PROPERTY TIMES Fall in office rents provides opportunities for tenants. Qatar Q2 2016

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1 PROPERTY TIMES Fall in office rents provides opportunities for tenants Qatar Q2 216

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3 DTZ Research PROPERTY TIMES Fall in office rents provides opportunities for tenants Qatar Q June 216 Contents Economic Overview 2 Office Market Overview 3 Residential Market Overview 4 Hospitality Market Overview 5 Retail Market Overview 6 Author Johnny Archer Associate Director Consulting & Research, Qatar johnny.archer@dtz.com Contacts Mark Proudley Director Consultancy & Commercial Agency, Qatar mark.proudley@dtz.com Edd Brookes General Manager DTZ Qatar edd.brookes@dtz.com In an effort to reduce the fiscal deficit, which has resulted from the fall in oil and gas prices, the government has been concentrating on a programme of fiscal consolidation, which includes redundancies throughout the public sector, and subsidy reforms. Despite signs of a recovery in oil prices, the government have recently forecasted that the fiscal deficit will continue until 218 Office availability has increased throughout West Bay due to the completion of new buildings, and a fall in demand. This has resulted in a year-on-year fall in prime rents by up to 15% Demand for office accommodation in Q2 was drawn almost exclusively from the private sector, with many companies looking to downsize, or relocate within Doha to take advantage of lower rents The series of redundancies both in the public and private sectors has seen a significant reduction in the number of white collar workers in Qatar, and has started to impact on the demand for residential accommodation, particularly in prime areas Reduced demand, combined with the completion of new buildings has seen an increase in vacancy rates. Q2 has seen evidence of softening rents and increasing incentives, most notably for prime apartments and villas in residential compounds The hospitality sector has experienced further falls in occupancy rates in Q2. Figures released for April showed occupancy rates fall by 6.5% in a year, while revenues per available room dropped by 17.8% on the corresponding month in 215 The retail sector in Qatar has experience have fall in sales of 1% to 15% over the 12 month period up to the end of Q2 216, however the main retail malls all benefit from high occupancy rates and stable rental levels. Overall supply remains at 643, sq m Figure 1 Office Supply and Pipeline Forecast 21 22, (, sq m) 4,5 4, 3,5 3, 2,5 2, 1,5 1, f 217f 218f 219f 22f Diplomatic District Marina District ECQ Msheireb Property Times 1

4 QATAR Q2 216 Economic Overview As a result of the fall in oil prices, the past 12 months has seen a period of fiscal consolidation by the government, which has included streamlining of government and semi-state bodies through redundancy programs, subsidy reforms, and the prioritizing of major development projects. Based on recent projections, the cost cutting undertaken to date is likely to reduce the deficit for 216, although this is still expected to be in the region of 7.8% of GDP. The Qatar Economic Outlook, published by the Ministry of Development Planning and Statistics (MDPS) in June, shows that the deficit is expected to remain constant in 217, but fall to 4.2% of GDP in 218. The government has stated that any deficit will be fully financed through debt rather than drawing on the national reserve or by the sale of state assets. Oxford Economics business group forecasts that non-oil GDP growth for Qatar will remain unchanged at 6.4% in 217, with LNG growth to be a modest 1%, resulting in overall GDP Growth of 3.6% in 216. Despite substantial government expenditure in recent years, to help reduce the economy s reliance on oil and gas production, the hydrocarbon sector still accounted for approximately 32% of total GDP in Q4 of 215. The price of crude oil has recovered somewhat in Q2, with the price per barrel increasing from $4 on April 1 st to $5.4 on June 3 th, with a quarterly high of $53 per barrel achieved in early June. The recovery in oil prices has restored some confidence to the market, following an unprecedented period of uncertainty. The international credit ratings agencies have reaffirmed Qatar s stable economic outlook, with Standard & Poors and Fitch both confirming Qatar s AA rating with a stable outlook as the country s macroeconomic fundamentals remain strong despite recent challenges brought about by the hydrocarbon market and geo-political climate in the wider region. Most major infrastructural projects are progressing as planned, maintaining economic growth. The current cost of projects that are underway is QAR261bn, which excludes projects in the energy and private sectors. The inflation rate in Qatar increased to a 17 month high of 3.4% in April 216, driven by an increase in petrol prices, cuts to electricity subsidies, and increased school fees. The MDPS Economic Outlook expects inflation to reflect 3.4% for 216, and edge up further in 217 and 218. Figure 2 GDP (QAR Million) and Real GDP Growth (%) , 4% 8, 35% 7, 3% 6, 25% 5, 2% 4, 15% 3, 2, 1% 1, 5% % Nominal GDP (Oxford Economics) Qatar Real GDP Growth Source: Oxford Economics /MDPS Figure 3 Inflation (%) % Consumer price inflation Rental Inflation Source: EIU Figure 4 Population Growth Forecast ,, 2,6, 2,2, % 1,8, 1,4, 1,, Growth at 3% per annum Trading Economics Forecast Statistica Source: MDPS/Trading Economics/Statictica/DTZ Research Property Times 2

5 QATAR Q2 216 Office Market Overview There has been an overall drop in the demand for office space since early 215, due largely to government cutbacks. Recent company downsizing, as well as the completion of a number of new office towers in West Bay has resulted in a noticeable increase in available office accommodation throughout the city. In 214, availability rates for office accommodation in West Bay dropped to below 1%, however the recent reversal in market trends has seen availability increase to approximately 15%. Since the start of 216, DTZ estimates that average quoted rents for prime offices have reduced by between 1% and 15%. There has been an increase in activity in Q2 as the more favourable lease terms of offer have provided opportunities for tenants to either renegotiate more favourable terms with their existing landlord on renewal, or to secure new accommodation at reduced rents. The majority of enquiries for office accommodation in the private sector relate to requirements of less than 25 sq m. with little or no demand from the public sector for entire buildings, which would have been commonplace between 21 and 214. The total supply of office buildings in West Bay currently stands at approximately 1.63 million sq m, of which approximately.25 million sq m is available to rent. New office development of more than 2 million sq m GLA has been planned throughout Doha, most notably in areas such as West Bay (the Diplomatic District), Msheireb, and the Marina District and Energy City (ECQ) in Lusail. Should this development complete as planned within the next 5 years, it is likely that the market will be significantly oversupplied in the medium term. Grade A offices in West Bay currently command between QAR 13 and QAR24 per sq m per month depending on the size of units and quality of the building. The higher rents are usually only achievable for small units in prime buildings. More typically, rents of between QAR14 and QAR17 per sq m are being quoted for larger office floorplates. Rents in areas such as Old Salata, Al Sadd, Airport Road, and C/D Ring Roads typically command between QAR11 and QAR17 per sq m per month, depending on the age of the building and the standard of internal finishing. Figure 5 West Bay Office Supply v Availability (, sq ) 1,8 25% 1,6 1,4 2% 1,2 1, 15% 8 1% 6 4 5% 2 - % Q2 216 Diplomatic District Availability Figure 6 Office Supply & Pipeline (, sq m) 5, 4, 3, 2, 1, f 218f 22f Diplomatic District Marina District ECQ Msheireb Figure 7 Prime Office Rents by District, (QAR/sq m/month) Q2 216 Diplomatic District - Prime Airport Road Diplomatic District - Average C/D Ring Road and Al Sadd Property Times 3

6 QATAR Q2 216 Residential Market Overview The residential market in Doha has been characterised by strong rental increases between 211 and 215. Annual rental increases of between 4% and 11% per annum were evident throughout the sector as the construction industry struggled to keep pace with the increasing population, which grew from 1.7 million to 2.4 million. Overall the population increased by 9% in the 12 month period up to the end of May 216, however this is largely attributed to an influx of lower paid construction workers. It is estimated that tens of thousands of white collar workers have left Qatar since 215 due to a series of redundancies in the hydrocarbon and government sectors. Job cuts have also been increasing in the private sector. The exodus of high-earning expatriates has started to impact on the private residential sector, especially for apartments in West Bay and The Pearl Qatar, and villa compounds throughout the city. Reduced demand, combined with new residential stock arriving on the market has resulted in vacancy rates in many developments increasing to between 5% and 1%, where previously tenant waiting lists were often evident. The changing dynamics in the prime market suggests that recent signs of falling rents may continue throughout 216. There has been fewer signs of falling rents in the secondary market, where the continuing population growth has underpinned strong occupancy levels. The residential lettings market remained relatively active in April and May, however the traditional summer lull has seen a fall in the number of lettings throughout June. There are also concerns in some quarters that a further increase in vacancy rates may materialise in Q3 as many expatriates have not renewed their existing tenancies after the completion of the school term in June. On The Pearl-Qatar, DTZ estimates that the supply of apartments may increase by more than 3% in the coming year as new towers in both Porto Arabia and Viva Bahriya near completion. Incentives such as rent free periods, and rents inclusive of utility bills have been introduced to attract tenants, however additional vacancies are likely to result in rents falling in many areas. Freehold prices on The Pearl Qatar increased steadily between 211 and 215, however 216 has seen a fall in sales activity and prices have stabilized. Local investors make up the majority of purchasers, where second hand units typically trade at between QAR13, and QAR15, per sq m, and new units can achieve in excess of QAR17, per sq m. Figure 8 Prime Apartment Supply by District, No. of apartments 4, 35, 3, 25, 2, 15, 1, 5, Diplomatic District Pearl Lusail Msheireb Figure 9 Prime Apartment Rents, QAR/Month 21, 19, 17, 15, 13, 11, 9, 7, 5, Q2 216 One Bed Two Bed Three Bed Figure 1 Average Freehold Sales Prices, Pearl Qatar, QAR/sq m 16, 14, 12, 1, 8, 6, 4, 2, Q Property Times 4

7 QATAR Q2 216 Hospitality Market Overview Official figures released by the Qatar Tourism Authority show that the supply of hotel accommodation in Qatar surpassed 2,7 by the start of 216. The most recent addition to the hotel market, the Westin Hotel in Bin Mahmoud, opened in April 216 providing 365 guest rooms and suites. There are currently 123 hotel and hotel apartment establishments in Doha. Of the current supply, approximately 88% is categorized as either 4-Star or 5-Star. This trend is likely to continue in the short term as 85% of upcoming establishments in the development pipeline fall within these high-end categories, although 3% of the development pipeline has yet to be classified. The number of arrivals recorded by the Qatar Tourism Authority showed a 3.7% year on year increase in 215. While efforts are being made to expand Qatar s brand as a tourist destination internationally, the market remains dominated by Saudi Arabia which contributes 42% of the numbers arriving in the country. Despite growing tourist numbers, overall hotel occupancy rates in the hospitality sector declined by 2% to 71% in 215. This is largely due to the increase in the supply over this period. The latest figures released by the Ministry of Development Planning and Statistics in April 216, showed occupancy rates for the month fell by 8% to 64% from the corresponding month in 215. Based on the statistics published by Qatar Tourism Authority, 56 hotels and 13 hotel apartment buildings, with a total of 26,653 rooms, are currently under construction and due to be released within the next five years. The completion of these establishments is likely to put pressure on overall occupancy levels within Qatar. Room revenues have been reducing in Qatar over the past four years. The latest statistics released by the Ministry of Development Planning and Statistics for April 216 confirmed that the Average Daily Rates experienced a year-on-year fall of 6.5%, while Revenue Per Available Rooms fell by 17.8%. In an effort to support the expanding hospitality sector, the Qatar National Tourism Sector Strategy Plan 23 has set out a program to invest $45bn in tourism projects over the next 15 years. The aim of the program is to attract a larger amount of tourist numbers from outside GCC, with an ambitious target to increase overall annual arrivals to 7 million by 23. To date, limited information on the proposed tourism projects has been released. Figure 11 No. of Hotel/Hotel Apartment Establishments by Rating Figure 12 Keys by Rating 216 (Total 2,713) Figure 13 Hotel Performance Indicators, ADR & RevPar in QAR, Occupancy in % star 3-star 4-star 5-star 5% 1% 11% 38% star 3-star 4-star 5-star ADR (QAR) Room Yield (QAR) Occupancy (%) Source: QTA/STR Global Property Times 5

8 QATAR Q2 216 Retail Market Overview Despite the large number of retail malls under construction, no new malls have opened since Gulf Mall in early 215. The overall supply of purpose built, retail mall accommodation in Qatar is approximately 643, sq m, contained in 14 purpose built malls. The two largest shopping centres, Villaggio Mall and City Centre Mall, account for 39% of the current supply. DTZ estimates that in excess of 1.3 million square meters of retail space is currently at various stages of construction and is scheduled to open by 219.This represents a 22% increase on current supply, and if completed as planned will have a major impact on the dynamics of the retail market in Qatar. Qatar has benefitted from strong growth in retail trade in recent years, which has been driven by the increasing population as well as high disposable income. In 215 the World Bank estimated that the GDP Per Capital GDP (PPP) reached $143,788, representing the highest level of disposable income per capita in the world. The fall in oil prices, and the subsequent impacts on the Qatar economy has started to impact on the retail sector, with retail spending reported to be down by between 1% and 15% since 215. The more challenging climate for retailers has not yet been reflected in a significant increase in vacancy levels, as retailers will typically be subject to lease terms of 5 years and will take a longer term view on the prevailing economic climate. There has been little evidence of retail rents increasing in recent months. Prime malls typically command between QAR26 and QAR3 per sq m per month for the standard line units, while larger stores can secure rents of between QAR17 and QAR22 per sq m per month. Upcoming retail developments such as Mall of Qatar, Doha Mall, and Doha Festival City have been able to secure a number of international brands at premium rents to those paid in existing malls, however DTZ understands that competition between developers for tenants has increased in recent months due to the quantity of retail space that will be available. The showroom retail market is estimated to comprise more than 8, sq m of leasable area in Salwa Road and Barwa Commercial Avenue. Rental levels in these locations typically range from QAR12 to QAR18 per sq m. Figure 14 Proposed New Retail Malls Project Location Estimated Completion Date Mirqab Mall Al Mirqab Street 216 Al Hazm Mall Markhiya 216 Doha Mall Abu Hamour 216 Katara Mall Al Qassar 216 Mall of Qatar Al Rayyan 216 Tawar Mall Duhail 217 Katara Mall Katara 217 Doha Festival City Umm Salal 217 Northgate North Doha 217 Place Vendome Lusail 217 Marina Mall Lusail 218 Figure 15 Organised Retail Supply by Year,, sq m (GLA) 2,5 2, 1,5 1, Figure 16 Headline Retail Rents, QAR/sq m/month Q2 216 Shopping Mall Headline Retail Rents Showroom Rents Property Times 6

9 DTZ Middle East Contacts Edd Brookes Senior Director General Manager Adam Stewart Associate Director Head of Valuation Mark Proudley Director Consultancy & Commercial Agency Johnny Archer Associate Director Consulting and Research 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 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. DTZ 216 About DTZ Qatar DTZ Qatar is a member of the global real estate services business, Cushman & Wakefield. DTZ Qatar brings international best practice and local expertise to the market. With a long standing track record in the 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 service to our clients. Our offering includes: residential agency; commercial agency; property and facility management; consultancy and research; valuation; and local and global investment opportunities. For more information please visit: or visit our Facebook page at To see a full list of all our publications please go to Qatar Office Mezzanine Level Tornado Tower West Bay Doha phone

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12 Global Headquarters 77 West Wacker Drive 18th Floor Chicago, IL 661 USA phone fax info@dtz.com Disclaimer Qatar Office Mezzanine Level Tornado Tower West Bay Doha phone 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 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. DTZ CUS1273 7/16