Real Estate & Construction
Energy companies are not on the market for more office space, and commercial retailers are beginning to feel the pinch, with no short-term alternatives in the pipeline. While falling demand can send investors scrambling for the exits, Qatar’s realtors remain bullish. The government’s infrastructure investment alone is valued at $71.68 billion, which generates demand across the wider real estate sector. One outstanding example is the hospitality sector where the branded hotel market alone grew over 80% from 16 in 2009 to 29 in 2014. Meanwhile, the government has removed insecurity by outlining exactly how, where, and when major growth will take place. The Qatar National Tourism Sector Strategy Plan 2030 has allocated $45 billion for tourism projects over the coming 15 years, taking into account the 2022 FIFA World Cup and beyond. Qatar’s real estate market is already starting to feel some of the effects of this spending.
So where does the market stand? The answer is mixed, but generally ahead of its regional peers. Between 2009 and 2014, 65% of Grade A office lettings in Doha were undertaken by government departments, semi-state bodies, and oil and gas companies. As of early 2016, fortunes have changed and these same renters have largely withdrawn from the office market. In a country such as Qatar, state organizations acquire the lion’s share of their funding from energy revenues, making them the first in line to cut costs under current circumstances. Private sector firms are holding on, however according to DTZ research, their impact is more pronounced in the under-250 sqm rental market. This oversupply is exacerbated by a slew of new projects that are coming online.
In the residential market, the rental demographic is undergoing a defined shift towards lower- to middle-income renters. This change represents the economic characteristics of new arrivals who fill service industry jobs. So while the population grows, new arrivals are not as wealthy as their more established counterparts. This is not bad news, however, as it will drive diversity in the real estate market.
Not everyone is staying, however, and local news sources are full of accounts of expatriate workers being laid off, and leaving the country for opportunities elsewhere. These same stories never fail to solicit the opinion of realtors, who note with consternation that long-term low prices are making it impossible to raise prices, and might eventually lead to a readjustment. As 2016 transpires, the general lag between downturns and property prices should kick in, forcing a temporary halt to price increases.
With 300,000 sqm of new Grade A office accommodation will become available over 2016 and 1H2017 according to DTZ research, increasing the risk of downward pressure on rental prices in Doha. The QP (Qatar Petroleum) district represents more than 200,000 sqm of this new space, but some may not be available to the market, according to a Gulf Times report. Meanwhile, developments set to come online in Lusail, a new coastal city with World Cup aspirations, are especially likely to increase downward pressure on rental levels as landlords compete for tenants.
As of early 2016, grade A offices in West Bay commanded up to $77 monthly per sqm for suites under 500 sqm. For large rentals or buildings of lower quality, rents averaged closer to $44 per sqm per month. Office rents in secondary locations such as Old Salata, Al Sadd, Airport Road, and the C/D Ring Roads commanded between $33 and $50 per sqm, based on factors such as building quality, location, and accessibility.
As a final note, while government and energy sector renters are cutting back, professional service companies are the only group to register an outstanding increase in demand for grade A offices in 2015 and likely into 2016 as well. Even tech companies are taking it easy for the time being. This stems from a wider trend in the local economy as firms rely on outside consultants to trim the fat and reorganize companies in line with market realities.
Qatar’s population is going up, and that will not change any time soon. Over the past decade this phenomena has underpinned demand for residential property, which continued throughout 2015. By YE2015, the recorded population was 2.42 million, an 8% increase YoY. In fact, rents have risen so dramatically of late that the Shura Advisory Council met in late 2015 and issued a statement calling for a state response to the problem, perhaps by instituting rent controls.
However, the market might be a step ahead, inadvertently. As 2015 drew to a close, layoffs and frozen hiring both lowered tenant demand and caused worried landlords to abstain from price hikes. Market realities also pushed cost-conscious renters to new neighborhoods. Areas such as Najma, Umm Ghuwailina, and Al Mansoura saw a rise in demand as tenants sough out more affordable accommodation.
Meanwhile in more expensive markets like Al Sadd, Bin Mahmoud, and Al Mirqab, rents softened as fewer high-earning expatriates entered the job market. This was especially pronounced in corporate lettings, where in the past, multinationals had rented out entire residential blocks and compounds for their staff. As an alternative, companies are letting individual renters search out more cost-effective housing, choosing instead to provide a rental allowance. Without these arrangements, more and more residential apartment blocks are becoming vacant, as some landlords struggle to secure such corporate leases.
DTZ estimates that the supply of new apartments will increase by between 30-40% in 2016. Much of this will be in Porto Arabia and Viva Bahriya, where thirteen new towers are near completion. These developments are likely to undercut price gains in the prime residential market, and have the potential to see rental levels fall further unless their introduction to the market is staggered or demand picks up later in 2016. Meanwhile, prices on freeholds have been on the rise since 2011. By late 2015, however, sales stabilized and are threatening to move in the opposite direction. The highest rate of sales took place in Porto Arabia, where local investors lead transactions on resold units trading at between $3,570 and $4,120 per sqm. New units are moving in the area of $4,670 per sqm. These recent prices put such apartments close to their 2007-08 highs of just under $5,000 per sqm.
WELCOME TO THE
In 2015, DTZ estimates that the 13 new hotels added to the country’s registry added some 1,900 rooms to the existing stock, bringing the total up to 18,400, representing a 10% growth annually. Of this total, approximately 84% are classified as either 4-star or 5-star. Finding a hostel is a bit more of a challenge. Meanwhile, the Qatar Tourism Authority (QTA) announced that during 1H2015, tourist numbers rose by 7% to 1.53 million.
The tourism industry is expected to gain momentum in the coming year, the regional downturn notwithstanding. Without proper management, major sporting events can actually have a detrimental effect on local economies, driving resource mis allocation and distorting infrastructure requirements. Squatters took up residence outside some of Brazil’s stadiums less than a year after tourists flooded into seats to watch the spectacle, a result of poor implementation.
In Qatar, new stadiums are being built as part of a comprehensive urban development strategy that will leave behind viable spaces for commerce, residential quarters, and social cohesion. The Qatar National Tourism Sector Strategy Plan 2030 intends to invest $45 billion in tourism projects over the next 15 years. The World Cup is the linchpin of an extensive plan to attract tourists from outside the GCC. The plan sets an ambitious annual target of 7 million visitors by 2030.
Qatar’s 2022 FIFA World Cup obligations will be tested in the medium term as the supply of hotel rooms is rushed to meet the millions of visitors that will start arriving. If Qatar can establish itself as a sporting and leisure hub of the region, millions of enthusiastic football fans across the Middle East could make the country a destination. According to data released by QTA in 2015, 80 hotels and apartment-style hotels were under construction, enough to supply 18,000 more rooms over the next three years.
BUY BUY BUY
In order to extract as much revenue as possible from visitors and locals looking to splash out, malls are under construction in every space where the materially minded might find themselves. In early 2016, DTZ estimated that 1.3 million sqm or more of retail space were under design or construction, and set to open by 2019. This is a 220% increase on current supply, and once completed, these new spaces will fundamentally reorient the retail market of Qatar, towards a mass consumption model similar to Dubai.
Organized retail space in Qatar was estimated at 643,000 sqm at YE2015, split between 14 retail malls. The two largest, Villaggio Mall and City Centre Mall, account for 39% of the total supply. Prime malls can command monthly rents that range from $70 to $82 per sqm for standard line units. For larger anchor stores, rents are far less at $11 to $22 per sqm per month.
Retail rents have been rising for more than a decade now in Qatar, and major retailers are now backing these new construction projects to manage their long-term costs. Strong pre-letting activity at a number of the new malls under construction underscores sector-wide confidence in the viability of these projects. International brands have been especially committed to these new developments including Mall of Qatar, Doha Mall, Doha Festival City, and Place Vendome.