New Malls Cropping Up Across Iran

Construction noises are rumbling these days from a vast site in the Iranian capital where the city’s latest megamall is taking shape.

The project—the 2.7 million-square-foot Iran Mall in Tehran’s northwestern outskirts—is part of a new crop of shopping centers sprouting up across the country, reshaping its retail landscape as the Persian Gulf state comes out of years of crippling economic sanctions.

The mall, built by real-estate and industrial magnate Ali Ansari, is one of roughly 300 retail properties currently under construction across the country to meet growing consumer demand at home, according to Boris Planer, the chief economist at Planet Retail in Frankfurt, the Wall Street Journal reported.

Tehran’s new shopping options run the gamut from small neighborhood commercial centers to midsize malls focused around luxury brands to behemoths like Iran Mall, which includes an ice rink, musical fountain, central garden, attached hotel and exhibition center.

Clothing, footwear and other goods that might be available in malls accounted for about 17% of Iranian urban household spending, according to Iran’s most recent central bank survey. Spending on these items has been rising briskly, too.

  Boom in Consumer Spending

Among Iran’s mall developers, the hope is to capture the boom in consumer spending at home, before it goes to better-developed shopping destinations abroad.

“You have a middle class that has money and is brand-conscious and has a modern lifestyle,” Planer said.

During the sanctions era, wealthy Iranians avoided holding cash because of the weakening of the Iranian rial and rampant inflation, which peaked at above 30% annually in 2013. Those trends helped divert capital into real estate, including malls, which were seen as hedges against the turmoil.

But a large number of those malls were basic and mostly sold locally manufactured goods or those imported from China and Turkey that were still willing to do business with the sanctioned country.

Among the large tenants in the country’s more recently built malls are LC Waikiki, a Turkish clothing company with a store at Tehran’s Palladium mall and another at Karaj’s Bell Center, and Hyperstar, a combined supermarket and department store at Isfahan City Center run by a company based in the UAE.

Mall developers hope there is demand for modern, western-style shopping centers, especially after last year’s nuclear deal. The deal, which lifted many of the economic sanctions on Iran in exchange for curbs on its nuclear program, went into effect in January.

While international trade has not picked up as much as Iranians hoped—banks are still wary of financing Iranian ventures—numerous foreign retailers have begun to eye the market seriously.

Roberto Cavalli, the Italian high-end fashion brand, opened its first store in Iran in February.

That is good news for Masoud Sarrami, a 60-year-old wealthy industrialist who built Iran’s largest mall, the five million-square-foot, $1 billion Isfahan City Center.

“Removing sanctions eases the path for brands that couldn’t enter Iran before,” said Sarrami.

“If they continue to develop, Iranian malls could eventually attract spending that otherwise would have gone to the popular shopping meccas of Dubai or Turkey.”

Some western mall retailers already are active in the country, including Spanish ready-to-wear clothier Mango, but big foreign brands are still relatively sparse, leading wealthier consumers abroad.

“I am going to do the same in Iran like Dubai and Turkey did,” said Sarrami, a serial entrepreneur who started his first business, a home-based candle-making operation, when he was five years old.

“Turkey has a history, but we have the same history in Iran. What we need is shopping.”

Sarrami said the mall he opened in 2012 in Isfahan, a cultural center and former capital, has been a success.

  Focus on Tehran

Much of the newer mall development has focused on Tehran. In the capital’s metropolitan core, which has a population of around eight million, consumer spending last year was around $4,300 per capita, according to Planer’s estimates, about on par with the Middle East average.

But Tehran’s spending is concentrated: It has the second-highest spending per square kilometer—a key metric for retailers—in all of the Middle East and Africa after Johannesburg, Planer said.

Up-and-coming Tehranis gravitate toward a luxury niche targeted by new malls, including the Palladium and the Arg complex, which opened last year near Tajrish Square in the north of the city, developers say.

“Iranians like luxury styles,” said Hossein Mahmoudi, a well-known investor and architect. “They don’t like minimalist forms. They like to show their wealth through massive structures to show their empire.”

Still, on a busy Thursday afternoon at the Arg complex, many shoppers said they didn’t plan on abandoning their shopping trips abroad.

“Even though we have big malls here, we prefer there because the clothes and materials we find there fit our tastes,” said Kimia Rezvani, a law student. “We also enjoy the trip.”

Some observers are also beginning to worry that the mall boom has gone too far.

Residential real-estate construction in Tehran boomed five years ago as sanctions intensified, but subsequently plunged as President Hassan Rouhani’s administration brought inflation under control and negotiated the nuclear deal with six world powers. Investment in commercial property has enjoyed a similar uptick and may now be due for a correction.

“Today, you look around and see malls are all over the place, one next to another,” Mahmoudi said.

Iranian e-commerce startups like Digikala and Bamilo, both of which sell a wide range of electronics, household goods and clothes, could provide another source of competition for local malls.

As the nuclear accord ushers in a period of stability, Planer predicts many global retailers won’t be able to resist the temptation to invest in Iran’s consumer boom.

“If Iran opens up with political stability and a stable outlook, it will be the next big story in the Middle East region,” he said.