Qatar kicks companies out of houses amid office glut

Doha :  Tarek Al Toubassi is about to move the company he manages out of a villa on the outskirts of Qatar's capital, Doha, and into new offices downtown that command three times the rent. It's either that or close down.

The government is forcing almost all Qatari businesses based in residential areas to move into commercial districts over the next two years after a state-backed construction boom helped turn an office shortage into a glut.

"This issue has cost me lots of losses," said Al Toubassi, administrative manager of Amana Steel Buildings Contracting.

"I employed four of the staff working full time for three months to find a new office."

A dearth of commercial space five to six years ago prompted company owners to move into houses and villas, where rents were lower and room was plentiful. A building push driven by rising values and support from the government of Shaikh Hamad Bin Khalifa Al Thani delivered new office properties to the market just as the financial crisis caused investment to slump in the second half of 2008, saddling the shaikhdom with vacant space.

The government helped speed up office construction by giving out land to individuals and companies on the condition they started building within five years, said Mark Proudly, associate director at property adviser DTZ Research. At the same time, rising rents and a growing foreigner population encouraged developers to start work.

Vacancies rise

Vacancy rates tripled since 2008 in West Bay, the waterfront district that's home to most of Doha's newest hotels and office blocks, and now range from 15 per cent to 20 per cent, according to DTZ. A further 192,000 square metres of office space will be added to the area's existing 1.1 million square metres this year, he said.

The state started notifying business owners in April that their commercial licences won't be renewed unless they move into space that's zoned for commercial purposes, said Abdul Rahaman Mohammad Sulaiman, a legal analyst at Qatar's chamber of commerce. The licences expire every two years and a ministry or municipality can set an earlier deadline for a company to relocate, he said.

The government's move was prompted by complaints from residents, mainly regarding traffic, according to Mohammad Ahmad Al Sayed, director of the Doha Municipality.

"They're definitely motivated by the fact that commercial supply is now available and there is no reason for these companies to be accommodated in villas," said Majed Azzam, an analyst at HC Securities in Dubai.

Allowing businesses to occupy homes in the first place was an "emergency" step, taken when office space was scarce, said Yousouf Al Khater, chief executive officer of Barwa Real Estate, Qatar's biggest developer by assets.

The new rule "will help with the excess office space available in the country," he said.

Barwa rose 0.6 per cent to 31.5 riyals (Dh31.75) in Doha trading as of 10.56 am local time, ending two days of decline. United Development, a Qatari real estate investor, gained 1.6 per cent to 25.4 riyals.

Extra costs

Though the government measure is helping boost demand for purpose-built offices, it won't be enough to bring down vacancy rates soon because so much property is still being built, DTZ's Proudly said in a telephone interview.

"There were such big gains in the market between 2006 and the first half of 2008 that it encouraged people to start developing," he said. "A lot of the supply hit the market as demand dropped off because of what was happening to the economy."

Some business owners say the government's move forces them to take on extra expenses to rent out commercial space that is often low quality and doesn't meet their needs.

Networks Electrical and Mechanical Contracting Co. may have to pay double its current monthly rent of 35,000 riyals if it moves from a two-story villa in Abu Hammour on the southeast fringe of Doha to the towers of the upscale West Bay business district.

"We are not going to get many benefits from such an expensive location,' said the company's general manager, Ali Keshawarz.

Fitting, decorating and partitioning a new office would cost as much as 1 million riyals and the high rises in West Bay, where most of the offices are located, don't have sufficient parking for a contracting company, he said. Networks Electrical has to renew its commercial license in October.

The government initiative "will impact hundreds of companies in the country," according to Sulaiman at Qatar's chamber of commerce.

"Implementation should be completed in less than two years as companies' commercial licences come up for renewal."

"Supply is way above market needs," Diaa Noufal, market research analyst at broker Century 21 Qatar, said in a telephone interview.

"Plenty of towers are vacant but they are not on offer. Some are just waiting with no activity."

Earlier this year, Qatar's government leased around 100,000 square metres of space to be used by various government agencies.

That "helped prop up the market," DTZ's Proudly said.

Barwa Real Estate, whose biggest shareholder is the sheikhdom's sovereign wealth fund, last month reported a 33 per cent increase in first-half profit after the government freed the company from obligations under Islamic financing contracts provided by Qatari banks and related finance costs.

Barwa Real Estate, whose biggest shareholder is the sheikhdom's sovereign wealth fund, reported a 33 per cent increase in first-half profit after the government canceled over some of the company's debt obligations to Qatari banks.

Commercial and residential building is continuing even as population growth in the Arabian Gulf country slows.

Qatar may add only 500,000 people over the next 20 years after doubling in the past six years to 1.6 million, Ebrahim Ebrahim, the emir's economic adviser, said in July.

"Developers aren't stupid," HC Securities' Azzam said.

"We are going to see a lot of the supply put on hold or delayed, as was the case in Dubai and Abu Dhabi, and we'll probably see a lot less supply than people are expecting."

Barwa Real Estate this week said it halted planned property developments worth $9.2 million (Dh33.7 million) in the cities of Al Khor and Doha until market conditions improve.