On Solid Foundations: The Commercial and Retail Outlook
01 Jan 09:16 AMSector : Retail Country : Qatar
By Mark Proudley
Commercial demand returned in 2012 to the highs recorded prior to the financial crisis, and the segment is set for diversification to meet demand. Retail space continues to expand, and the organized retail market outlook remains fundamentally sound.
The total current office stock in Doha is estimated at 3.75 million square meters (sqm), of which approximately 1.45 million sqm is located within the Diplomatic District, which is recognised as being Doha’s new CBD. The supply figures reflect an additional 54,000 sqm of space being completed since the start of 2012 in the Diplomatic District.
There is approximately 238,000 sqm of vacant accommodation being marketed to lease in the Diplomatic District, equating to a vacancy rate of 16 percent. That is lower than the vacancy rate recorded at the end of 2011 when 335,000 sqm of accommodation was being marketed as available to lease, reflecting a vacancy rate of 24 percent. The level of supply will continue to grow over the next year and half and DTZ forecasts that total office stock in the Diplomatic District will reach 1.63 million sqm by the end of 2013, subject to construction works completing according to schedule. That equates to an additional 180,000 sqm being completed by year end.
Office accommodation supply expanded rapidly in 2008. The majority of this stock was let on five year lease terms, which are scheduled to expire in 2013. DTZ anticipates that this could lead to first significant tranche of second hand accommodation becoming available over the next year, as occupiers vacate their current accommodation to take advantage of the opportunity to relocate to new premises. Despite a vacancy rate of 16 percent, availability of international quality Grade A accommodation remains limited, particularly for occupiers with smaller space requirements under 500 sqm. That is supported by a large proportion of the companies, initially registered by DTZ as having active requirements for office accommodation during the first quarter of the year, still actively seeking accommodation.
DTZ registered new demand equating to 249,000 sqm over 2012, the highest level recorded since the start of the downturn at the end of 2008. It is worth noting that the majority of new demand recorded (77 percent) was registered during the first quarter of 2012.
The government has been the most active occupier sector accounting for just over 40 percent of recorded demand in the year. That is an historic trend that we expect to continue into the future. There has been a continued rise in optimism and activity from the private sector. The financial services and construction and engineering industries both posted strong growth in terms of demand for office accommodation. DTZ expects to record continued demand from companies operating in the construction sector as they gear up for the major infrastructure projects being awarded.
There has been increased activity from large space users or occupiers seeking in excess of 10,000 sqm. These parties accounted for in excess of 66 percent of the total demand recorded. That is not unexpected due to the government activity recorded over the first quarter. The latter quarters have seen a shift towards greater activity from private sector companies, which are typically seeking smaller accommodation.
Prime rents have remained stable across all the main commercial districts throughout 2012. Rates for accommodation in the Diplomatic District can vary significantly according to the quantum and quality of accommodation being rented. It is possible for larger space users seeking in excess of 5,000 sqm to secure secondary accommodation from rental rates as low as QR145 ($39.8) per sqm per month. Small suites of less than 500 sqm are at a premium and rental rates of QR275 ($75.5) per sqm per month have been achieved within premium buildings. Rental rates for good quality commercial stock in secondary locations such as; Al Sadd, the C/D Ring Roads and Airport Road range from QR120 ($33) to QR150 ($41) per sqm per month. Rates in tertiary office locations, such as office accommodation above retail showrooms on Salwa Road can be acquired at rates from QR80 ($22) to QR100 ($28.5) per sqm per month.
DTZ forecasts that rental rates will remain relatively stable for the remainder of 2012 and into 2013. Growth in economic activity and investment in infrastructure will continue to create employment opportunities, fueling demand for office accommodation. Simultaneous expansion in supply will dampen the prospects of rental inflation causing rental levels to remain stable.
Retail space spreads out
Qatar is ranked as having the highest GDP per capita in the world by the International Monetary Fund (IMF). The IMF estimates that GDP per capita will reach US$ 102,891 over 2012. Coupled with limited income tax liabilities, consumers in Qatar are considered to have one of the highest levels of disposable income in the world, driving high levels of private consumption and demand for retail space.
The retail accommodation offer in Qatar is divided between organised retail malls, high street showroom space and souq retail.
Total organised retail mall stock in Doha increased from 430,000 sq m at the end of 2010 to approximately 510,000 sq m of gross leasable area (GLA) distributed across ten main shopping malls by the end of 2011. That equates to approximately 300 sq m of organised retail accommodation per 1,000 people. In comparison, most European countries average 200 sq m of retail space per 1,000 people. Dubai has one of the highest ratios of retail space in the world, offers 1,000 sq m per 1,000 people.
The organised retail market is dominated by Villaggio and City Centre Malls, which account for 50 percent of the total retail supply. Mall space is fully occupied with waiting lists at these prime malls.
With Lagoona Mall and The Gate opening in 2012, Ezdan Mall in Gharaffa is the next mall scheduled to open during H1 2013. Total stock of retail mall accommodation is expected to reach 685,000 sq m by the end of 2013 with new malls scheduled to open including; Ezdan, Markhiya and Gulf Mall.
Landmark, City Centre and Villaggio shopping malls command the highest average rental rates due to their location and popularity. Rentals range from QR 225 to QR 250 per sq m per month for standard line units.
In the short to medium term, the organised retail market outlook remains fundamentally sound with demand continuing to outstrip supply. As a result, vacancy rates are expected to remain low even as retail stock increases. We expect to witness moderate rental growth on new developments which can add diversity, exclusivity and depth to the retail market.
In terms of showroom retail accommodation Barwa Commercial Avenue, which is in the process of being completed, will increase the total stock across Doha by approximately 250,000 sq m. DTZ estimates that this equates to a 25 percent increase in retail showroom space in Doha. Rental rates for showroom space typically range from QR 110 – 160 per sq m per month subject to location, profile and size of the unit.