2013 real estate market outlook
Qatar’s real estate market displayed stability throughout 2012, but what will 2013 bring?
Doha experienced a correction in 2009 in common with most world property markets. It was however not as pronounced or sudden as some other Middle Eastern markets, which is perhaps a reflection of the less leveraged market and the lower proportion of foreign property investment. Qatar has therefore been partially insulated from defaults by investors exposed to the European and American banking crises.
The market has been extremely active, with transaction volumes increasing from 5949 in the year ending November 2011 to 7012 in the year ending November 2012, an increase of approximately 18 percent. The value of transactions has increased from QR78.7 billion to QR98.6 billion in the same period. Due to the variety of property types, it is difficult to interpolate precise growth rates, but we have seen significant capital growth in some sectors, particularly development land.
Seventy percent mortgage finance for residential purchasers has generally been available, but the large deposit requirement deters some investors. The three tier residential market is divided by the ownership laws as follows: The majority of land and buildings within Doha are available to purchase only by Qatari citizens, but Gulf Cooperation Council (GCC) citizens are permitted to own land in designated investment areas. This sector has been the most active. The second sector comprises the areas designated for GCC or foreign ownership, where non-Qatari or GCC nationals may own a usufruct or 99-year renewable leasehold title. This includes a number of areas including the Lusail master development, located to the north of The Pearl–Qatar. Market activity in this sector has been limited, due to the lack of availability of completed stock.
Thirdly, there are designated freehold areas, where foreign owners may purchase a freehold title, including The Pearl-Qatar, which has established itself as one of the preeminent residential locations in Doha. There has been significant activity in the residential letting market, where transaction volumes have increased considerably in the last two quarters of 2012, stimulated by the opening of local facilities. Rents in this location fell slightly in Q2 and Q3 of 2012 through increased supply, but in Q4 2012 we have seen rents increasing. A number of projects are set to hand over in 2013, increasing supply, so there is unlikely to be significant rental growth in 2013. Sales transactions in the period have been limited and have mainly been confined to local buyers purchasing distress properties. In the villa sector demand outstrips supply on The Pearl-Qatar and in West Bay Lagoon as investors are holding on to their properties in anticipation of capital growth.
The office market has been relatively static over the period with new supply being added at a faster rate than absorption. The current stock is estimated at 3.4 million square metres (sqm) of which approximately 55 percent is considered of a Grade A quality. The bulk of new Grade A offices estimated at around 1.3 million sqm have been developed in, and around West Bay which has more than 70 percent of the current Grade A stock. Office vacancy in West Bay CBD is significant, and our research indicates a vacancy rate in excess of 20 percent in comparison with 14 percent one year ago. There is a significant amount of space in the pipeline for delivery in 2013 and 2014 and at present it is anticipated that new space will be added faster than current absorption levels, so this will add further pressure on rents. Rents have remained relatively static over the period although there has been some growth, demonstrated in the letting of some Grade A towers. The majority of demand is for small suites of below 400 sqm, with a preference for fitted property. We have not experienced significant drops in rent, because many owners have choosen to keep the offices empty, rather than negotiate on price.
The underprovision of retail space in Doha is slowly being addressed as a number of new malls are opening or under construction. The 51,000 sqm Lagoona Mall, close to The Pearl-Qatar, opened during 2012. IKEA, which is the first phase of the Doha Festival City development, will open in Q1 of 2013, with the remainder of the 260,000 sqm project anticipated to open in Q1 2014.
2013 will see the opening of the Medina Centrale shopping development on The Pearl-Qatar comprising 52,575 sqm net lettable space and Barwa Commercial Avenue with a net leasable retail area of 236,134 sqm. There are a number of new malls under construction of differing sizes throughout Doha and on completion of all shopping facilities, this may have a depressing effect on retail rents, but we feel this will mainly affect developments, which are perceived as secondary due to size, tenant mix and location.
In 2013, Qatar is likely to experience more moderate gains than those seen in some other Middle Eastern markets as it is not yet perceived as a tourist destination, but the recent high profile conferences and government initiatives are seeking to change this. The recent award of the QR2.3 billion Msheireb construction contract will stimulate market confidence and there is anticipation that the award of large government infrastructure contracts in early 2013 will stimulate all market sectors.