.e. shopping malls) account for the remaining 23 percent.

Makkah’s top 5 developers account for 49 percent of the city’s total mall-based supply. Colliers expects to see more consolidation in the future (akin to the potential merger between Jabal Omar and Umm Al Qura), and large-scale developers will likely continue to develop a sizable portion of the future supply.

The report, however, identifies some key challenges for Makkah’s retail sector, such as, shortage of suitable land plots for mall developments, high land prices relative to other cities, hence less commercial viability of horizontal regional and super-regional malls, high infrastructure cost given Makkah’s mountainous topography, and residents’ preference towards shopping in Jeddah.