DTZ, one of the top global real estate advisory firms, today released its market report on Qatar for the period Q1 2010, giving detailed insight into the country’s real estate sector across the asset classes.
The overall conclusions of the report predict a positive outlook for Qatar’s real estate market with demand for all types of real estate over 2010 as a result of Qatar’s strong economic environment. However, Mark Proudley, Associate Director at DTZ Qatar and author of the report, advised:
“As the real estate market continues to mature, it is vital that real estate developers and investors focus on the fundamental drivers of the market. Preparing and implementing proactive asset management strategies will be the basis for enhancing real estate values.”
The office market
According to the report, total current office stock in Doha is estimated at 3.2 million square meters of which 50% is considered as Grade A stock. The Diplomatic District, which is regarded as Doha’s new central business district (CBD), accounts for just over 70% of the current Grade A stock. In comparative terms all other locations are considered secondary.
At the end of 2008, there were 46 completed, high-rise commercial office towers within the Diplomatic District providing 680,000 square metres of leasable accommodation. That figure now stands at 1.1 million square metres, equating to a 60% increase in supply over 15 months. There is currently, approximately 158,000 square metres of space being marketed producing a vacancy rate of 14% in comparison with 22% recorded in December 2009 and sub 5% at the end of 2008.
A further five developments are under construction and scheduled for completion before the end of 2010, creating an additional 192,000 square metres available to lease. These will take total office stock in the Diplomatic District up to 1.3 million square metres if construction works are carried out according to schedule without any major delays.
Whilst continuing to suffer from substantial oversupply, the Qatar office market has benefited from increased occupier confidence in Q1 2010. Over the whole of 2009, DTZ only registered new demand totalling 137,580 square metres which was 50% less than the recorded increase in supply. However, Q1 2010 has recorded registered demand totalling 137,200 square metres. The highest level recorded for a single quarter since Q3 2008.
Rents on prime commercial office properties have stabilised over the quarter but further rental reductions have been witnessed in the secondary markets with occupiers focusing on quality. Prime rates in the Diplomatic District reached QR 250 per square meter/month; however it is possible to secure new accommodation from rates as low as QR 180 per square meter/month.
As the market continues to mature, greater levels of stock have provided potential occupiers with a choice of accommodation resulting in the development of a two-tier office market. High quality, modern offices, designed and built to meet occupier requirements are able to command the prime rates with secondary stock suffering from increasing levels of vacancy and reduced rentals to attract interest.
The residential market
As with the commercial office market, demand for residential property has also shown signs of improvement since the start of the year; although high levels of availability continue to push rents for prime apartments and compound villas in a downward trend.
Rentals for compound villas have decreased due to oversupply in the market; albeit the average reductions have been less than 10%. In comparative terms, large stand alone, high end villas have performed better, with rates for good quality stock stabilising due to restricted availability. Rentals start at QR 23,000 rising up to QR 40,000 per month.
To date, residential sales at The Pearl dominate the freehold market. Average apartment sales prices peaked at rates of QR 18,000 – QR 20,000 per square meter in Q2 2008. Since then, the global economic situation and delays in handover of units has resulted in lower market confidence among property investors with stricter bank lending requirements discouraging off-plan purchases. The result is a difference in pricing expectations between vendors, particularly developers and purchasers, which has led to a limited number of transactions making it difficult to benchmark current pricing.
There are a growing number of vendors that purchased units at pre 2008 prices, who are now seeking to sell these units on the secondary market. The majority of these vendors are seeking prices that equate to QR 10,000 – QR 13,000 per square meter. Evidence of distressed vendors agreeing to lower rates, less than QR 10,000 per square meter, remains limited and typically only applies to multiple unit sales.
There is a more positive outlook for the freehold market in 2010, with signs that investor confidence is returning. Secondary market sales of completed product available at rates of QR 10,000 to QR 13,000 per square meter are expected to lead the recovery. That outlook is reflected by more banks starting to offer retail mortgage products and existing lenders promoting their products.
DTZ expect that Qatar will continue to experience relatively strong residential demand over the short to medium term as the economic and population growth continues on a positive track.
The retail market
The Qatar retail market is dominated by organised retail, comprising large scale retail mall developments, serving as one-stop shopping, recreational, leisure and entertainment hubs for visitors. Organised retail stock of this type extends to approximately 500,000 square metres of gross leasable area (GLA) distributed across 8 main shopping malls dominated by Villaggio and City Centre, which account for over 60% of the total retail supply. That figure has remained constant since the opening of the extension at Landmark in early 2009.
DTZ report that the retail market remains comparatively strong and does not suffer from the oversupply characteristics at this time, which prevail in the commercial office and residential markets. That market dynamic has led to increases in average rental levels.
Most existing malls boast full occupancy with waiting lists of potential tenants. Landmark, City Centre and Villaggio shopping malls command the highest average rental rates ranging from QR 180 to QR 225 per square metre per month for standard units due to their location and popularity among the residents. There has been little change to these rental levels, with limited transactional evidence to benchmark rents, as no new space has been released to the market and existing units are rarely transferred between retailers.
In the short to medium term, the organised retail market outlook remains fundamentally sound with demand continuing to outstrip supply and the growing tourism demand giving a boost to this sector. As a result, vacancy rates are expected to remain low even as retail stock increases and rental growth on new developments which can add diversity, exclusivity and depth to the retail market will remain strong.
The hotel market
DTZ’s report also looks at the dynamics of the hospitality sector and outlines that demand for hotel accommodation remains strong in comparison to other international markets and is driven by MICE tourism. However, there has been a sharp increase in the number of hotel rooms, which over time could impact on levels of occupancy and average room rates. QTA reported that 58 hotels were operating in Qatar by the end of 2009 with seven new hotels opening over the year. The total number of rooms provided, increased by 25% from 6,750 to 8,495.
Furthermore, QTA forecasts that an additional 70 hotels and 48 hotel apartments will have opened by the end of 2012 offering an additional 12,981 hotel rooms and 8,763 hotel apartment units. It is expected that 23 hotels will open in 2010, increasing the number of rooms offered by 55% to in excess of 13,000.
Doha’s revenue per available room (revPAR) fell 17% to US$ 193 in 2009, though Qatar has maintained the second highest revPAR in the GCC region after Abu Dhabi.
Average Room Rates (ARR) fell 5% from US$ 312 in 2008 to US$ 296 in 2009 with average occupancy rates also in decline from 74% in 2008 to 65% in 2009.