Q1_2016_Report

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PROPERTY TIMES

Vacancy rates increase inthe office and residential

sectors

Qatar Q1 2016

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DTZ Research

www.dtz.com Property Times 1

PROPERTY TIMESVacancy rates increase in the

office and residential sectorsQatar Q1 2016

31 March 2016

Contents

Economic Overview 2

Office Market Overview 3

Residential Market Overview 4

Hospitality Market Overview 5

Retail Market Overview 6

Author

Johnny Archer

Associate DirectorConsulting & Research, Qatar

+974 7404 3927 [email protected]

Contacts

Mark Proudley

DirectorConsultancy & Commercial Agency,Qatar

+974 5584 [email protected]

Edd Brookes

General ManagerDTZ Qatar

+974 5586 [email protected]

Qatar’s economic reliance on the hydrocarbon sector has resulted in further cuts togovernment spending in Q1 2016, as oil prices fluctuated between $38 and $42

per barrel in March. There has been a significant drop in demand for new office lettings as government

departments, semi-state bodies and oil and gas companies have largely withdrawnfrom the office market. DTZ estimates that these bodies accounted for 65% ofGrade A office lettings in West Bay between 2009 and 2014

Demand for office accommodation in the private sector is concentrated aroundrequirements for less than 250 sq m, often from companies within Doha who arelooking to downsize

The continued growth in population has maintained demand for residential propertycatering to the lower to middle income demographic, although signs of increasingvacancy have emerged in some areas

The availability of prime residential accommodation has increased due to a

combination of new apartment building completions and reduced demand, mostnotably on The Pearl-Qatar

The increase in vacancy has resulted in rents stabilising, and in some casesdecreasing for prime apartments, and villas in residential compounds

The hospitality sector has experienced falls in occupancy rates as fifteen newhotels/hotel apartment buildings have opened in the past year, increasing supply toover 20,000 rooms

The supply of leasable accommodation in ‘organised’ retail malls remains at643,000 sq m, with high occupancy rates throughout the sector. There has beenstrong interest from retailers for units in the various retail malls, which are due toopen in 2016 and 2017

Figure 1

West Bay Office Supply Vs Availability, 2009 – 2016, (,000 sq m)

Source: DTZ Research

0%

5%

10%

15%

20%

25%

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2009 2010 2011 2012 2013 2014 2015 Q1 2016

Diplomatic District Availability

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QATAR Q1 2016


Economic Overview

Despite substantial government expenditure in recent years tohelp reduce the reliance on the hydrocarbon sector, and therecent fall in oil prices, the hydrocarbon sector still accountedfor approximately 32% of total GDP in Q4 of 2015.

The price of crude oil has fluctuated between $38 and $42 perbarrel throughout March, having hit a 2016 low of $30 perbarrel in mid-January. The extent of the drop in oil prices hasresulted in cuts to various government budgets for 2016 as afiscal deficit is forecast for the first time in 15 years.

Projected expenditure for 2016 is QAR202.5bn, a fall ofQAR15.9bn from previous fiscal year. Projected revenues for2016 are QAR150.6bn, down from QAR225.7bn estimated for

2015. The projections for 2016 are based on the assumptionthat the average oil price for the year is $48 per barrel.

The Standard & Poor’s (S&P) credit ratings agency recentlyconfirmed Qatar’s AA rating and stable outlook. S&P noted thatQatar’s macroeconomic fundamentals remain solid despite thechallenges the state is facing. The international credit ratingagency warned however, that the government’s balance sheetwill deteriorate as long as oil prices remain subdued.

The Ministry of Development Planning and Statistics confirmedin December 2015 that the country’s economy was expandingat a lower rate than previously forecast. In June 2015 theMinistry had predicted GDP growth at 7.3% for the year,however, these forecasts were revised down to 3.7% by yearend. Due to the performance of the Hydrocarbon sector, GDPgrowth is driven exclusively by the non-oil and gas sectors,which grew by 7.4% in Q4 2015.

The governments of Qatar and other oil-producing nationssuch as Saudi Arabia and Russia agreed on 16 February tofreeze production at January’s levels of output, in an effort tohalt the decline in oil prices. Whether the efforts of the variousgovernments will be a success remains uncertain. Followingthe removal of international sanctions, Iran reiterated its pledgeto increase oil production. Existing oil-producing nations alsopumped oil at record levels in January, which suggests that afall in supply will not be immediate.

Despite the fall in oil & gas revenue, major infrastructuralprojects are progressing as planned, maintaining economicgrowth. The current cost of projects that are underway isQAR261bn, which excludes projects in the energy and privatesectors.

In anticipation of a budget deficit in 2016 the Finance Ministerconfirmed that Qatar will finance any shortcomings throughdebt instruments in local and international finance markets,rather than tapping into its national savings, or selling assets.

The inflation rate in Qatar fell to 1.9% in 2015 , however it isanticipated that this will increase again, driven by theconstruction sector, as major projects get underway between

2016 and 2019 in preparation for the World Cup in 2022.

Figure 2

GDP (QAR Million) and Real GDP Growth (%)

Source: GSDP

Figure 3

Inflation (%)

Source: EIU

Figure 4

Population Growth Forecast

Source: MDPS/Trading Economics/Statictica/DTZ Research

0

5

10

15

20

0

200,000

400,000

600,000

800,000

1,000,000

Nominal GDP (QR Million) Qatar Real GDP Growth (%)

-20

-15

-10

-5

0

5

10

15

20

25

30

35

2007 2008 2009 2010 2011 2012 2013 2014 2015

Consumer price inflation Rental Inflation

1,000,000

1,400,000

1,800,000

2,200,000

2,600,000

3,000,000

2012 2014 2016 2018 2020

Growth at 3% per annum

Trading Economics Forecast

Statistica

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QATAR Q1 2016


Office Market Overview

Following a sustained period of increasing occupancy rates inthe prime office district of West Bay, the past 6 months haswitnessed a reversal of this trend. The availability rates haddropped to below 10% by 2014, which was largely the result ofgovernment bodies reserving a large proportion of towers thatcompleted construction between 2013 and 2015.

Between 2008 and 2014, an estimated 65% of office lettings inWest Bay were to government or hydrocarbon relatedcompanies. Recent government budget cuts, due to theprolonged period of low oil prices has resulted in a significantdrop in the overall demand for office space since early 2015.

DTZ has also witnessed a trend of ‘downsizing’ in the private

sector, as enquiries have increased from professional servicescompanies looking to relocate to smaller or more cost effectivepremises on the expiry of their existing leases. The majority ofenquiries for office accommodation in the private sector relatesto requirements of less than 250 sq m, however this demandhas also fallen since 2014.

A number of office buildings in West Bay, that were completedbetween 2013 and 2015 were not released to the market inanticipation of leasing deals to government bodies. As activityin this sector dried up, the available space has now been puton the market, increasing the supply of availableaccommodation. The total supply of office buildings in WestBay currently stands at approximately 1.63 million sq m, ofwhich approximately 0.24 million sq m is available to rent.

DTZ anticipates that approximately 300,000 sq m of new officeaccommodation is likely to complete in West Bay within thenext 12-18 months, however over more than 200,000 sq m ofthis is at the QP District, which may not be available to themarket.

The increase in availability, and reduced demand has startedto impact the quoted rents for offices in Doha. This is likely tobe compounded in the next 2-3 years due to the large pipelineof new supply, both in West Bay and Lusail.

Grade A offices in West Bay currently command between QAR150 and QAR250 per sq m per month depending on the size ofunits and quality of the building. Typically the higher rents areonly achievable for small units in prime buildings. Moretypically, rents of between QAR150 and QAR180 per sq m arebeing quoted for larger office floorplates.

Rents in areas such as Old Salata, Al Sadd, Airport Road, andC/D Ring Roads typically command between QAR120 andQAR170 per sq m per month, depending on the age and thestandard of finish of the building.

Figure 5

West Bay Office Supply v Availability 2009-2016 ,000 sq m


Figure 6

New Office Demand Registered by DTZ 2014 v 2015, sq m


Figure 7

Prime Office Rents by District, QAR/sq m/month


0%

5%

10%

15%

20%

25%

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2009 2010 2011 2012 2013 2014 2015 Q1

2016Diplomatic District Availability

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

Const Fin S erv Tech Govt Oil&Gas Prof Serv

Misc

2014 2015

100

150

200

250

300

2010 2011 2012 2013 2014 2015 Q1 2016

Diplomatic District - PrimeDiplomatic District - Average

Airport RoadC/D Ring Road and Al Sadd

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QATAR Q1 2016


Residential Market Overview

The supply of residential real estate in Qatar struggled to meetdemand between 2011 and 2015 as the population during thatperiod increased from 1.7 million to 2.4 million.

The shortage of available accommodation created upwardpressure on rents in both the apartment and villa markets, withannual growth of between 5% and 10% per annum evidentthroughout the Doha market.

Population growth, which has been the driver of real estatedemand in Qatar remained strong in 2015. This reflected a 9%increase between January and December, however it isthought that much of the increase is represented by lower tomiddle income workers in the service and constructionworkers.

Over the same period there has been extensive redundanciesin the hydrocarbon and government sectors, and a subsequentknock on effect in the private sector. This has resulted inreduced demand good quality residential accommodationthroughout Doha.

The supply of new residential accommodation has increased inrecent months and this trend will continue throughout the yearas a significant number of apartment projects reachcompletion. This has resulted in increasing vacancy levels forprimary and secondary apartment market. The changingdynamics in the market suggest that recent signs of falling

rents in the apartment sectors may continue throughout 2016.

Construction of new villa compounds throughout Doha hasbeen limited in comparison to apartment buildings. While therehas been an increase in vacancy levels, DTZ believe thatoccupancy rates for compound villas will remain relatively high,with less downward pressure on rental levels.

DTZ has also witnessed a fall in demand for corporateresidential lettings of entire residential blocks and compounds.It is becoming increasingly common for companies to provide arental allowance rather than employee accommodation.

On The Pearl-Qatar, DTZ estimates that the supply ofapartments may increase by more than 30% in 2016 as new

towers in both Porto Arabia and Viva Bahriya near completion.Incentives such as rent free periods, and rents inclusive ofutility bills became common in 2015, however DTZ expect tosee rents fall in 2016 as landlords try to secure tenants in amore competitive environment.

Freehold prices on The Pearl Qatar increased steadily between2011 and 2015, however recent months has seen a fall in salesactivity and prices have stabilized. Local investors make up themajority of purchasers, where second hand units typically tradeat between QAR13,000 and QAR15,000 per sq m, and newunits can achieve in excess of QAR17,000 per sq m.

Figure 8

Prime Apartment Supply by District, No. of apartments


Figure 9

Prime Apartment Rents, QAR/Month


Figure 10

Average Freehold Sales Prices, Pearl Qatar, QAR/sq m


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

2012 2013 2014 2015 2016 2017 2018 2019 2020

Diplomatic District Pearl Lusail Msheireb

5,000

7,000

9,000

11,00013,000

15,000

17,000

19,000

21,000

2011 2012 2013 2014 2015 Q1 2016

One Bed Two Bed Three Bed

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2009 2010 2011 2012 2013 2014 2015 Q12016

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QATAR Q1 2016


Hospitality Market Overview

Based on official figures released by the Qatar Tourism Authority the supply of hotel accommodation in Qatar at thebeginning of 2016 reached approximately 20,700 keysbetween hotels and hotel apartments. This reflects a 30%increase in supply of rooms over a 12 month period, followingtwo years of limited new supply.

In total, 15 new hotels and serviced apartment buildingsopened in 2015, increasing the number of hotel and hotelapartment establishments to 119. Of the current supply,approximately 88% is categorized as either 4-Star or 5-Star.

Based on QTA 2015 Annual Tourism Performance Report, thetotal number of tourist arrivals reached 2.93 million. Thisreflected a 3.7% increase on arrivals in 2014.

Despite growing tourist arrivals, occupancy rates in thehospitality sector declined in 2015, largely as a result of theincreases in supply outstripping growth in demand. This was insharp contrast to the previous year, which saw an 8% increasein occupancy rates.

It is likely that occupancy rates in the Qatar hospitality sectorwill experience further pressure in the coming years, due to thepipeline of new hotels being developed throughout Doha.Based on official QTA figures, 56 hotels and 13 hotelapartment buildings, with a total of 26,653 rooms, are currentlyunder construction and due to be released within the next five

years. Of these, the QTA expect 20 hotels and hotelapartments to open in 2016. In addition, there are proposals foranother 130 establishments, however in DTZ’s opinion, anoversupply of accommodation will curtail some of the proposednew development.

Room revenues have been reducing in Qatar over the past fouryears. This trend continued in 2015, as Average Daily Ratesand Revenues per Average Room experience annual falls of5.5% and 8.5% respectively. MDPS statistics released inMarch confirmed that the ADRs experienced a year on year fallof 9.6% in February, while RevPARs in February fell by 25%from the corresponding month in 2015.

In an effort to support the expanding hospitality sector, theQatar National Tourism Sector Strategy Plan 2030 has set outa program to invest $45bn in tourism projects over the next 15years. The aim of the program is to attract a larger amount oftourist numbers from outside GCC, with an ambitious target toincrease overall annual arrivals to 7 million by 2030. To date,limited information on the proposed tourism projects has beenreleased.

Figure 11

No. of Hotel/Hotel Apartment Establishments by Rating


Figure 12

Keys by Rating Q1 2016 (Total 20,713)


Figure 13

Hotel Apartment Performance Indicators, H1 2015. ADR &

RevPar in QAR, Occupancy in %

Source: QTA/STR Global

0

20

40

60

80

100

120

140

2009 2010 2011 2012 2013 2014 20152-star 3-star 4-star 5-star

1%

11%

38%

50%

2-star

3-star

4-star

5-star

72%

74%

76%

78%

80%

82%

84%

86%

88%

0

100

200

300

400

500

600

Standard Deluxe Overall

ADR RevPar Occ %

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QATAR Q1 2016


Retail Market Overview

Qatar is about to enter a period of strong growth in retail supplywith a number of new retail malls nearing completion

Despite the large number of retail malls under construction, nonew malls have opened since Gulf Mall in early 2015. Basedon DTZ’s assessment, the overall supply of purpose built, retailmall accommodation in Qatar is 643,000 sq m, contained in 14purpose built malls. The two largest shopping centres, VillaggioMall and City Centre Mall, account for 39% of the currentsupply.

DTZ estimates that in excess of 1.3 million square meters ofretail space is currently at various stages of construction and isscheduled to open by 2019.This represents a 220% increaseon current supply, and if completed as planned will have amajor impact on the dynamics of the retail market in Qatar.

Qatar has benefitted from strong growth in retail trade in recentyears, which has been driven by the increasing population aswell as high disposable income. In 2014 the World Bankestimated that the GDP Per Capital GDP (PPP) reached$145,894, representing the highest level of disposable incomeper capita in the world.

Demand remains strong from retailers looking to either enterthe Qatar market, or expand their existing presence. Newdemand, coupled with the high occupancy levels in all of theexisting malls has resulted in strong rental growth in the past

12 months. Rents in prime malls currently range from QAR260to QAR300 per sq m per month for the standard line units,while larger stores can secure rents of between QAR170 andQAR220 per sq m per month.

DTZ understand that a large number of international brandshave agreed lease terms on various new developmentsincluding Mall of Qatar, Doha Mall, Doha Festival City andPlace Vendome, and strong occupancy rates are expected onthese malls when they open in the next 12 -24 months.

The showroom retail market is estimated to comprise morethan 800,000 sq m of leasable area in Salwa Road and BarwaCommercial Avenue. Rental levels in these locations typicallyrange from QAR120 to QAR170 per sq m.

Elsewhere, on The Pearl Qatar, Medina Central opened in2015, and following a period of tenant fit-outs, the majority ofretail units have now opened for business. Porto Arabia hasalso seen an increase in activity with a number of new arrivalson the retail promenade in recent months.

Figure 14

Proposed New Retail Malls

Project LocationEstimated

CompletionDate

Mirqab Mall Al Mirqab Street 2016

Al Hazm Mall Markhiya 2016

Doha Mall Abu Hamour 2016

Katara Mall Al Qassar 2016

Tawar Mall Duhail 2016

Mall of Qatar Al Rayyan 2016

Katara Mall Katara 2016

Doha Festival City Umm Salal 2017

Northgate North Doha 2017

Place Vendome Lusail 2017

Marina Mall Lusail 2018


Figure 15

Organised Retail Supply by Year, ,000 sq m (GLA)


Figure 16

Headline Retail Rents, QAR/sq m/month


0

500

1,000

1,500

2,000

2,500

2010 2011 2012 2013 2014 2015 2016 2017 2018

0

50

100

150

200

250

300

350

2009 2010 2011 2012 2013 2014 2015

Shopping Mall Showroom

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DTZ Middle East Contacts

Edd Brookes

Senior DirectorGeneral Manager+974 4483 [email protected]

Adam Stewart

Associate DirectorHead of Valuation+974 4483 [email protected]

Mark Proudley

DirectorConsultancy & Commercial Agency +974 4483 7395

[email protected]

Johnny Archer

Associate DirectorConsulting and Research

+974 4483 7395 [email protected]

Disclaimer

This report should not be relied upon as a basis for entering into transactions without seeking specific,qualified, professional advice. Whilst facts have been rigorously checked, DTZ can take no responsibilityfor any damage or loss suffered as a result of any inadvertent inaccuracy within this report. Informationcontained herein should not, in whole or part, be published, reproduced or referred to without priorapproval. Any such reproduction should be credited to DTZ.

© DTZ 2016

About DTZ Qatar

DTZ Qatar is a member of the global real estate services business, Cushman & Wakefield. DTZ Qatarbrings international best practice and local expertise to the market. With a long standing track record inthe Qatari market, our aim is to play an integral role in the country’s vision of sustainable growth.

DTZ Qatar operates to international best practice standards, providing consistent and responsible serviceto our clients. Our offering includes: residential agency; commercial agency; property and facilitymanagement; consultancy and research; valuation; and local and global investment opportunities. Formore information please visit: www.dtzqatarproperties.com or visit our Facebook page at

https://www.facebook.com/DTZQatar.

To see a full list of all our

publications please go towww.dtz.com/research

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phone +974 44837395

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©CUS100273 04/16

©DTZ 2016

DisclaimerThis report should not be relied upon as a basis for entering into transactions without seeking specific,

qualified, professional advice. Whilst facts have been rigorously checked, DTZ can take no responsibility

for any damage or loss suffered as a result of any inadvertent inaccuracy within this report. Information

contained herein should not, in whole or part, be published, reproduced or referred to without prior

approval. Any such reproduction should be credited to DTZ.

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