Backed by strong economic performance, Qatar’s real estate sector is expected to maintain its growth momentum throughout 2015 and beyond. According to latest market reports, the property market has performed strongly over the last 12 months as both rental and sales figures registered a growth in relation to land. Moving forward, market observers say, there is nothing to suggest that this trend will not continue in 2015 and beyond.
“The market performed strongly for investors over 2014 on the back of strong demand, primarily being driven by economic growth and the creation of jobs, which in turn leads to inward migration and a rising population,” says Mark Proudley, associate director, head of consulting and research, DTZ.
With economy’s growth levels of 6.5 percent last year, Qatar’s non-hydrocarbon sector registered a double-digit rise of 11.9 percent. That also coincided with an estimated fall of 1.3 percent in hydrocarbon sector due to falling oil prices. However, the weakened oil price did not deter the government from proposing a hefty QAR218 billion budget in the fiscal budget for 2014-15. The government has already stated that the country’s development projects will go on, with allocated expenditure of QAR65.6 billion for the National Development Strategy 2011-16.
All these measures have had an impact on the country’s population, which, according to the Qatar Statistics Authority (QSA), reached 2.34 million in March 2015, representing an annual increase of 9.5 percent. The growth rate of population will remain high in the coming years as more people flock into the country in the run-up to the 2022 World Cup. This will have significant impact on the real estate sector besides others such as hospitality, trade and, of course, transport.
The 2022 World Cup and the Qatar National Vision 2030 are giving a huge impetus to Qatar’s construction sector, which will continue to employ more people in the coming years. The positive effects are also being felt in the real estate sector as it sees increased demand for houses and offices.
Nick Witty, director, Real Estate Advisory, Deloitte, says, “Securing the status of host nation for a number of major global and regional sporting events has clearly had an effect on both the real estate market and the economy in general. This has not only created a ‘feel-good’ factor but also added to the impetus of ongoing infrastructure and development as well as attracting international companies who have established a presence in Qatar.”
Residential sector
Though all the sectors are expected to see growth, residential in particular will drive the real estate industry as the country’s population increases manifold in the coming years. According to Matthew Green, head of research and consultancy, United Arab Emirates at CBRE Middle East, the residential market will outperform other sectors over the next few years, with a comparatively small development pipeline in comparison to other sectors, and with stronger growth fundamentals amid a rapidly expanding population. “This has been reflected by a 14 percent rise in residential rentals during 2014, versus 2013 rates, a trend that looks to be continuing into 2015, despite the emergence of more challenging conditions amidst the current low oil pricing,” says Green.
While over the last few years, in response to increasing demand, the market has witnessed more development of low- to middle-income housing by both private and quasi-government developers, conversely, the high-end residential market has been largely supply led.
According to DTZ’s Q1 2015 market report, the demand was stronger in the family accommodation segment, particularly in four- and five-bedroom villas, where occupancy rates throughout Doha are currently high.
At the premium end of the residential market, DTZ estimates, current levels of prime apartment stock has now reached approximately 14,000 units across The Pearl-Qatar and West Bay. Four more residential towers at The Pearl-Qatar are expected to be complete by Q2 2015, increasing the supply by more than 700 apartments in the market.
In rental segment, residential sector maintained its growth trajectory with first quarter registering rental growth rate between five and 10 percent in certain locations. In the premium apartment segment, rental demand remains strong with low vacancy levels and high absorption rates evident for recently released buildings in The Pearl-Qatar. In general, the past 12 months have seen a gradual uplift in the average monthly rental rates.
Commercial sector
There is currently approximately 1.7 million square metres (sqm) of Grade A office space in Doha with most demand coming for units of up to 250 sqm, and serviced offices capable of accommodating two to four people.
According to the market estimates, a further 2.175 million sqm will be delivered to the market by the end of 2018. Assuming a medium growth demand scenario, Witty of Deloitte says, it is estimated that the total take-up of this additional space would take until 2023, with demand likely to come mainly from the public administration, defence, construction and administrative support services sectors. “Thus, if all the proposed pipeline projects are completed by 2018, there is likely to be oversupply potentially for up to five years, during which time the more functional, better managed buildings with the highest car parking ratios are likely to attract discernable occupiers,” he says.
The recent fall in oil prices has had an impact on the office leasing market, which recorded a slow start to the year. Since government and hydrocarbon are the two major sectors that drive the office rental market in the country, the current oil price scenario will likely force many Qatari institutions to revise their budgets and hold on to some of their new office requirements.
CBRE’s Green says that while there is also a sustained corporate demand from international firms, typical space requirements are less than 1000 sqm. “There is also a continued drive for affordability, hence many new requirements are for accommodation in areas like C and D Ring Road, wherein rents are far more affordable,” he says, adding that since spending cuts are seemingly likely amid weaker economic conditions, there will be a waning influence for the public sector during 2015, which could have an impact on vacancy rates.
Hospitality sector
Hospitality is another major sector that will see maximum growth after the residential market. Last year was a good period for Qatar’s hospitality sector, which, according to the Qatar Tourism Authority (QTA), recorded a total of 2,826,257 tourist visas issued in 2014 – an increase of eight percent over 2013. This had a positive impact on the hotel occupancy rates, which increased to 73 percent over 2014 from 65 percent recorded over 2013.
Nick Smith, partner of EC Harris, Qatar – an Arcadis company – says, “We believe there will be a large impact on the real estate market, particularly in the hospitality sector. Increasing numbers of visitors will place bigger demands on the hospitality sector fuelling further growth in this area. Inevitably, this should also have an impact on other related sectors as visitors spend money in Qatar.”
With Qatar announced as the host to some of the major sporting events in the world, the government has put in place the Qatar National Tourism Sector Strategy Plan: 2030. The country is expected to host close to seven million tourists by 2030. Keeping that numbers in mind, the strategy plan has outlined public and private investment of USD45 billion (QAR164 billion) on projects linked to the tourism sector.
In terms of new supply, the first quarter of 2015 saw the opening of three new hotels, which include the Kempinski Marsa Malaz, located in The-Pearl Qatar; the Doha Warwick Hotel on Al Rayyan Road, and the Melia Hotel in West Bay. With these new hotels coming up, the country’s total hotel and serviced apartment numbers stand at 111, offering around 17,400 keys, of which 86 percent are in the four- or five-star category.
Proudley of DTZ says, “Limited new supply coupled with increased demand has generated higher occupancy levels in hotels over this period. However, there is a significant pipeline of supply under construction, which if completed on schedule, will double the number of hotel rooms available in Qatar before the end of 2018.”
QTA has committed to provide 60,000 rooms by 2022 to meet the requirements of the 2022 World Cup. There are already approvals in place for another 124 hotel establishments in Qatar, which, when realised, will increase the level of supply to approximately 35,000 keys.
Retail sector
With Qatar having the world’s highest per capita and disposable income, its retail sector looks promising, something also reflected in the growing demand that the country has for retail space from both local and international retailers.
“The retail segment is one of the key markets and is experiencing a dramatic increase in the supply of retail space, particularly in the form of large out-of-town malls. Despite this, some of the new malls under construction have achieved impressive performance in relation to pre-lets,” says Smith of EC Harris. Consequently, he adds, there could be a potential polarisation in the market, where the new high quality products coming on stream could achieve strong occupancies and rental values while some of the older malls could see the opposite effect occurring unless they are in strategic locations.
The first quarter of 2015 saw Gulf Mall in Al Gharrafa opening its doors, adding approximately 100,000 sqm of gross leasable space to the organised retail market. DTZ reports point out that Gulf Mall is the first major mall to open in Doha in almost two years, and is now the third largest mall in the market after Villaggio Mall and City Centre. Qatar’s overall supply currently stands at approximately 690,000 sqm across 14 shopping malls.
DTZ estimates that more than 1.2 million sqm of retail space in 12 new malls is currently at various stages of design or construction and may be opened by 2019.
Challenges
Although Qatar’s real estate offers abundance of opportunities, there are some challenges for the sector to overcome. One of the major challenges is the escalating price of land, something that has resulted in an increase in construction cost.
The industry experts say that investors will be inevitably cautious around the regional market, predominantly due to the oil price projections. Notwithstanding this, overseas investors have historically been cautious of Qatar.
Smith says one of the biggest challenges facing the real estate sector will be the inflation challenge as we near the 2022 World Cup. “I expect that most investors will be keen to mitigate their exposure by forward planning around their supply chain and starting their projects sooner rather than later,” he says, adding that investors will need to choose their targets very diligently during these years ahead with a clear route of entry and exit with a robust risk plan.
As with most Middle Eastern property markets, full transparency is not always there in the sector. However, that trend has started to change as evidenced by the implementation of the Qatar Real Estate Development Law in October 2014.
Smith of EC Harris says that it will also be interesting to see how the new law affects the real estate business. “Regulation is much needed to increase transparency in the market, and encourage inward investment from regional and international developers. However, the administration processes will be completely new, and initially may be prone to misinterpretation, confusion and delay at extra expense,” he says.
Smith suggests that the new regulations would be more effective if they are combined with a comprehensive review of the land registry framework and the introduction of a web-based system to facilitate the rules.
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