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Weakening oil prices have resulted in further cuts iDTZ Qatar’s Q1 2016 report reveals a significant drop in demand for new office lettings as government departments, semi-state bodies and oil and gas companies have largely withdrawn from the office market. These bodies had accounted for 65 per cent of Grade A office lettings in West Bay between 2009 and 2014. However, most of the leasing activities now are driven by private sector companies, which are primarily looking for spaces that are less than 250 square metre (sqm).
Martin Cooper, Director, Real Estate, Deloitte, says, “Low oil prices may create headwinds for Qatar’s real estate market as low oil prices typically translate into lower levels of liquidity, both in terms of the availability of development finance for real estate projects and the availability of end-user finance such as mortgages.”
Although the county’s growing population has helped maintaining demand for residential property catering to the lower- to middleincome demographic, the recent redundancies in the hydrocarbon sector resulted into increasing vacancy in the prime residential segment. Qatar’s hospitality sector has also come under pressure due to increasing supply amid subdued market demand. The retail sector, however, performed reasonably well as there hasn’t been much supply into the market since early 2015, although a number of new malls are slated to open later this year.
However, if compared with other major regional real estate markets, Qatar has done reasonably well due to the fact its property sector still has very minimal exposure to foreign investors – something that helped it mitigate the effects of economic slowdown and weakening currency in some of the source markets.
Qatar’s commercial leasing has historically been driven by the government sector, which has now withdrawn from the market due to oil price drop, resulting excess supply in the market, primarily in the West Bay area.
“A number of office buildings in West Bay, that were completed between 2013 and 2015 were not released to the market in anticipation of leasing deals to government bodies. As activity in this sector dried up, the available space has now been put on the market, increasing the supply of available accommodation,” states the DTZ report. According to its assessment, West Bay currently has a total supply of 1.63 million sqm office buildings, of which approximately 0.24 million sqm is available to rent.
But not just the government sector, the latest trends suggest that even private sector companies are looking to downsize their current office space or relocate to smaller ones.
The supply into the market is expected to increase further in the next 12-18 months, with West Bay alone, according to DTZ, will see approximately 300,000 sqm of new office accommodation.This demand-supply mismatch is expected to impact the rental rates, which is likely to be compounded in the next 2-3 years due to the large pipeline of new supply, both in West Bay and Lusail.
In all likelihood, Qatar’s commercial sector will continue to feel the pressure in coming quarters. However, Mat Green, Head of Research & Consultancy, CBRE Middle East, says the country’s fundamentals are still very strong, particularly with steady population growth achieved during 2015. “While oil prices are expected to remain low, the Qatar government is increasing its investment in the non-hydrocarbon sector to try and bridge the gap and drive economic growth during 2016. With this increased investment, we do not see any significant downside for the real estate market,” adds Green.
Qatar’s residential sector has witnessed increasing supply in the recent months, resulting in growing level of vacancy in the primary and secondary apartment market. DTZ in its earlier report had stated that demand for apartments in areas such as Najma, Umm Ghuwailina, and Al Mansoura increased as tenants seek more affordable accommodation. As a result, rents in Al Sadd, Bin Mahmoud and Al Mirqab had started to soften in order to attract tenants. As more supply is slated to enter the market throughout the year, industry experts suggest, this trend of falling rents in the apartment sectors may continue in 2016.
Although Qatar’s real estate sector has received a further boost from growing population of the country, this increase has primarily been represented by lowerto middle-income workers in the construction and service sector. On the other hand, ongoing redundancies in the government and hydrocarbon sectors have resulted into reduced demand for good quality houses. However, the villa segment continues to maintain relatively high level of occupancy due to limited number of new supply.
It’s been also observed that companies now prefer to offer rental allowances to their staff rather than providing employee accommodation to keep their cost low. This has resulted into fall in demand for corporate lettings of entire residential buildings and compounds.
The Pearl-Qatar, which had witnessed steady increase in freehold prices between 2011 and 2015, recorded a fall in sales activities in recent months, resulting prices to stabilise.
Qatar’s tourism sector recorded an impressive performance by welcoming 2.93 million visitors in 2015, registering a growth of 3.7 per cent over 2014, according to Qatar Tourism Authority (QTA). The country welcomed 72 per cent more visitors in 2015 than what it did in 2010, representing an average annual rowth rate of 11.5 per cent over the past five years.
Cooper says, “This growth in foreign visitors reflects the ongoing investment that Qatar is making in hotel and serviced apartment rooms and wider leisure and tourism infrastructure. There are, however, some expected headwinds in Qatar’s tourism sector in 2016, which include a potential softening in demand as economic growth slows in key source markets.”
He says there is also a high level of pipeline inventory that will be delivered in 2016, adding to Qatar’s hotel and serviced apartment supply.
Following two years of limited supply, Qatar hospitality sector started seeing new supply coming in with the opening of 15 new hotels and service apartment buildings in 2015, increasing total number of hotel properties to 119.
According to data released by QTA, the supply of hotel accommodation in Qatar at the beginning of 2016 reached approximately 20,700 keys between hotels and hotel apartments. This reflects a 30 per cent increase in supply of rooms over a period of 12 month.
“This additional supply is predicted to intensify competition, which in turn could apply pressure to occupancy rates and average room rates going forward,” says Green of CBRE.
The occupancy rates in the hospitality sector declined in 2015 due to increase in supply. The trend is expected to continue even in 2016 and beyond as large number of new hotels that are being developed at the moment will enter market. As Qatar prepares for major events such as the 2022 FIFA World Cup, QTA estimates that room supply will double with 56 hotels and 13 hotel apartment buildings planned for the next five years, bringing with them an additional estimated 26,653 rooms to the market. Of these, 20 properties are due to open in 2016, increasing room supply by 4,000.
Increasing supply in the market is having an impact on the room revenues, which have been reducing in Qatar over the past four years. “This trend continued in 2015, as Average Daily Rates and Revenues per Average Room experience annual falls of 5.5 per cent and 8.5 per cent respectively,” states DTZ report.
The country’s retail sector has been benefitted from the increasing population, tourism numbers as well as high disposable income of residents.
There has not been much new supply since the opening of Gulf Mall in early 2015. This has helped existing malls to maintain high level of occupancy and attract good number of footfalls. However, the situation is expected to change dramatically as large number of new malls are scheduled to open from now.
“There are a number of mega-malls under construction in Qatar, which are intended to attract a regionwide footfall and will increase overall supply significantly n 2016. Under construction mega-malls that are scheduled to open in 2016 in Qatar include the 250,000 sqm (GLA) Doha Festival City and the 256,000 sqm (GLA) Mall of Qatar,” says Cooper of Deloitte.
According to DTZ, the current organised retail stock (shopping mall space) totals 643,000 sqm of leasable area. There is approximately 1.3 million sqm of organised retail stock under construction of which up to 815,000 sqm could potentially open by the end of 2016. The largest schemes due to open in 2016 include Doha Festival City and the Mall of Qatar project.
However, the retail sector continues to see growing demand from retailers who are looking to either enter the Qatari market, or expand their existing presence.
“New demand, coupled with the high occupancy levels in all of the existing malls, has resulted in strong rental growth in the past 12 months,” states DTZ report.
Source: SA Kader, Special to PW