Key real estate trends for 2014 in Qatar

by  — 2 February 2014

The Edge examines the outlook for the office, retail, hospitality and residential real estate markets in 2014.

In the second half of 2013, the office market was buoyed by the leasing of three entire towers in West Bay, said Johnny Archer, head of valuation at Asteco Qatar (Image Corbis)

With the start of 2014, Qatar is yet closer to the 2022 World Cup. As a natural consequence, the country’s growing population will continue to impact its real estate dynamics, agree industry experts.

Office rents to increase

Unlike 2013, which remained stable in terms of office rents, 2014 may herald rental growth in prime areas such as West Bay. Asteco reports a number of rental deals closed for office buildings in West Bay during 2013 that will potentially lead to a decrease in available space, hence the escalating rents. 

“Falling vacancy rates and limited prime stock under construction are creating potential for rental growth over 2014, particularly for smaller suites in high quality buildings,” said Mark Proudley, associate director for consulting and research at DTZ in Qatar, further citing the vacancy rates having fallen from around 16 percent at the start of the year 2013 to 10 percent at year-end.

While tenants are seemingly most interested in small office units, much of the occupancy growth in the Diplomatic District can be attributed to the government-related bodies leasing whole towers. Johnny Archer, head of valuation, research and advisory at Asteco Qatar, told The Edge, “The office sector, particularly in West Bay, has been assisted to a large degree by the migration of government bodies from other areas.”

In the second half of 2013, according to Archer, the office market was buoyed by the leases that have been agreed on three entire towers in West Bay, which reduces availability to below 15 percent in Doha’s business district. The main challenge for 2014 is “to replicate such a performance as the market may have to rely on demand from private sector companies with smaller size requirements,”said Archer.

While the Diplomatic District has seen a high level of occupancy in 2013, the overall office sector in 2014 is still oversupplied, which, experts agree, would likely keep rents more or less stable.

More malls to open

According to DTZ’s Property Times Qatar Q3 2013, Qatar’s retail trade reached QAR39.4 billion in 2012, recording an average growth of 14 percent per annum over the past five years. While Qatar’s retail market consists of malls, souqs, hypermarkets and standalone informal shops, the government’s focus, according to Al Asmakh Real Estate Development  Company’s (AREDC) report for Q3 2013, is currently on malls. 

“There is a large degree of exuberance in the retail sector currently with a large number of malls and retail facilities under construction and even more in the planning,” agreed Aziz Sharif, partner of Mannzili, a local online property portal.

“Landlords have already taken the assumption of the increased demand as a fact and have begun pushing prices up.” – Aziz Sharif, Mannzili. 

Doha and connecting areas of Al Rayyan and Umm Salal have 13 operational commercial malls, with 10 under construction and a few in planning stage across the country. According to AREDC research, the current mall space will double to reach almost one million square metres of net leasable area within the next two to three years. “There is potential for organised retail stock to increase to 1.72 million square metres by the end of 2016, subject to all projects under construction being completed,” said Proudley. Tracking the opening of two new malls Ezdan Shopping Centre and West End Mall in 2013, Archer said the “demand from prospective tenants for retail accommodation remains very strong for prime units in the larger
shopping malls.”

More hotels to dilute sector

By 2022, Qatar Tourism Authority plans to increase tourist arrivals by an average growth rate of 20 percent per annum. This will inevitably call for continued growth in the hospitality sector. With 106 hotel and serviced apartment properties in Qatar, DTZ estimates there are currently 16,500 keys in Doha. Although with a strong latent demand, the hospitality sector will remain oversupplied considering the high number of keys, which, Proudley suggested, have also led to falling rates as hotels face aggressive competition. 

While there was a three percent growth in average occupancy rates for the first half 2013 compared to the same period in 2012, the increasing number of hotels in the near future will lead to underperformance, according to DTZ. “The market outlook for hospitality properties therefore remain relatively negative in the short to medium term,” concluded Proudley. 

Accommodation demand to rise

A natural consequence of population growth has been the intensity in residential demand. “Lack of new supply and rising demand has reduced availability and led to rental inflation of [around] 10 percent over the last year,” said Proudley. Sharif predicted the rents will increase regardless of real population growth in 2014 since, “landlords have already taken the assumption of the increased demand as a fact and have begun pushing prices up.” Over the next 12 months, DTZ estimates that approximately 25 residential towers on The Pearl and a further nine towers in the Diplomatic District will increase supply by 7200 apartments. AREDC forecasts the demand during 2014 inclining towards maintained buildings for apartments and compound villas.

As for the sales side of the residential sector, Archer said that “there has been an increase in mortgage applications, and increase in sales prices evident in the second half of the year. We would expect this trend to continue in 2014”.

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