PROPERTY TIMES Vacancy rates increase in the office and residential sectors

PROPERTY TIMES Vacancy rates increase in the office and residential sectors Qatar Q1 216

DTZ Research PROPERTY TIMES Vacancy rates increase in the office and residential sectors Qatar Q1 216 31 March 216 Contents Economic Overview 2 Office Market Overview 3 Residential Market Overview 4 Hospitality Market Overview 5 Retail Market Overview 6 Qatar s economic reliance on the hydrocarbon sector has resulted in further cuts to government spending in Q1 216, as oil prices fluctuated between $38 and $42 per barrel in March. There has been a significant drop in demand for new office lettings as government departments, semi-state bodies and oil and gas companies have largely withdrawn from the office market. DTZ estimates that these bodies accounted for 65% of Grade A office lettings in West Bay between 29 and 214 Demand for office accommodation in the private sector is concentrated around requirements for less than 25 sq m, often from companies within Doha who are looking to downsize The continued growth in population has maintained demand for residential property catering to the lower to middle income demographic, although signs of increasing vacancy have emerged in some areas The availability of prime residential accommodation has increased due to a combination of new apartment building completions and reduced demand, most notably on The Pearl-Qatar The increase in vacancy has resulted in rents stabilising, and in some cases decreasing for prime apartments, and villas in residential compounds The hospitality sector has experienced falls in occupancy rates as fifteen new hotels/hotel apartment buildings have opened in the past year, increasing supply to over 2, rooms Author Johnny Archer Associate Director Consulting & Research, Qatar +974 744 3927 johnny.archer@dtz.com Contacts Mark Proudley Director Consultancy & Commercial Agency, Qatar +974 5584 8281 mark.proudley@dtz.com Edd Brookes General Manager DTZ Qatar +974 5586 744 edd.brookes@dtz.com The supply of leasable accommodation in organised retail malls remains at 643, sq m, with high occupancy rates throughout the sector. There has been strong interest from retailers for units in the various retail malls, which are due to open in 216 and 217 Figure 1 West Bay Office Supply Vs Availability, 29 216, (, sq m) 1,8 1,6 1,4 1,2 1, 8 6 4 2-29 21 211 212 213 214 215 Q1 216 Diplomatic District Availability 25% 2% 15% 1% 5% % www.dtz.com Property Times 1

QATAR Q1 216 Economic Overview Despite substantial government expenditure in recent years to help reduce the reliance on the hydrocarbon sector, and the recent fall in oil prices, the hydrocarbon sector still accounted for approximately 32% of total GDP in Q4 of 215. The price of crude oil has fluctuated between $38 and $42 per barrel throughout March, having hit a 216 low of $3 per barrel in mid-january. The extent of the drop in oil prices has resulted in cuts to various government budgets for 216 as a fiscal deficit is forecast for the first time in 15 years. Projected expenditure for 216 is QAR22.5bn, a fall of QAR15.9bn from previous fiscal year. Projected revenues for 216 are QAR15.6bn, down from QAR225.7bn estimated for 215. The projections for 216 are based on the assumption that the average oil price for the year is $48 per barrel. The Standard & Poor s (S&P) credit ratings agency recently confirmed Qatar s AA rating and stable outlook. S&P noted that Qatar s macroeconomic fundamentals remain solid despite the challenges the state is facing. The international credit rating agency warned however, that the government s balance sheet will deteriorate as long as oil prices remain subdued. The Ministry of Development Planning and Statistics confirmed in December 215 that the country s economy was expanding at a lower rate than previously forecast. In June 215 the Ministry had predicted GDP growth at 7.3% for the year, however, these forecasts were revised down to 3.7% by year end. Due to the performance of the Hydrocarbon sector, GDP growth is driven exclusively by the non-oil and gas sectors, which grew by 7.4% in Q4 215. The governments of Qatar and other oil-producing nations such as Saudi Arabia and Russia agreed on 16 February to freeze production at January s levels of output, in an effort to halt the decline in oil prices. Whether the efforts of the various governments will be a success remains uncertain. Following the removal of international sanctions, Iran reiterated its pledge to increase oil production. Existing oil-producing nations also pumped oil at record levels in January, which suggests that a fall in supply will not be immediate. Despite the fall in oil & gas revenue, 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. In anticipation of a budget deficit in 216 the Finance Minister confirmed that Qatar will finance any shortcomings through debt instruments in local and international finance markets, rather than tapping into its national savings, or selling assets. The inflation rate in Qatar fell to 1.9% in 215, however it is anticipated that this will increase again, driven by the construction sector, as major projects get underway between 216 and 219 in preparation for the World Cup in 222. Figure 2 GDP (QAR Million) and Real GDP Growth (%) 1,, 8, 6, 4, 2, Source: GSDP Figure 3 Inflation (%) 35 3 25 2 15 1 5-5 -1-15 -2 Source: EIU Nominal GDP (QR Million) Qatar Real GDP Growth (%) Figure 4 Population Growth Forecast 3,, 2,6, 2,2, 1,8, 1,4, 1,, 27 28 29 21 211 212 213 214 215 Consumer price inflation Rental Inflation 212 214 216 218 22 Growth at 3% per annum Trading Economics Forecast Statistica Source: MDPS/Trading Economics/Statictica/DTZ Research 2 15 1 5 www.dtz.com Property Times 2

QATAR Q1 216 Office Market Overview Following a sustained period of increasing occupancy rates in the prime office district of West Bay, the past 6 months has witnessed a reversal of this trend. The availability rates had dropped to below 1% by 214, which was largely the result of government bodies reserving a large proportion of towers that completed construction between 213 and 215. Between 28 and 214, an estimated 65% of office lettings in West Bay were to government or hydrocarbon related companies. Recent government budget cuts, due to the prolonged period of low oil prices has resulted in a significant drop in the overall demand for office space since early 215. DTZ has also witnessed a trend of downsizing in the private sector, as enquiries have increased from professional services companies looking to relocate to smaller or more cost effective premises on the expiry of their existing leases. The majority of enquiries for office accommodation in the private sector relates to requirements of less than 25 sq m, however this demand has also fallen since 214. A number of office buildings in West Bay, that were completed between 213 and 215 were not released to the market in anticipation of leasing deals to government bodies. As activity in this sector dried up, the available space has now been put on the market, increasing the supply of available accommodation. The total supply of office buildings in West Bay currently stands at approximately 1.63 million sq m, of which approximately.24 million sq m is available to rent. DTZ anticipates that approximately 3, sq m of new office accommodation is likely to complete in West Bay within the next 12-18 months, however over more than 2, sq m of this is at the QP District, which may not be available to the market. The increase in availability, and reduced demand has started to impact the quoted rents for offices in Doha. This is likely to be compounded in the next 2-3 years due to the large pipeline of new supply, both in West Bay and Lusail. Grade A offices in West Bay currently command between QAR 15 and QAR25 per sq m per month depending on the size of units and quality of the building. Typically the higher rents are only achievable for small units in prime buildings. More typically, rents of between QAR15 and QAR18 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 QAR12 and QAR17 per sq m per month, depending on the age and the standard of finish of the building. Figure 5 West Bay Office Supply v Availability 29-216, sq m 1,8 1,6 1,4 1,2 1, 8 6 4 2 - Figure 6 New Office Demand Registered by DTZ 214 v 215, sq m 45, 4, 35, 3, 25, 2, 15, 1, 5, 29 21 211 212 213 214 215 Q1 216 Diplomatic District Availability Figure 7 Prime Office Rents by District, QAR/sq m/month 3 25 2 15 Const Fin Serv Tech Govt Oil&Gas Prof 214 215 Serv Misc 25% 2% 15% 1% 5% % 1 21 211 212 213 214 215 Q1 216 Diplomatic District - Prime Diplomatic District - Average Airport Road C/D Ring Road and Al Sadd www.dtz.com Property Times 3

QATAR Q1 216 Residential Market Overview The supply of residential real estate in Qatar struggled to meet demand between 211 and 215 as the population during that period increased from 1.7 million to 2.4 million. The shortage of available accommodation created upward pressure on rents in both the apartment and villa markets, with annual growth of between 5% and 1% per annum evident throughout the Doha market. Population growth, which has been the driver of real estate demand in Qatar remained strong in 215. This reflected a 9% increase between January and December, however it is thought that much of the increase is represented by lower to middle income workers in the service and construction workers. Over the same period there has been extensive redundancies in the hydrocarbon and government sectors, and a subsequent knock on effect in the private sector. This has resulted in reduced demand good quality residential accommodation throughout Doha. The supply of new residential accommodation has increased in recent months and this trend will continue throughout the year as a significant number of apartment projects reach completion. This has resulted in increasing vacancy levels for primary and secondary apartment market. The changing dynamics in the market suggest that recent signs of falling rents in the apartment sectors may continue throughout 216. Construction of new villa compounds throughout Doha has been limited in comparison to apartment buildings. While there has been an increase in vacancy levels, DTZ believe that occupancy rates for compound villas will remain relatively high, with less downward pressure on rental levels. DTZ has also witnessed a fall in demand for corporate residential lettings of entire residential blocks and compounds. It is becoming increasingly common for companies to provide a rental allowance rather than employee accommodation. On The Pearl-Qatar, DTZ estimates that the supply of apartments may increase by more than 3% in 216 as new towers in both Porto Arabia and Viva Bahriya near completion. Incentives such as rent free periods, and rents inclusive of utility bills became common in 215, however DTZ expect to see rents fall in 216 as landlords try to secure tenants in a more competitive environment. Freehold prices on The Pearl Qatar increased steadily between 211 and 215, however recent months 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, 212 213 214 215 216 217 218 219 22 Diplomatic District Pearl Lusail Msheireb Figure 9 Prime Apartment Rents, QAR/Month 21, 19, 17, 15, 13, 11, 9, 7, 5, 211 212 213 214 215 Q1 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, 29 21 211 212 213 214 215 Q1 216 www.dtz.com Property Times 4

QATAR Q1 216 Hospitality Market Overview Based on official figures released by the Qatar Tourism Authority the supply of hotel accommodation in Qatar at the beginning of 216 reached approximately 2,7 keys between hotels and hotel apartments. This reflects a 3% increase in supply of rooms over a 12 month period, following two years of limited new supply. Figure 11 No. of Hotel/Hotel Apartment Establishments by Rating 14 12 1 8 In total, 15 new hotels and serviced apartment buildings opened in 215, increasing the number of hotel and hotel apartment establishments to 119. Of the current supply, approximately 88% is categorized as either 4-Star or 5-Star. Based on QTA 215 Annual Tourism Performance Report, the total number of tourist arrivals reached 2.93 million. This reflected a 3.7% increase on arrivals in 214. 6 4 2 29 21 211 212 213 214 215 2-star 3-star 4-star 5-star Despite growing tourist arrivals, occupancy rates in the hospitality sector declined in 215, largely as a result of the increases in supply outstripping growth in demand. This was in sharp contrast to the previous year, which saw an 8% increase in occupancy rates. Figure 12 Keys by Rating Q1 216 (Total 2,713) It is likely that occupancy rates in the Qatar hospitality sector will experience further pressure in the coming years, due to the pipeline of new hotels being developed throughout Doha. Based on official QTA figures, 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. Of these, the QTA expect 2 hotels and hotel apartments to open in 216. In addition, there are proposals for another 13 establishments, however in DTZ s opinion, an oversupply of accommodation will curtail some of the proposed new development. 5% 1% 11% 38% 2-star 3-star 4-star 5-star Room revenues have been reducing in Qatar over the past four years. This trend continued in 215, as Average Daily Rates and Revenues per Average Room experience annual falls of 5.5% and 8.5% respectively. MDPS statistics released in March confirmed that the ADRs experienced a year on year fall of 9.6% in February, while RevPARs in February fell by 25% from the corresponding month in 215. 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 13 Hotel Apartment Performance Indicators, H1 215. ADR & RevPar in QAR, Occupancy in % 6 5 4 3 2 1 Standard Deluxe Overall ADR RevPar Occ % 88% 86% 84% 82% 8% 78% 76% 74% 72% Source: QTA/STR Global www.dtz.com Property Times 5

QATAR Q1 216 Retail Market Overview Qatar is about to enter a period of strong growth in retail supply with a number of new retail malls nearing completion Despite the large number of retail malls under construction, no new malls have opened since Gulf Mall in early 215. Based on DTZ s assessment, the overall supply of purpose built, retail mall accommodation in Qatar is 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 214 the World Bank estimated that the GDP Per Capital GDP (PPP) reached $145,894, representing the highest level of disposable income per capita in the world. Demand remains strong from retailers looking to either enter the Qatar market, or expand their existing presence. New demand, coupled with the high occupancy levels in all of the existing malls has resulted in strong rental growth in the past 12 months. Rents in prime malls currently range from QAR26 to 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. 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 Tawar Mall Duhail 216 Mall of Qatar Al Rayyan 216 Katara Mall Katara 216 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, DTZ understand that a large number of international brands have agreed lease terms on various new developments including Mall of Qatar, Doha Mall, Doha Festival City and Place Vendome, and strong occupancy rates are expected on these malls when they open in the next 12-24 months. 5 21 211 212 213 214 215 216 217 218 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 QAR17 per sq m. Elsewhere, on The Pearl Qatar, Medina Central opened in 215, and following a period of tenant fit-outs, the majority of retail units have now opened for business. Porto Arabia has also seen an increase in activity with a number of new arrivals on the retail promenade in recent months. Figure 16 Headline Retail Rents, QAR/sq m/month 35 3 25 2 15 1 5 29 21 211 212 213 214 215 Shopping Mall Showroom www.dtz.com Property Times 6

DTZ Middle East Contacts Edd Brookes Senior Director General Manager +974 4483 7395 edd.brookes@dtz.com Adam Stewart Associate Director Head of Valuation +974 4483 7395 adam.stewart@dtz.com Mark Proudley Director Consultancy & Commercial Agency +974 4483 7395 mark.proudley@dtz.com Johnny Archer Associate Director Consulting and Research +974 4483 7395 johnny.archer@dtz.com 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: www.dtzqatarproperties.com or visit our Facebook page at https://www.facebook.com/dtzqatar. To see a full list of all our publications please go to www.dtz.com/research Qatar Office Mezzanine Level Tornado Tower West Bay Doha phone +974 44837395

Global Headquarters 77 West Wacker Drive 18th Floor Chicago, IL 661 USA phone +1 312 424 8 fax +1 312 424 88 email info@dtz.com Qatar Office Mezzanine Level Tornado Tower West Bay Doha phone +974 44837395 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 www.dtz.com/research CUS1273 4/16