dtz qatar q4 2014 report

8/9/2019 DTZ Qatar Q4 2014 Report

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DTZ Research

www.dtz.com Property Times 1

PROPERTY TIMES

Pressure Grows on the

Residential Market

Qatar Q4 2014

10 February 2015

ContentsEconomic Overview 2

Office Market Overview 3

Residential Market Overview 4

Hospitality Market Overview 5

Retail Market Overview 6

Author

Johnny Archer

Associate DirectorConsulting & Research, Qatar

+974 7404 3927 [email protected]

Contacts

Mark Proudley

Head of Consulting & Research,

Qatar+974 5584 8281

[email protected]

Magali Marton

Head of EMEA Research

+33 (0)1 4964 [email protected]

Hans Vrensen

Global Head of Research+44 (0)20 3296 [email protected]

• Qatar’s strong economic performance and major infrastructural developmentprojects in preparation for the World Cup in 2022, is driving population growth.There continues to be substantial government investment in all areas of theeconomy to reduce reliance on the hydrocarbon sector.

•

The increased pressure on the housing market from the rapidly increasingpopulation has lead to concerns about escalation of inflation rates.

• There are a number of major development projects under construction which willaim to address the undersupply of good quality affordable accommodation. If therate of population increase is maintained however, supply of affordableaccommodation may struggle to meet demand in the coming years.

• There has been a seasonal reduction in demand for high quality apartment andvilla accommodation however the market remains buoyant with strong underlyingdemand.

• A number of new apartment developments on Pearl Qatar are expected to bereleased to the market over 2015 which could ease rental inflation in this sector.

• Demand has reached unprecedented levels from retailers for primeaccommodation however no new retails malls opened throughout 2014. A number

of new shopping malls are expected to open in 2015, easing the current shortagein retail accommodation.

• The hotel sector witnessed strong growth throughout the year, with occupancylevels exceeding 70% in Q4. A number of new 5 star hotels are due to open inearly 2015 which is likely to see average occupancy levels reduce.

Figure 1

Organised Retail Supply by Year, Sq M (GLA)

Source: DTZ Research

0

200

400

600

8001,000

1,200

1,400

1,600

1,800

2,000



Qatar Q4 2014


Economic Overview

Qatar’s strong economic performance continued throughout2014, with growth levels expected to be confirmed at 6.3%, aslight drop from 6.5%, which was witnessed in 2013.

The fiscal budget for 2014/15 sets out proposed expenditure ofQAR 218 billion. Revenues are expected to total QAR 225billion but these are based on an oil price of US$ 65 per barrel,which is above current levels.

Qatar’s economic growth, together with the enormousinfrastructural development spending in preparation for theFIFA 2022 World Cup is helping to drive the increase inpopulation. Based on QSA figures, the population hit a high of2,269,672 in November 2014, representing a 12 monthincrease of 9.7%. A recent publication by Qatar National Bankpredicts that population figures will continue to increase by

7.4% per annum, surpassing 2,500,000 by the middle of 2016.

The rapid increase of the population has a knock-on effect ongrowth figures for various sectors of the economy, particularlyin services such as f inance, hotels and restaurants, and tradeand transport.

Qatar’s economy has been underpinned by exports in thehydrocarbon sector, however substantial governmentexpenditure is helping reduce the reliance on the hydrocarbonsector. The hydrocarbon sector still accounts for approximately40% of total GDP, though domestic investment has replacedthe oil and gas sector as the key driver of economic growth.Earlier this year the Government set out plans for investment ofUS$ 182 billion for projects over the next five years.

According to Ministry of Development Planning and Statisticsinflation is expected to be recorded at 3% and 3.4% in 2014and 2015 respectively however banking experts believe thisfigures are conservative, with inflation estimated in somequarters at between 3.8% and 5% in 2014. The major concernin relation to Qatar’s inflation rate is the housing market, whererents have been increasing due to an undersupply of goodquality accommodation. Similarly, there are major concernsabout construction cost inflation, which according to anindependent report by EC Harris could peek at 18% during aWorld Cup building boom between 2016 and 2019.

Figure 2

GDP (QAR Million) and Real GDP Growth (%)

Source: GSDP

Figure 3

Inflation (%)

Source: EIU

Figure 4

Population Growth Forecast

Source: MDPS/DTZ Research

0

5

10

15

20

0

200,000

400,000

600,000

800,000

1,000,000

Nominal GDP (QR Mill ion) Qatar Real GDP Growth (%)

-20

-15

-10

-5

0

5

10

15

20

25

2008 2009 2010 2011 2012 2013 2014

Consumer Price Inflation (%) Rental Inflation (%)

0.00.51.01.52.02.53.03.54.0

2006 2008 2010 2012 2014 2016 2018 2020

Growth at 10% per annum Growth at 7.4% per annum



Qatar Q4 2014


Office Market Overview

There are a number of high rise office towers currently underconstruction in Doha’s prime office district of West Bay,however no new building’s were released to the market in Q42014, Office stock in West Bay stands at approximately 1.637million sq m.

There has been limited leasing activity in recent monthshowever leases have been agreed on more than 120,000 sq mthroughout 2014, the majority of which has been to‘government’ related bodies. The amount of new office spaceleased in 2014 is less than the annual average of 162,000 sqm recorded over 2009 to 2013.

In spite of reduced take-up of new lettings, DTZ estimate thatthere is currently just 146,000 sq m of vacant offices availableto rent in West Bay, which represents less than 9% of total

supply,

DTZ expects more than 300,000 sq m of office accommodationto come to the market in West Bay and Lusail by the end of2015, which will increase vacancy levels and ease the upwardpressure on rents that was witnessed in 2014.

Rental levels have remained relatively stable since 2011. In theDiplomatic District (West Bay) rents can vary significantlydepending on the quantum and the quality of theaccommodation being leased. It is possible to lease offices inexcess of 5,000 sq m from rental rates of QR160 per sq m permonth, whereas smaller office units of less than 250 sq m cancommand rents of as much as QAR 300 per sq m per month.

Many towers in West Bay are leased in their entirety to

government ministries, or government affiliated organisations.Rental levels to government companies in such transactionsare currently fixed at QAR150 per sq m per annum, and aretypically 5 year leases with rights to renew.

Elsewhere, office accommodation is concentrated around Cand D Ring Roads, Old Salata, Airport Road, and Al Sadd.Rental levels in these areas typically range from QAR 120 persq m to QAR160 per sq m per month.

As new office buildings in West Bay, Al Sadd, Lusail, andShamal Road come to the market in 2015, DTZ forecasts thathigher vacancy levels will see rents remain at the levels seenin 2014, with more attractive deals potentially available foroccupiers who seek professional representation.

Figure 5

Levels of Office Stock & Availability (,000 sq m)


Figure 6

Take Up of Office Accommodation – Prime Stock, 000 sq

m


Figure 7

Prime Office Rents by District, QAR/Sq M/Month


0

100

200

300

400

0

500

1,000

1,500

2,000

2007 2008 2009 2010 2011 2012 2013 2014Supply - Diplomatic DistrictSupply - Lusail

Availability

0

50

100

150

200

250

300

350

2007 2008 2009 2010 2011 2012 2013 2014

0

100

200

300

2008 2009 2010 2011 2012 2013 2014Diplomatic District

Airport RoadC/D Ring Road and Al SaddSalwa Road



Qatar Q4 2014


Residential Market Overview

The residential property market in Qatar is being driven by theconsistent and strong growth in population. The populationrecorded by the Qatar Statistics Authority in Novemberreflected a 9.7% increase in 12 months.

The increasing number of residents in Qatar has been puttingpressure on residential supply, especially for affordablehousing, where new development supply struggles to meetdemand.

Demand has been strong for family accommodation,particularly four and five bedroom villas, where occupancyrates throughout Doha are currently high. A number ofdevelopers confirm that waiting lists are in place for some ofthe better located residential compounds.

The high-end of the market, including West Bay and The PearlQatar, has seen a number of new developments in 2014. Thishas resulted in rental levels stabilizing for some apartmenttypes following the strong increases witnessed in 2013. Thecurrent levels of prime apartment stock reached approximately14,600 units by the end of 2014.

DTZ estimate that up to three more residential towers in Porto Arabia could potentially be released to the market by the end ofQ1 2015 (subject to approval being received from the civildefense requirements) increasing supply by more than 700apartment units.

On the Pearl, DTZ has seen strong demand for one bedroomand three bedroom apartments in particular, which are now inshorter supply than two bedroom units. The impact of high

occupancy rates has been a gradual uplift in the averagemonthly rental rates as shown in Figure 9.

Residential sales at The Pearl-Qatar still dominate the freeholdmarket, with sales activity in 2014 registering an improvementon previous years. The majority of demand however isrestricted to Qatari and GCC based investors.

Prices have grown at a stable rate since 2011. While there isevidence of sales transaction on the Pearl-Qatar reflectingprices of more than QR 18,000 per sq m for premium units,average sales prices range from QAR 12,000 – 14,000 per sqm.

Figure 8

Prime Apartment Supply (No. of Apartments)


Figure 9Prime Apartment Rents, QAR/Month


Figure 10

Average Freehold Sales Prices, Pearl Qatar, QAR/Sq M


0

2,000

4,000

6,000

8,000

10,000

12,000

14,00016,000

2006 2007 2008 2009 2010 2011 2012 2013 2014

Diplomatic District Pearl

0

5,000

10,000

15,000

20,000

25,000

2009 2010 2011 2012 2013 2014

One Bed Two Bed Three Bed

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2007 2008 2009 2010 2011 2012 2013 2014



Qatar Q4 2014


Hospitality Market Overview

There was a significant increase in tourist numbers recordedby the Qatar Tourism Authority with hotel occupancy ratesincreasing from 65% over 2013 to 73% over 2014.

The Qatar National Tourism Sector Strategy Plan: 2030(QNTSSP 2030) was published in February 2014. The planoutlined public and private investment of $45bn on tourismprojects with a view to increasing tourist numbers from 1.1m in2013 to 7m by 2030.

QNTSSP 2030 also aims to diversify the tourism sector, whichrelies heavily on business related travelers and visitors fromGCC countries, particularly Saudi Arabia. The plan aims toincrease visitors from outside the GCC to 64% by 2030.

In Q4 2014, DTZ identified 108 hotels and serviced apartment

hotels, which are rated between 2-star and 5-star. Theseestablishments provide the tourism sector in Qatar withapproximately 16,700 rooms, of which 85% are either 4-star or5-star.

There are currently approximately 125 hotel establishmentscurrently under construction in Qatar, which, on completion, willincrease the level of stock to approximately 35,000 room keys.Despite the number of hotels being built, 2014 saw a slowdownin new hotels coming to the market. There were no major hotelopenings throughout the year, although The Kempinski MarsaMalaz on the Pearl Qatar opened in January 2015.

The slowdown in new hotel openings combined with theincrease in tourist numbers resulted in a jump in occupancylevels in the past 12 months. Despite the recent performance,

DTZ expect occupancy levels to come under pressure again inthe near future with up to 4,000 new hotel rooms scheduled tocome to the market over 2015 and 2016. Occupancy levels arelikely to be tested further in the medium term as the supply ofhotel rooms continues to increase to meet Qatar’s FIFA 2022obligations.

Figure 11

No. of Hotels/Serviced Apartments by Rating


Figure 12

Rooms by Rating Q4 2014


Figure 13

Hotel Performance Indicators. Luxury and Upperscale

Hotels: Average Daily Rate in QAR, Occupancy in %.

Source: STR Global

0

20

40

60

80

100

120

2009 2010 2011 2012 2013 Q3 2014

2-star 3-star 4-star 5-star

2-star 2% 3-star

13%

4-star 44%

5-star 41% 16,700

rooms

20

30

40

50

60

70

80

0

200

400

600

800

1,000

1,200

2009 2010 2011 2012 2013 2014 ADR (QR) Occupancy (%)



Qatar Q4 2014


Retail Market Overview

The retail market in Qatar is currently undergoing significantchange, with a number of shopping malls due to open, bringingmuch needed new supply.

The retail sector in Qatar is driven by the high levels ofdisposable income. In 2013 the World Bank estimated that thePer Capital GDP reached $136,727, representing the highestlevel of disposable income per capita in the world.

The strong spending power within Qatar has seen significantincrease in demand for retail accommodation from both localand international retailers with current occupancy levels in themain shopping malls at unprecedented levels.

The retail market in Qatar is generally divided betweenorganised retail malls, high street showrooms, and souq retail.

The organised retail market is currently dominated by theVillagio and City Centre malls, which between them account for42% of the current supply. Overall supply currently stands atapproximately 590,000 sq m across 13 shopping centres.

While no new malls have opened in 2014, DTZ estimates thatthere is more than one million square meters of retail spacebeing constructed in nine new shopping malls. With proposedopening dates of between 2015 and 2016, these new additionsare likely to change the dynamics of the retail market in Qatarconsiderably.

Retail rates have remained relatively stable in recent years. Inthe prime retail malls rents vary between unit sizes, and theirlocation within the malls. At the primary malls rents range fromQAR 220 to QAR 250 per sq m per month for the medium size

units. Anchor stores have typically secured accommodation forbetween QAR 40 and QAR 80 per sq m per month.

Elsewhere, the showroom retail market has seen the additionof Barwa Commercial Avenue, providing much needed goodquality accommodation. This development has addedapproximately 250,000 sq m of new showroomaccommodation, which represents approximately 25% of thetotal stock. DTZ understand that more than 70% of the retailunits have been reserved by various retailers.

Medina Central on The Pearl –Qatar has also increased theamount of retail space available in Doha. The developmentcomprises approximately 65,000 sq m of commercial space.DTZ understands that lettings have been agreed on the

majority of the retail units, which are due to open their doors in2015.

Figure 14

Distribution of Organised Retail Malls


Figure 15

Organised Retail Supply by Year, Sq M (GLA)


Figure 16

Headline Retail Rents, QAR/Sq M/Month


City CentreVillaggio

Landmark

Hyatt Plaza

The Mall

The Centre

Lagoona Mall

The Gate

Royal Plaza

Centrepoint

Dar A Salam Mall

Ezdan

West End Mall

590,000 Sq M

0200400600800

1,0001,2001,4001,6001,8002,000

0

50

100

150

200

250

300

2007 2008 2009 2010 2011 2012 2013

Landmark City Center Villaggio

The Gate Lagoona



DTZ Global Contact DTZ Middle East Contacts

John Forrester

Chief Executive EMEA+44 (0)20 3296 2002

[email protected]

Edd Brookes

Senior DirectorGeneral Manager+974 4483 7395

[email protected]

Adam Stewart

Associate DirectorHead of Valuation+974 4483 7395

[email protected]

Mark Proudley

Associate Director

Head of Consulting and Research

+974 4483 [email protected]

Jonathan Wright

Associate Director

Head of Commercial Leasing+974 4483 7395

[email protected]

Johnny Archer

Associate DirectorConsulting and Research+974 4483 7395

[email protected]

Colin Jones

Head of Residential Leasing+974 4411 [email protected]

Disclaimer

This report should not be relied upon as a basis for entering into transactions without seeking specific,qualified, professional advice. Whilst facts have been rigorously checked, DTZ can take no responsibility

for any damage or loss suffered as a result of any inadvertent inaccuracy within this report. Informationcontained herein should not, in whole or part, be published, reproduced or referred to without priorapproval. Any such reproduction should be credited to DTZ.

© DTZ 2015

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