After going through a difficult period last year that saw residential and office rents falling at least in the prime segment, Qatar kick-started 2017 with increased volume in real estate transactions, signalling a recovery, albeit at a measured pace, of the property market.
The growth in demand though could be outpaced by planned deliveries later this year, which could pressure sale and rental rates in the short term. “In the first month of the year, the total real estate transactions estimated were worth 2.5 billion Qatari riyals [Dh2.52 billion], which is around 25 per cent more than the same period in the previous year,” says Anurag Gupta, director and head of real estate advisory at KPMG Qatar. He attributes this growth to strengthening oil prices and government efforts to control expenditure, which helped improve market sentiment.
DTZ Qatar, which tracks the Qatari property market, states that following strong growth in the real estate market between 2011 and 2015, there were signs the real estate market, along with the rest of the economy, was feeling the impact of low oil prices last year. “A reduction in demand for office space and prime residential accommodation in particular, coupled with continuing output on the supply side, saw rents fall,” says Johnny Archer, associate director or research and consulting at DTZ Qatar. Quoting rents for vacant residential units reduced by 5-12 per cent, whereas quoting rents for prime office in West Bay saw reductions of between 10 per cent and 20 per cent, he says.
This trend was also reflected in the Real Estate Price Index issued by Qatar National Bank, which hit a yearly-low at 266.71 points in September, but managed to maintain its growth trajectory until January at 282.65 points. However, February and March saw the price index falling to around 277 points.
“Currently residential rents are under stress and are facing the heat on the premise of the downsizing of staff in both the private and public sectors,” says Gupta. However, he adds that most investors and developers feel that these trends are temporary, and that demand, as well as prices, will rebound by year-end. Qatar also has a number of new projects in the pipeline that are expected to boost demand.
Industry experts say ongoing macroeconomic headwinds in Qatar and the region have led the government to implement measures to reduce Qatar’s fiscal deficit, which have involved winding back subsidies as well as redundancies in the public and private sectors. “This has led to reduced demand for residential accommodation in Doha, particularly among expatriate workers, which has translated into a softening in performance metrics in Qatar’s residential market, with average rents declining by approximately 10 per cent last year,” says Martin Cooper, director of real estate at Deloitte Financial Advisory Middle East. He adds that sales prices for residential property have also declined at a similar rate over the same period.
According to KPMG, the premium housing market in Qatar, which includes areas such as The Pearl Qatar and West Bay, witnessed a downfall in the volume of sale of apartments and rents by 10-15 per cent. “Initially it began with offering rent-free periods to encourage occupation, however, of late rent reduction is being seen more frequently,” says Gupta.
Currently, monthly rent for apartments at The Pearl Qatar is averaging between 10,500-11,500 riyals for a one-bedder, 13,500–15,500 riyals for a two-bedder and 17,500–19,500 riyals for a three-bedder. Going forward, KPMG estimates supply to reach around 12,000 units in West Bay and 10,000 units in Pearl Qatar. With the completion of Lusail (25,600 units) and Msheireb (900 units), the total supply of premium residential apartments is expected to rise to around 45,200 units by 2022 and around 52,700 units by 2033.
However, Gupta says corporate leasing is witnessing an uptake in the premium housing market of Doha. “As per our assessment, there’s been about 15-20 per cent increase in corporate leasing activity in premium locations,” says Gupta. “As rents are falling, developers and property owners prefer corporate tenants to make the most of the falling prices.”
The first quarter also witnessed an uptake in the demand for compound villa developments that are situated towards the peripheral suburbs, according to KPMG research. Residential pockets such as Abu Hamour, Al Waab, Al Hilal and Al Duhail offer high-end compound villa accommodation at relatively lower price points compared with the established locations.
Doha’s office sector has also been subject to regional macroeconomic headwinds, with a decline in demand evident as large corporate occupiers have consolidated to maximise operational efficiencies and reduce costs. “This has led to a decline in performance metrics, with rents for office space in Doha decreasing by up to 15 per cent in some areas in the last 12 months,” says Cooper.
This has been coupled with increasing supply in key locations such as West Bay, where vacancy rate is between 18 per cent and 20 per cent, according to Deloitte estimates, with several multi-let office buildings struggling to achieve full occupancy.
KPMG says around 300,000m² of office space is unoccupied in West Bay. “Another important trend is that various government offices are moving or planning to move from West Bay to upcoming areas such Lusail, which would increase occupancy pressure further,” says Gupta.
However, properties that are priced well and offer better facilities such as sufficient parking and retail areas are still in demand. “Rental prices in West Bay remain stable for the time being, however, with the addition of around 500,000m² of prime stock being introduced by the end of the year in Lusail Marina district alone, rentals in West Bay are likely to begin facing the heat,” says Gupta.
In Doha’s hospitality sector, the most recent data from STR indicates that average daily rates (ADR) have declined by 9.4 per cent year-to-date in February. Average occupancy declined from 67.3 per cent to 65.5 per cent and, as a result, revenue per available room (RevPAR) declined by 11.8 per cent over the same period.
“This is evidence that operators in Doha are discounting ADR in an attempt to preserve occupancy levels, which in turn support non-room revenues such as food and beverage,” says Cooper.
Despite the decline, Cooper anticipates the key drivers of demand, including the run-up to the World Cup 2022, to lead to a growth in ADR and occupancy in the medium to long term.
Retail supply in Doha has significantly increased in recent years, with the most recent major completion of the Mall of Qatar adding 256,000m² of gross leasable area. Given that the development pipeline for retail in Doha represents more than double existing stock over the next five years, Cooper expects the market to become more competitive.
“This has translated into a slight softening in average rents over the last 12 months of between three per cent and five per cent,” he adds.
However, with the significant uptake during the last quarter of 2016, Gupta says Qatar’s retail sector seems to have got a fresh lease of life.
“Going forward, we believe that any additional supply on the retail front in the short term may have an impact on the supply-demand dynamics of the retail market in Qatar, directly impacting rents, which are more or less stable at the moment with consequent demand in the market,” says Gupta, adding that the organised retail segment still maintains good occupancy rates and stable monthly rentals ranging from 270-310 riyals per square metre as of the first quarter.
The real estate supply pipeline is substantial in most sectors, perhaps most notably in hospitality and retail. Archer cautions that this calls for a careful consideration of the demands created by the projected demographic trends.
“We would anticipate an increase in demand for good-quality housing, targeting lower to middle-income residents,” says Archer. “It is likely that the Manateq Economic Zones will provide an opportunity to develop modern business parks and logistics facilities, which will help enable the diversification of the economy away from the hydrocarbon sector.”