Space To Shop

As of 1Q2014, Qatar was home to 13 operational malls, with 14 new malls, or 1.228 million sqm of net leasable area (NLA) on the horizon. Of these future mall projects, six are on track to open their doors by the end of 2015, adding 384,500 sqm of retail space and boosting existing capacity by approximately 67%. By the end of 2015, the anticipated NLA will be an estimated 954,500 sqm. And by the time all of these projects are completed, there will be 27 malls in the country, with a total NLA of 1.8 million sqm.

Organized retail space (malls, chain stores, and large retail entities) in Qatar currently offers around 300 sqm for every 1,000 people—but once planned projects are wrapped up, this will rise to 0.9 sqm per head. However, other retail spaces are in the majority in terms of space, with a total of 1,380 sqm per 1,000 people (the highest in the world). The US, with its established retail markets, trails Qatar with 1,030 per 1,000 people. However, in Qatar, this dynamic is evolving as organized retail growth outstrips its less organized counterpart. By 2018, organized retail is expected to command the majority of retail activities.

A NATURAL FIT

One factor behind this trend is the region’s consistently improving infrastructure. Increases in power generation, and advances in water treatment and cooling systems are enabling everyone from architects to retailers to take advantage of economies of scale. Meanwhile, Qatar is streamlining entries and exits to and from the country—partly in preparation for the 2022 World Cup—and the immediate outcome is an increase in travelers arriving for shopping and leisure excursions. Brands notice these developments, and move into the market as well, causing a chain reaction.

From a sociological standpoint, the modern evolution of housing and communal space in the region has also driven the rise in malls. Residential architecture was forced to leapfrog decades of development in a short period of time, resulting in a predominance of gated communities and suburban style housing arrangements. The rise of a car-culture effectively guaranteed that malls would occupy an important sociological and economic place at the center of Qatari life. Much like their residential counterparts in the gated community, malls in Qatar effectively contain and institutionalize interaction in society and allow socialization to conform to societal norms. This formula works well throughout the region, and both young and old flock to these malls.

GENERATING VALUE

Due to their multifaceted role in the country, these malls draw large crowds for longer time periods than their western counterparts. Sales densities consistently reach around $1,800 per square foot per year of the gross leasable area (GLA). This also plays out in the form of projects such as the $900 million Mall of Qatar being built in Doha by the Qatar based Urbacon Trading & Contracting, which is due to open in 2015. Qatar is an attractive destination for retailers as a result—vacancy rates are low in established malls, and the best locations are in demand, allowing realtors to charge high prices. For many spaces, the cost of retail space has risen by 90% or more between 2006-13, with the most expensive sites such as Villaggio and City Center, commanding prices of at least QR310 per square meter a month in 2014, up from around QR150 per sqm in 2006. With occupancy rates at around 90%, high-end malls are able to charge these rates. And with strong sales of $1,800 per square foot per year in stores, everyone wins.

This paucity in organized retail space in late 2013 set in motion investments that are rapidly changing the nature of retail in the country. Qatar’s bounce back from the 2008-09 market slump positioned the country as an ideal investment for investors chasing the first signs of recovery. The fields are fallow, as most residents still patronize scattered shops and traditional souqs (by a margin of 70%), according to Al-Asmakh Real Estate, with malls accounting for only 18% of commerce and a further 5% comprising standalone supermarkets and hypermarkets in 2014. By the time all the malls in the pipeline are completed, the share of the market covered by organized retail space will rise from 18% (as of mid-2014) to 65% according to Al-Asmakh Real Estate Development (AREDC). In other words by 2018, the majority of retail activities will be controlled by malls and similar retail spaces.

Mall and retail distribution is overwhelmingly centered in Doha, with 60% of space according to the 2010 census, followed by Al-Rayyan, with 28%. No other population centers in the country control more than 4% of retail activity, making the current outlay somewhat bi-polar. Of this retail space, 70% is in the form of un-organized retail. While the malls cater to the top-earners and tourists, a large part of the un-organized sector caters to the country’s immigrant working class. In addition to carrying cheaper goods, many of these small retailers are located outside the periphery, and cater to outlying housing facilities that cater to construction and service sector workers who are bussed in to work on a daily basis. Another 7% of the market is dominated by souqs and 5% by hypermarkets such as LuLu Hypermarket, which serves as a grocer, housewares purveyor, and department store.

In 2015, observers are wondering whether this boom has lead to a glut in the market, while others counter that smaller outdated malls will be pushed from the market in favor of stronger, more recent entries. Looking to the future, AREDC research points to a number of areas where retail will perform well in the coming years. The two product categories with the strongest current demand were fashion and lingerie, and goods sold by luxury brands with a 23% and 15% demand factor respectively. Both categories represent high-value sales, and with stabilizing rental prices and occupancy, growing population and employment rates, and a growing per-capita income, there is no reason for investors not to bet on the luxury and retail sectors.