DTZ's latest Property Times report on the Qatar real estate market, released today, gives detailed insight into the country's real estate sector across the asset classes. It also identifies some of the main trends that are emerging as the market continues to adjust.
Trend 1: Market stability and increasing demand
Despite a general threat of oversupply, Qatar's real estate market is experiencing an increase in demand for all types of real estate which can be attributed to the strong economic environment. Qatar is forecast to achieve real GDP growth of 18%-23% over the course of 2010 and currently has one of the world's highest per capita GDP's and best performing economies in the GCC.
The local economy has largely been bolstered by the Government's commitment to invest in economic diversification through public spending on transportation projects such as the New Doha International Airport, Bahrain Causeway, Inter Gulf Rail Network and a local Metro system. Other areas identified for major investment include; healthcare, sports, education and housing projects. This spending will create a knock-on effect on the rest of the economy, contributing to increased consumption and demand for better quality housing, office and retail facilities.
Demand levels over 2010 suggest renewed occupier confidence.
In the office market, DTZ registered demand totalling 162,800 square metres in H1 2010, compared with just 137,580 for the whole of 2009. DTZ's latest research highlights that Government related bodies accounted for 63% of registered demand. Government Ministries leasing three towers in the Diplomatic District, equating to almost 100,000 square metres of supply, has been a key driver in the maintaining of office vacancy rates over the first half of the year despite increased supply. Financial Services and Technology companies are the most active private sector companies seeking new space. These sectors are supported by several Government backed initiatives, such as the Qatar Financial Centre Authority, Qatar Science and Technology Park and Qatar Foundation.
Similarly, demand for residential property has shown signs of potential improvement with increased economic activity creating new jobs and attracting people to Qatar seeking employment – although population growth is not expected to reach the heights witnessed between 2005 and 2008. Despite this, new supply continues to outstrip demand in the luxury apartment market, where rents have reduced by 20 - 30% over the first half of the year.
Over 2009 the global economic situation, stricter bank lending requirements and delay in handover of units resulted in lower market confidence among property investors in the residential freehold sales market, dominated by the Pearl. DTZ has witnessed increased sales activity over 2010 and there is a more positive outlook for the freehold market over the remainder of the year, with signs that investor confidence is returning. This outlook is reflected by more banks starting to offer retail mortgage products and existing lenders promoting their products.
Demand for hotel accommodation remains strong in comparison to other international markets, driven by MICE tourism. However, there has been a sharp increase in the number of hotel rooms, which over time could impact levels of occupancy and average room rates.
The organised retail market outlook remains fundamentally sound with demand continuing to outstrip supply and growing tourism giving a boost to this sector. The greatest demand is for malls in good locations with high footfall and as such these command the highest rents.
Trend 2: Development of a two tier market
The office and residential sectors of the Qatar real estate market have all become more favourable for tenants over the last two years. This trend is likely to continue through 2010 and beyond as greater levels of stock come to the market – providing potential occupiers with a wider choice of accommodation hence creating a more competitive market.
Mark Proudley, Associate Director at DTZ and author of the report, commented:
"The markets during this period have been characterised by declining rents and increased incentives being offered to tenants, such as rent free periods. The other main effect of this shift has been development of a mature, two-tier real estate market".
The two-tier market has emerged from the shift in market supply/demand dynamics, creating increased vacancy rates across these asset classes. The result is greater differentials in pricing between prime and secondary stock.
"As the markets mature, good quality, modern properties, designed and built to meet occupier requirements are in demand and able to command prime rents whilst secondary stock suffers from increasing levels of vacancy and reduced rental rates to attract interest".
"Pricing has adopted a higher level of sophistication with Landlords offering discounts on prime rentals to occupiers with larger space requirements, good covenants and a willingness to commit to lease terms in excess of five years", Proudley added.
Trend 3: A demand led approach
Looking forward, DTZ expects the changes witnessed in the market over the last two years to impact on the approach to future development.
"Going forward we expect development to be more market led and less speculative. Landlords and developers will need to focus on the core fundamentals of real estate; identifying their target market and delivering a product which meets the requirements of the end users in terms of design, build quality and pricing".
Proudley summed up the general outlook for Qatar's real estate market by saying:
"In the short to medium term we anticipate that rental rates will stabilise as increases in demand soak up the oversupply; however investors will need to adopt proactive asset management strategies to drive and enhance real estate values."