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Green: New supply could drive down rental rates.

Qatar retail rentals remain stable in H1

DOHA, August 24, 2016

Qatar’s prime retail malls continued to enjoy relatively stable rentals and high occupancy rates in the first half (H1) of the year despite the ever increasing supply amid weaker consumer confidence, a report said.

Villagio and City Centre Doha are two of the country’s main shopping destinations, with average daily footfalls of around 46,000 and 45,000 respectively, added the H1 2016 Qatar MarketView by global real estate consultancy firm CBRE.

However, competition levels are rising rapidly; with close to 1.27 million sq m of new retail GLA (gross leasable area) set to be completed over the next three years alone, signalling a clear risk of over saturation.

“The emergence of this huge new supply, which equates to around 83 per cent of the current organised retail stock, is expected to drive down rental rates right across the market, although aging centres are likely to suffer the most as game-changing centres such as Doha Festival City and Mall of Qatar attract customers from existing centres,” said Mat Green, head of research and consulting UAE, CBRE Middle East.

Office space

Looking at Qatar’s office market, the H1 Qatar MarketView has found that landlords are now facing stiffer competition to secure new tenancies amidst weakening demand fundamentals and a surplus of available office supply.

Over the past six months, the number of new office requirements, and overall take-up levels, have declined notably, subsequently creating deflationary rental pressures across the market as vacancy rates have started to rise.

Commenting on the office market, Green said: “Ultimately, the weak performance of the hydrocarbon sector and the knock-on impact on oil and gas and government related occupiers has led to an anaemic performance across the market, with overall commercial activities declining, reflecting the subdued business environment.”

This has resulted in declines in the average prime rental rate, which has fallen 2 per cent quarter-on-quarter and 4 per cent year-on-year to QR230 ($63) per sq m per month. The outlook is for a sustained period of rental deflation for both prime and secondary office spaces, with occupancy rates likely to see significant erosion.  As a result, landlords have to become more flexible with their leasing and payment terms, as they seek to maintain occupation of their buildings.

Residential rates

According to the H1 2016 Qatar MarketView, residential rental rates have started to show more pronounced declines after years of prolonged growth.  Over recent months, demand levels have weakened substantially amidst widespread company downsizing and lower levels of recruitment in both the public and private sectors.

So far, declines have been most prevalent within the higher tiers of the residential market, with rental rates falling by over 10 per cent in some cases since the start of the year.  However, the market average decline is actually around 5 per cent over the past six months.

“Whilst rentals are tumbling for some prime units, rates for low to mid-end residences have actually remained relatively steady,” said Green.

“This has been driven by the lower levels of new supply in this segment, sustained population growth and deflationary wage pressures which have forced some employees to seek lower cost accommodation alternatives amidst an uncertain economic environment. This trend is likely to pick up pace in the short term as vacancy rates rise, particularly in freehold locations such as The Pearl Qatar where there is an active secondary market,” added Green.

Qatar has around 145,000 completed residential units, including those with commercial components.  Over the next three years, CBRE expects to see the addition of around 28,000 new residential units, with majority large number of these apartments to be delivered in locations such as Pearl Qatar, Lusail City and West Bay.

Hospitality sector

Qatar has posted the highest drop in RevPAR in the GCC region during the sixth months to June 2016, according to data from STR Global.  RevPAR fell by around 22 per cent (year-to-date) from QR405/room/night to QR317/room/night following a double-digit decline in occupancy rates and sustained drops in ADR’s during the period.

Green commented: “This underlines what has been a very challenging period for the local hospitality market, and reflects the combined negative effects of market seasonality and the recent slump in corporate demand.”

“With a large pipeline of new hotel keys currently under construction and set for imminent delivery, pressure on hotel owners and operators is set to continue with further downward movement in ADR’s and occupancy rates a real possibility.  What has been evident from the recent slump is that the market has an opportunity to establish a wider mix of hospitality demand generators to strengthen the overall market potential,” concluded Green. – TradeArabia News Service




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