Qatar
Review 2016
PROPERTY Office
Residential
Retail
Hospitality
Analysing Qatar’s real estate and fitout market with special focus on key subsectors and green interiors
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Qatar Real Estate
Staying resilient th Despite the emergence of more challenging regional and global economic conditions, Qatar’s real estate sector performed reasonably well last year, and it appears to remain on course for the rest of 2016 and beyond. The Edge Property Review analyses the performance of Qatar’s property sector in detail, highlighting some of the key segments such as commercial, residential, retail and hospitality. By Syed Ameen Kader
A
mid challenging economic conditions that have impacted a number of regional property markets, Qatar’s real estate sector has managed to stay on course albeit some level of slowdown witnessed in commercial segment. The Qatari property sector’s minimal reliance on foreign investors – as only a handful of projects are open to non-Qatari investors – has possibly played a key role in subduing the impacts of currency weakening and economic slowdown in some of the source markets. However, the prevailing low oil prices have had an impact on Qatar’s commercial segment, which is mainly driven by occupiers from the government and hydrocarbon sectors. “The Qatar real estate sector has historically been supply led, characterised by speculative development supported by a strong economy, readily-available finance, and an expanding expatriate population,” says Nick Witty, director, Real Estate, Deloitte & Touche, Middle East. He adds that the market performed strongly during 2015, and it has continued to do so into the first quarter of 2016. Mihir Shah, director, Infrastructure Advisory, KPMG, Qatar, agrees, “The Qatar real estate market was stable in the past few quarters, and is expected to remain the same for 2016. We do expect some corrections in the land property transactions.” Despite a strong performance to date, there are signs of a market slowdown as supply continues to increase across all market segments, and there is a significant pipeline of projects planned. According to Mark Proudley, director, DTZ Qatar, there is a high risk of oversupply in occupational markets, particularly within the prime commercial and residential sectors due to the expected large increases in new stock, combined with suppressed demand on the back of lower oil prices. Although the negative impact of lower hydrocarbon revenues is becoming more evident in the real estate market, experts consider that overall performance has remained relatively stable, underpinned by government intervention and the demand that is being created by government-backed infrastructure projects in the lead up to the 2022 World Cup.
West Bay has emerged as the Central Diplomatic District over the last 10 years. It comprises a relatively new, dense mixed-use area of high-rise towers considered to offer prime office space in Doha. (Image Arabian Eye/Corbis)
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interior design | property supplement
hrough tough times
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qatar property review | real estate
Oil price impact
Qatar could be reporting a fiscal deficit for the first time in past 15 years, and it is expected to stay there unless oil prices recover to a respectable level, says Shah, adding that according to KPMG Estimates the lower oil prices for the next four to five years could mean a cumulative deficit of QAR200 to QAR300 billion. “However, markets are hopeful that oil prices would move northwards, and impact will not be severe,” he adds. Real estate markets, especially residential and retail, are highly dependent on government spending on capital and current expenditure accounts. Given that Qatar is facing the 2022 World Cup deadline, Shah points out, major capital expenditure increased in 2015 over 2014, but the government was successful in bringing down the current expenditure level by a whopping 45 percent. “The government is expected to continue spending on the committed capital projects (although certain projects integral to the World Cup have been prioritised with increased efficiency), which should keep the market stable for a significant period, and hence would not bring any sudden impact on the real estate sector,” he says. That aside, the government has started cutting back expenditure on some infrastructure projects, and the oil and gas and related industries have witnessed downsizing over recent months, a trend which will likely continue in the short term at least. “Given the current realities, it would seem logical that with increasing supply and a potential reduction in demand, both rental and sales prices would soften in response,” says Witty. The continued low oil price regime is going to impact the real estate market, and would also impact the banking sector, due to their high exposure. The ratio of non-performing loans to gross loans for Qatar stands at below two percent, which, Shah says, although better than its other Gulf Cooperation Council (GCC) peers such as the United Arab Emirates (6.5 percent) and Bahrain (4.6 percent), is much higher than advanced economies. “These advanced economies try to maintain it around 0.5 percent. Currently, real estate accounts for 25 percent of overall loan and hence any stress in the sector in the future, could have a significant impact on the health of the banking sector,” Witty adds.
Nine new retail projects are expected to be delivered in Qatar by the end of this year, which will supply 836,200 sqm of GLA in total. This includes projects such as Doha Festival City (illustrated here), which is slated to open early next year. (Image Doha Festival City)
Office sector
The commercial sector has witnessed a reduction of new office acquisitions from the public sector, which, according to DTZ Qatar, accounts for 60 percent of office leasing in Doha’s West Bay area. There are four key office areas established in Doha – West Bay, the C and D Ring Roads, Grand Hamad Street/Airport Road and Al Sadd. However, West Bay alone has more than 1.6 million square metre (sqm) of purpose-built office space, which represents over 40 percent of the total supply of purpose-built office accommodation in Doha. Proudley says, “The impact of this rationalisation and spending reviews has led to a slowdown in demand for commercial accommodation
and the prime residential sectors with higherpaid expatriates being the main casualties of redundancy programmes implemented following the spending reviews.” Mat Green, head of research and consultancy, CBRE Middle East, agrees, “The commercial office sector has been characterised by subdued leasing conditions, with low transaction volumes recorded amid a slowdown in the business environment for many of the country’s major office occupier groups.” However, he says, prime rentals for grade A office space in West Bay remain steady with monthly rates typically ranging between QAR220 and QAR280 per sqm. Currently, there is approximately two million
Qatar’s Office stock supply by district (2015) 11% 14% Total Market Size: 3.8 million sqm
18%
43% Diplomatic District Al Salata/Al Hitmi
9%
5%
Grand Hamad/Airport Road C/D Ring Road Al Sadd
Source: DTZ Research
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“Lower oil prices for the next four to five years could mean a cumulative deficit of QAR200 to QAR300 billion. However, markets are hopeful that oil prices would move northwards, and impact will not be severe. Real estate markets, especially residential and retail, are highly dependent on government spending on capital and current expenditures,” says Mihir Shah, director, Infrastructure Advisory, KPMG.
qatar property review | real estate
sqm of grade A office accommodation in Doha with most demand being for units of up to 250 sqm and serviced offices capable of accommodating two to four people. Green says, “Softening of office rentals and rising vacancy rates seem inevitable with around 1.7 million sqm of new office accommodation potentially to be added over the next 24 to 36 months.” DTZ’s research indicates that 300,000 sqm of new office accommodation will be completed in West Bay within the next 12 to 18 months, which will increase supply levels. However, more than 200,000 sqm of this is at the Qatar Petroleum District. Under a medium growth demand scenario, it is estimated that the total take-up of that additional accommodation would not be until 2023 with demand coming from the public administration, defence, construction and administrative support services sector. “This would mean that if all of the pipeline projects were completed by 2018, there would be a significant oversupply for up to five years during which time the more functional, better managed buildings with the best car parking ratios would attract occupiers,” says Witty.
Residential sector
Despite the backdrop of ongoing economic uncertainty and a sustained period of low oil pricing, residential rental levels, according CBRE figures, have continued to expand unabated during 2015, rising by around seven percent year-on-year. This was down from the 14 percent annual growth achieved during the same period in 2014. “Rental rate growth during the second half of the year was around five percent, although growth in the final quarter was measured at just one percent. Smaller apartment units, particularly those within central locations, remained in high demand, although rental growth was actually most evident for secondary and more affordable locations,” says Green. “We see high captive demand for mid segment category housing,” says Shah of KPMG, “resulting in very high occupancy of more than 80 percent.” However, he adds, for the luxury apartments and villas, occupancy is significantly lower. “We foresee no major deviation in this trend until the supply in the mid-end segment matches the inherent demand. We expect the prices to grow marginally in the low- to middle-segment, given the continued demand supply mismatch,” explains Shah. In recent years, however, the market has witnessed ongoing development of lower and middle income housing by both private and quasigovernment developers. There has been a drive to increase the availability of good quality workers’ accommodation with the government setting aside large tracts of land across the country for the development of worker’s accommodation by the private sector on a build, operate and transfer (BOT) basis in response to the growing demand for accommodation. Conversely, the high-end market has largely been supply led with the two largest, ongoing, mixeduse projects incorporating significant elements of high-end residential – The Pearl-Qatar and Lusail. When fully built out, these two developments will accommodate approximately 500,000 people. Of the 60 residential towers planned on The PearlQatar, as of today, Witty says, only around 29 are near completion, and the majority are less than fully occupied. “In recent months, a number of partially completed towers, which had previously been put on hold or had stalled, have witnessed renewed activity, as has some of the low-rise, residential development, thereby adding additional pipeline supply,” he explains. Lusail, on the other hand, benefits from improved access and egress with the opening of new roads permitting residents to take up
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occupation of some of the completed residential accommodation, predominantly in the Foxhills District of the development, which had previously been inaccessible. Industry experts suggest recent redundancies in the hydrocarbon and government sectors, together with new building completions, have increased vacancy levels in many areas. According to DTZ, this has been most evident in the past three months, where it has been observed that rents in some areas were reduced for the first time since 2009. 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 have softened over the last three months in order to attract tenants. There has also been a fall in demand for corporate lettings of entire residential blocks and compounds. This has resulted in a number of residential apartment blocks remaining vacant,” explains Proudley. On The Pearl-Qatar, DTZ estimates that new supply of apartments is likely to increase by between 30 percent and 40 percent in 2016 as up to 13 new towers in Porto Arabia and Viva Bahriya near completion. This will have a significant impact on the prime residential market, and has a potential to see rental levels reduce further if delivered as expected.
“The Qatar real estate sector has historically been supply led, characterised by speculative development, supported by a strong economy, readily available finance and an expanding expatriate population. The market performed strongly during 2015, and has continued to do so into the first quarter of 2016,” says Nick Witty, director, Real Estate, Deloitte & Touche, Middle East.
Retail sector
Qatar’s retail market has been driven by strong fundamentals in recent years, including increasing tourism visitor numbers, high levels of population growth and relatively high disposable incomes, with Qatar having one of the highest gross domestic product (GDP) per capita rates in the world. “The retail market remains as one of Qatar’s brighter spots with close to full occupancy currently being achieved across major shopping malls in Doha,” says Green. There is an estimated formal retail gross leasable area (GLA) of approximately 958,000 sqm in Doha (Q1 2016), comprising 17 principal malls and nonmall formal retail provision at The Pearl-Qatar.
Gulf Mall is the most recently completed retail facility, which added 160,000 sqm of GLA to the retail market in 2015. Villaggio is about to open a new 8500 sqm extension. Gulf Mall, City Center (West Bay), Villaggio and Landmark Mall together account for nearly 50 percent of formal retail GLA in Doha. Across Doha, there are also a number of souks and secondary and tertiary strip retail spaces concentrated along central roads in the city (Salwa Road, A&B Ring Roads, Al Sadd, Airport Road). “Close to 1.5 million sqm of additional future supply is at various stages of construction, and will
The Pearl-Qatar is one of the major ongoing mixed-use project incorporating significant elements of high-end residential. The new supply of apartments in The Pearl-Qatar is likely to increase by 30 to 40 percent in 2016 as up to 13 new towers in Porto Arabia and Viva Bahriya near completion. (Image FotoArabia)
real estate | qatar property review
“The commercial office sector has been characterised by subdued leasing conditions, with low transaction volumes recorded amid a slowdown in the business environment for many of the country’s major office occupier groups,” says Mat Green, head of research and consultancy, CBRE Middle East. be delivered in coming eight quarters,” says Shah. As a result, he adds, they foresee a significant price correction in the organised retail category with a shift towards partial transference of the business risk from tenants to developers, that is, from the pure rental model to a revenue share model in coming years. “There are approximately 11 malls currently under construction in Doha, which are forecast to increase retail GLA in the city by approximately 1.1 million sqm by 2019, more than double of the existing stock,” says Witty, adding that nine retail projects are expected to be delivered by the end of this year, which will supply 836,200 sqm of GLA in total. “That said, experience shows that delays in opening are common, and in reality the current known supply pipeline may extend beyond 2019 for completion. Additionally, non-mall retail can be found on The Pearl-Qatar, at Katara and in Souq Waqif,” Witty says. Major malls which are in the pipeline are Mall of Qatar, Doha Mall, Tawar Mall, Doha Festival City, Northgate Mall, Markhiya Mall (El Emadi Center), and Marina Mall, etcetera. Medium-term oversupply is predicted and it is likely that retailers will become more discerning, and over time, move from the less well performing malls to those that offer more of a family destination and better tenant mix. However, Proudley says the positive aspect is that the new prime schemes such as Mall of Qatar and Doha Festival City are reporting high levels of occupancy and lettings prior to completion. “It is difficult to predict whether all the additional supply will be sustainable, but we anticipate that the malls
Over the past 12 months, approximately 4800 rooms have been added to Qatar’s hotel supply, including projects such as Banana Island Resort Doha by Anantara (pictured here), which opened last year. (Image Banana Island Resort Doha by Anantara) that don’t meet shoppers needs in terms of tenant mix, layout, amenities and parking will suffer from vacancy in the future,” adds Proudley. Green agrees that the huge pipeline of space, if completed, would totally transform the retail market, raising Qatar’s retail stock closer to Dubai’s levels, where there is currently around 2.7 million sqm of organised retail supply.
Hospitality sector
Qatar has experienced significant investment in the hospitality sector over recent years as the country has developed primarily as a business destination, and in 2015, according to the Qatar Tourism Authority (QTA) figures, Qatar’s tourism sector grew by 3.7 percent year on year with 2.93 million visitors. “While visitor numbers are continuing to increase, Qatar’s hospitality market is suffering a slowdown with declining occupancy and average daily rates (ADR), resulting in a large decline in hotel revenues during the first quarter amid weaker corporate demand,” says Green of CBRE. According to QTA, total room supply across Doha rose from around 8500 rooms in 2008
Organised retail supply by year: ,000 sqm (GLA) 2,000 1,500 1,000 500 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Source: DTZ Research
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to approximately 20,700 by the end of 2015, representing an increase of 144 percent over the period and a compound annual growth rate (CAGR) of 13.6 percent. Over the past 12 months, approximately 4800 rooms have been added to Qatar’s hotel supply, including both hotels and hotel apartments, with a further 4341 additional rooms due to be added to the supply in 2016 across Qatar, according to QTA. “Assuming, 60-70 percent of this planned actually hits the market, downward pressure on occupancy and prices is inevitable. Signs of pressure in occupancy and prices are visible now, as occupancy in February 2016 was 16 percent lower than the occupancy during the similar period last year,” says Shah. Qatar’s current supply is dominated by fourstar and five-star accommodation, which accounts for 78 percent of room supply. Most of the new room stock in the market over recent years is centred around West Bay, West Bay Lagoon and Downtown Doha, and the development pipeline suggests that this trend will continue. “Total demand, measured by the number of rooms sold, has grown over the last few years, but this growth has been outstripped by levels of new supply, which has led to an impact on average daily rate (ADR) performance,” says Witty. As a result of increased competition, he adds, hotels have been forced to discount rates to attract guests and sustain occupancy levels. According to QTA’s data, this has led to a fall in annual ADR levels in Qatar from QAR557 in 2013 to QAR526 in 2015, reflecting a decline of 9.3 percent. Historically, Qatar has not been a destination for significant external investment. “Given real estate markets are expected to be stable over the next few years, oil prices climbing back to comfortable levels, and also in view of maturing of Qatar’s legal and regulatory regime, we believe the investors would start to prefer Qatar. Based on our discussions with developers, we understand that property transactions and new purchases are happening, although at discounted prices. We believe the same would continue without any major impact in 2016,” Shah concludes.
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Green interiors:
What are the challenges and scope for sustainable fitouts in Qatar? Although Qatar’s focus on sustainable construction has grown over the years with the promotion of green certification systems such as the Leadership in Energy and Environmental Design (LEED) and Global Sustainability Assessment System (GSAS), the drive for green interiors and fitouts has lagged behind due to the lack of awareness and regulations. We speak to some of the architects and artists from Doha to understand the scope of sustainable interiors and challenges they face.
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green interiors | qatar property review
When planning your fitout, clients should ensure that sustainability and energy efficiency are the major considerations The concept of green interiors is where, as designers and contractors, we use ecologically sustainable materials across the building’s lifecycle (manufacture, installation, use and post use/demolition). In addition, the utilisation of resourceefficient appliances, fixtures and fittings provide a quality indoor environment. For instance, a green fitout may include Forest Stewardship Council (FSC) certified timber products, low Volatile Organic Compound (VOC) building materials, separate recycling bins (for instance, for paper, plastic and biological material), bicycle storage facilities, and associated amenities and lighting solutions that maximise natural light and use electricity efficiently, by using items such as compact fluorescent globes and LEDs. In terms of its application in Qatar, while there are some major construction projects underway that have been designed to very high international accredited green standards, I feel that as a country, there is much more that can be done and has not been taken up by private developers as much as the government projects. There are many ways in which
Pictured here is Belle Harvey’s interior project for Louis Berger, located in Jaidah Square. (Image Belle Harvey)
Neil Robson, director and co-founder of Belle Harvey Interiors. fitouts can be carried out in a more sustainable manner, from using sustainable materials, making environmentally-conscious choices and employing energy-saving technologies. Planning the project carefully to maximise space, daylight and the availability of fresh air is also fundamental. When planning your fitout, clients should ensure that sustainability and energy efficiency are the
major considerations, and specify mechanical and electrical systems, furniture and fittings – basically everything. The simple things make the biggest difference, for instance planning for recycling areas and removing individual waste bins. You could save on lighting by installing daylight capture systems and motion sensitive fittings. Purchase products that have recycled materials within them, and ensure that your timber
products are all FSC certified. Considering sustainable solutions in the heating, ventilation and airconditioning systems is probably the most important. I personally believe that over the coming years, more and more countries will have to adopt green building credentials and rating systems in order to combat climate changes as part of a United Nations’ drive.
To promote sustainable interiors in Qatar, there are no real hurdles except the lack of awareness among the end users
Carre D’artistes, which sells artworks, opened its Middle East flagship store in Doha last year. Pictured here are some of the artworks displayed in Qatar. (Image Carre D’artistes) The term ‘green interiors’ is probably misused a lot because it is not just about being eco-friendly as a designer. In my view, the better term to use is sustainable interior design. That means a designer needs to meet the following objectives: energy efficiency, good materials choices and resource usage, maintaining a healthy indoor environmental quality, and ensuring a healthy social and
economic impact in the value chain. To start with, Qatar has undertaken a number of initiatives to make its construction and building codes more eco-friendly. However, when it comes to interiors, there are no standards that are being used by the government to regulate or incentivise the use of sustainable interiors. A few changes could help: firstly, use materials that come from environmentally
sound sources and are recyclable or have a lower carbon footprint; secondly, have incentives for interior designers and contractors to use more sustainable practices; and lastly, increase awareness for clients around sustainability in their living, working and recreational spaces. To promote sustainable interiors in Qatar, I do not see any real hurdles except the lack of awareness among
Martha Blanco, general manager, Carre D’Artistes Doha. the end users of sustainable interiors. It is our duty and that of all interior designers to ensure that they promote sustainable practices and inform clients of their alternatives at every opportunity. I believe that the Qatar interiors market is not unlike other regional market. At the end of the day, interior designers have adapted to the needs and tastes of their clientele here.
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qatar property review | green interiors
Qatar is a well-developed country, and will lead the way to implement green rating systems To be honest, green fitouts and interiors are not given that much importance by many clients in this region, but we are doing our part to conserve water, energy, and reduce wastage of resources. From our experience, we can say that clients always expect best quality fitouts, executed within a reasonable timeframe and cost. Today, clients are very well exposed to the international designs and concepts. They are not only present in the Gulf region but also in Europe and the United States (US). So their expectation and demand from architects and designers are very high. In order to meet that demand, we always make sure that we allocate the work to a dedicated team comprising engineers and other technical staff. We are working with professional people who know exactly what choices should be made in order to achieve a sustainable end product. Their job is to make sure that the project is executed as per the specifications and standards set out by the client. It is also important to use right kinds of materials and workforce at the right time to achieve your goal.
Solid Interiors provides turnkey solution for retail shops, restaurants and offices. Pictured here is Eau De Rose, a resto cafe designed by Solid Interiors, located in Gulf Mall, Doha. (Image Solid Interiors)
Yaacoub Zgheib, managing director, Solid Interiors.
However, it is quite challenging to source fitout materials in Qatar. Most of our retailer clients who deal in international brands require special materials, which are not always easily available in the local market. Many local suppliers are not having the full range of
a very important role in allowing us to source all types of material in quick time. Qatar is a well-developed country, and I think it will lead the way to implement green rating systems in line with international standards.
required products, especially the finishing materials. That is where our experience and connections, not only in the Middle East but also in other parts of the world such as Europe, the US and China, come into play. Having our branch office in Dubai also plays
Qatar
Review 2016
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