A Healthy Market
01 Jan 01:48 AMSector : Real Estate Country : Qatar
By Dr Tarek Coury
With a major government push to transform Qatar into a modern, knowledge-driven economy, Doha has witnessed both massive infrastructure investment and one of fastest population growth rates in the world. In the past few years, the number of residential units has increased dramatically with only limited impact on rental rates. Qatar is set to experience about 4 percent per annum population growth for the period 2011-2014. 2011 witnessed 3,000 units added to the residential stock while 18,000 units were added in 2012. Despite this massive increase in residential stock, population growth has ensured a resilient rental market. With only 10,000 units being added to the residential stock in 2013 and a steady 4 percent population growth, the rental market will continue to show resilience in 2013.
When compared to a regional benchmark such as Dubai, prime apartment rentals in Doha are typically priced at a premium. The average rental for an apartment in a prime area in Doha ranges from QAR8,000 per month to QAR19,000 per month. In contrast, prime apartments in Dubai typically range from QAR6,000 to QAR15,000. This indicates that the lower band of quality apartments in Doha is typically priced 15 to 25 percent higher than comparable apartments in Dubai. This is in part due to the oversupply of residential stock in Dubai but also suggests either a lack of sufficient supply in Doha for 1 bedroom (BR) and 2 BR apartments in this price range or a potential mispricing. This comparison does not however capture non-rental expenditures associated with housing services in these markets. Dubai residents face considerably higher water and electricity costs, a 5 percent municipality fee and district cooling charges in some areas. In addition, Dubai residents will typically also incur expenditure for furniture and home appliances while a typical apartment in Doha is more likely to be fully furnished.
Prime apartment hotspots in Doha are predominately located at The Pearl-Qatar, the Zig Zag Towers across from the Grand Hyatt and at the West Bay central business district (CBD). These areas were developed over the past 6 to 7 years and cater to the high-end income segment. A majority of these units are offered on a fully furnished basis, and form a major part of mixed use developments found in Doha. The average monthly rent for a fully furnished apartment in a prime area such as The Pearl-Qatar and the West Bay CBD is approximately QAR15,000. Sales prices for new apartments are between QAR14,000 – QAR22,000 per sq meter. Overall sales prices have remained stable since 2010, suggesting limited sales transactions.
Central Doha hosts the city’s secondary business districts (SBDs) which cater to all income segments with older developments being occupied by low to middle income-earning expatriates while newer developments that offer superior facilities are occupied by the mid to high income segment, but supply in this category is rather limited. Among the secondary business districts, the average monthly rental for a fully furnished apartment (Al Sadd, Najma, Bin Mahmoud, Airport Road, Muntaza and Mansoura) is QAR5,200 for a 1 bedroom (BR), QAR7,200 for a 2BR and QAR8,500 for a 3BR. The addition of new residential supply and occupancy rates peaking at 90 percent indicates a strong demand from new expatriates as Qatar is gearing up toward 2022. This is likely to result in moderate rental increase in the coming years.
Doha also boasts a rental market for villas, both as standalone villas for large families, and shared villas for couples and bachelors. Corporate tenants predominantly occupy villa compounds in Qatar. Monthly rents for 3BR, 4BR and 5BR villa units range from QAR11,000 to QAR18,000 with prime villas compounds ranging between QAR18,000 for a 3BR to QAR23,000 for a 5BR unit. The average rents for villa compounds have marginally increased over 2012 and are likely to experience a further uptick over 2013 with occupancy levels to remain high at 90 percent.
Overall, the coming year will witness higher rental rates, especially in the low to middle income segment. As Qatar gears up for the World Cup, overall infrastructure spending is set to be frontloaded in the coming few years. Attendant population growth will be high and likely skew toward the low to middle income segment – this will reflect the hiring needs of the construction sector and downstream sectors.
Qatar’s skyline was transformed by a government push to create a modern central business district in the West Bay, a multipurpose, mixed use development that now hosts the city’s most iconic buildings, prominent among them the Burj Qatar, the Tornado Tower, and The Gate buildings. While primarily a place to do business, the area also hosts some of the city’s most prominent hospitality and residential venues and continues to expand with ongoing construction projects such as the Qatar World Trade Center and the Barwa Financial District, now called Qatar Petroleum District. Government also drives office demand in Doha with government-related entities accounting for an estimated 50 to 60 percent market share of total office space, mostly in the West Bay CBD.
Qatar’s total office supply currently stands at about 3.6 million sq meters with the West Bay CBD accounting for 1.4 million sq meters. An estimated 300,000 sq meters of office space came online in 2012 but additional supply is set to more than double in 2013, with an estimated 700,000 sq meters of additional office space. Supply growth is set to taper off in 2014 with only 100,000 sq meters of additional office space.
Monthly office rents experienced a slight increase in 2012 averaged QAR158 per sq meter. The small rise in average rents is attributable to additional supply of high-end stock that came to the market. The West Bay CBD recorded average monthly rents of about QAR230 per sq meter during the same period. Monthly rents in some office buildings peaked at QAR260 per sq meter. Office rents are lower in Secondary Business Districts (SBD) such as the C Ring Road, the D Ring Road, Al Sadd, Airport Road and Al Salata and average about QAR145 per sq meter. Government spending on infrastructure projects is likely to stimulate growth in Small and Medium-sized Enterprises (SMEs) in the construction sector and downstream sectors. The trend of higher occupancy and absorption of office space in SBDs relative to the CBD is set to continue in 2013 with startups and SMEs typically favoring small and cheaper commercial property. With economic growth now being driven by the non-hydrocarbon sector, private sector growth will be an important pillar driving the performance of the office sector in Qatar.
Retail and Hospitality Sectors
Retail remains one of the strongest performing sectors in Qatar’s economy with both mall developers and line tenants benefitting from a wealthy and growing client base. High-end retail in Doha is dominated by approximately 588,000 sq meter of gross leasable area (GLA) spread across eleven major shopping malls, prominent among them Villagio Mall, City Centre Doha, Landmark Mall and Lagoona Mall. When compared to regional benchmarks such as Dubai and Abu Dhabi, GLA per capita of around 0.3 sq meters is relatively low. While this ignores the role of tourism in Dubai, the comparison points to continued growth potential in the sector. Future supply up to 2015 will amount to an additional space of approximately 1,100,000 sq meters of GLA. This would then increase GLA per capita to 0.77 sq meters, still below regional benchmarks such as Dubai (1.4 sq meters) and Abu Dhabi (1 sq meters).
Line tenants in shopping malls currently pay between QAR200 per sq meter and QAR250 per sq meter per month. Asking rents in some upcoming malls indicate however a 30 perent premium over and above prevailing rental rates. This suggests pent-up demand that bodes well for the sector: Qatar malls currently have a limited number of international brands that cater to the mid- and high-end income segments. While the Doha retail sector is set to mature, brand penetration remains low by regional benchmarks. But additional supply will likely ensure more international brands coming onto the market. Ikea at Doha Festival City for example is due to launch during the first half of 2013.
Strip or “high street” retail line tenants currently pay QAR150 sq meter to QAR200 sq meter per month suggesting a 20-30 percent premium for retail space in shopping malls over strip retail. Doha also boasts high-end strip retail at The Pearl-Qatar where rental rates range from QAR300 per square meter to QAR 500 per sq meter. Major strip retail is found on Salwa Road, Al Sadd, Bin Mahmood, Airport Road, the A & B Ring Roads, Musheireb, Al Wakrah and Al Khor areas. Tenant profile typically include furniture and lighting outlets, new and used car showrooms, local clothing and apparel stores, and local and international F&B outlets. Upcoming infrastructure projects signal growth in population with a disposable income profile on the low to medium end. This in turn points to new opportunities for strip retail redevelopment and will likely benefit new upcoming strip retail such as Barwa Commercial Avenue.
With retail benefiting from increasing local demand, Qatar’s hospitality sector has relied on growth in business and MICE (meetings, incentives, conferences and exhibitions) tourism which account for over 90 percent of tourism arrivals. It has also benefited from tourism inflow linked to specific sporting events. Doha has played host to the Asian Games in 2006, the Asia Cup and Arab Games in 2011 and various Tennis exhibitions, among others. Qatar’s hospitality sector remains dominated by an upscale offering of luxury hotels and resorts. Qatar boasts 74 hotels, over half of which are four and five star hotels. Performance in the hospitality sector has however been muted with a decline in annual occupancy rates from about 60 percent in 2010 and 2011 to 57 percent in 2012. The stock of hotel rooms in 2012 increased by nearly 20 percent over the previous year and amounted to over 13,500 rooms. In 2011, the stock of hotel rooms amounted to around 11,300 rooms spread across 74 hotels, an increase of 16 percent relative to 2010. With continued growth in internationally branded hotel operators in Qatar, leisure tourism appears set to drive growth in the years to come. Qatar is targeting 2 million tourists by 2015, which appears achievable given that current tourism figures stand at about 1.5 million visitors.