The Retail Market June | 2020

www.valustrat.com Our Real Estate Team

Pawel Declan Banach, King, FRICS MRICS General Managing Director & Manager Group Head - Real Estate

Haider Anum Tuaima Hasan Head of Real Market Research Estate Research Manager

Anthony Fernando, Marwen MRICS Azri Property Valuation Senior Property Manager Valuer

.01 COVID-19 and Retail Market

In this special market update, ValuStrat research analyse the impact of COVID-19 pandemic on the retail market of Qatar

Pre COVID-19: 2019 Retail Market Trends

Overall, the Qatar retail market was grappling with challenges associated with oversupply: rising vacancy rates and falling rents. Despite, the estimated rise in consumer spending during 2019, retail vendors complained of contracting annual sales compared to 2018 due to increasing competition. Furthermore, there were five discernible trends:

1) In retail centres, there was an observance of a move towards providing a wholesome experience to shoppers by introducing new Food & Beverage (F&B) concepts and entertainment outlets as anchors to draw footfall

2) There was a divergence in the performance of malls, where super-regional malls performed better in terms of footfall, occupancy and lease rates when compared to smaller regional malls

3) The opening of Metro stations improved accessibility to some major malls in Qatar: Mall of Qatar, Villagio, City Centre West Bay and retail outlets in close proximity to the stations, which in turn provided a boost to their footfall

4) Retailers were seen adopting aggressive promotional campaigns by offering discounts to drive revenue further

5) Increasing competition from existing and new organised shopping centres has led to a fall in demand and occupancy of street retail and showrooms which saw asking rents on average fall by 12% YoY during 2019

.02 COVID-19: What government measures impacted retail sector in Qatar?

Governments and organisations continued to work towards containing the harmful effects of COVID-19 on society and businesses. The retail market is one of the sectors most affected by COVID-19, in both positive and negative ways. The following measures on social mobility introduced by the government of Qatar directly and indirectly impacted the retail sector1:

• Suspension of inbound flights except transit and • Closure of non-essential retail stores and bank cargo branches in commercial complexes and shopping centres with the exception of stores that sell food • Closure of cinemas, theatres, education services and pharmacies. Delivery orders will remain and support centres, shoe and watch repair operational kiosks, wedding and event services, shops, cafes, children’s play areas, gyms and wedding venues, • All remaining shops were not allowed to operate including those in hotels, public parks, beaches, outside the hours of 7 am to 1 pm mosques, majlis, funerals and the Corniche • Imposition of work from home for a minimum • All shops and activities of men and women 80% of employees in most sectors working salons, as well as health centres in hotels, have remotely from home, with other essential 20% been suspended including home services staff working reduced hours. All meetings held provided by cleaning and hospitality companies between employees of public and private companies at their place of work should be • Closure of all commercial activities in stores and distanced meetings using modern technology. offices suspended on Fridays and Saturdays This excluded stores selling foodstuff, except for food stores, restaurants that offer pharmacies, restaurants that offer deliveries, deliveries, bakeries, pharmacies, certain government divisions, military and telecommunication companies, house security sector, health sector, oil and gas sector maintenances companies and services, petrol and workers in major state projects stations factories, clinics, contracting companies working on state projects, hospitality companies, logistic services companies and freight companies operating in ports, airports and custom services

1 https://www.gco.gov.qa/en/preventative-measures/

.03 Timeline: Impact of Measures on Retail Market

In order to understand the impact of COVID-19 on the retail market, we need to assess how long the social mobility measures will be in place and then determine how long it will take for the society to recover and return to new growth trajectories. As per the IMF (International Monetary Fund) and other international organisations, most countries will return to economic growth by Q2 2021. However, the long term impact of the crisis is conditional on how governments are effective in containing the worst outcomes while making the necessary investments in human and economic health. Based on their projections the following timeline has been ascertained:

Short Term Medium Term Long Term

Retail Lockdown Retail Recovery Retail Growth

• Introduction of • Removal of Social • COVID-19 Mitigated Social Mobility Mobility Measures from Population Measures • Approx. 6-12 Months • Approx. 9-12 Months • Approx. 2-6 Months

.04 The Short Term Impact of Measures on Retail Market

Organised Shopping Centres

• Mall of Qatar, Doha Festival City, Msheireb • Tenants resorted to online trading platforms or Properties, Ezdan Mall (Gharrafa, and home delivery services to improve transactions. ) and Barwa Real Estate announced Owners of malls were also facilitating retailers by rent exemption for their commercial tenants for modifying their websites to enable customers to next three months starting from March 2020 or directly contact the retailers until further notice • There have been inquiries for vacant spaces • On average 8% of the total leasable area in malls during March and April 2020, however, the was allowed to open including anchor tenants majority were from relatively smaller local that sell food and pharmaceuticals. Depending on companies than large international groups. It's the length of the impact of COVID-19, this means challenging to successfully acquire tenancy owners could face loss of approximately 96% of during this period due to the outlook of fall in total monthly rental income for the months the consumer spending and supply chain challenges closure is in place • New shops expected to open during the second • As per ValuStrat research, due to closures of all quarter 2020 have been delayed shops except for grocery retail and pharmacies in organised shopping centres, there might be an • All owners of shopping centres became flexible, estimated monthly loss of an approximately QAR offering rent-free periods and shorter-term 1.5 billion in total retail sales across Qatar commitments in order to facilitate retailers

Food/Grocery Retail Outlets

• There was a significant increase in demand for • There has been an reported increase of reliance food and grocery products in March 2020 due to on local Qatari food products panic buying in light of uncertainty regarding social mobility measures • There have been challenges in the supply chain of non-food items. Hypermarkets had to change • There has been a surge in demand for online suppliers and adjust supply chain, as the majority grocery shopping as social distancing became of the merchandise was sourced from South the norm and many residents opted for more Asian countries that also had restricting social convenient ways to acquire essentials. In light of mobility measures in place increased demand, delivery times for grocery items notably expanded. Hypermarkets planned • Protective measures were introduced at all to increase the capacity by approximately 25% to outlets with all staff wearing face masks and cater to the increasing number of daily online temperature checking of employees and orders customers entering outlets

• Hypermarkets reported no major hindrance to • Most supermarkets had a positive outlook on supply chain of food items. They reported to have consumer spending on food items in the short to at least three months of buffer stock, therefore, medium term any significant increase in demand due to stockpiling was met conveniently

.05 Food & Beverage (F&B) Sector

• As per ValuStrat research, F&B sector generated an estimated QAR 7.8 billion in sales during 2019. The restaurant sector in Qatar was majorly hit as social distancing policy measures were introduced in March 2020. At-home consumption has been showing a spike since then and out-of-home consumption has come to a standstill. This trend is observed as consumers are trying to avoid unnecessary expenses during this period of economic uncertainty and there is a potential lack of transparency of how food is prepared

• Since “Dine-in” at all food outlets has been banned, there is an emphasis on delivery by retailers to improve sales. However, this still translates in F&B retailers losing on average losing 50% YoY of its pre-COVID-19 revenue. There is a higher threat of losing revenue for some types of F&B services due to the nature of the food offered:

Type of Fine Cafe and Casual Quick Service Cafeteria Retail Outlets Dining Beverages Dining Restaurants

Level of Threat 5 4 3 2 1

More than 80% fine More than 90% More than 50% More than 60% More than 75% Threats and dining outlets were operate as operate as operate as operate as Opportunity located in hotels. standalone outlets. standalone outlets. standalone outlets. standalone outlets.

Fine dining relies on A large portion of Franchised outlets at Cater to larger Cater to larger overall customer outlets had no online a lower risk target market target market experience, not presence and target compared to compared to fine compared to casual limited to food market is blue collar non-franchised dining, however dining, however served. Therefore, it or low-income outlets large competition large competition is highly unlikely it workers. Lockdown exists in this sector exists in this sector will be able to of labour compounds Reduction in office inducing majority of inducing majority of achieve 60% of its in industrial areas going population will outlets to offer outlets to offer pre-COVID-19 sales was detrimental to have a negative promotions which promotions which through delivery only sales impact on sales. might put pressure might put pressure Customer on margins on margins experience preferred over food/beverages served. Delivery is less preferable for this type

Source: Qatar Development Bank, ValuStrat

• Due loss of revenue, cash flow management has • Overall reduction in the office going population become a major challenge especially for retailers due to “Work-from-home” measures announced which were already facing issues pre-COVID-19. by government of Qatar have impacted sales Rental payment is a main issue F&B business are negatively for F&B outlets located in and near being confronted with major commercial districts such as West Bay

• More food outlets, which previously had no • Protective measures have been introduced at all delivery option available, are registering on online outlets including staff (preparing and delivering delivery platforms in Qatar to connect to their the food) wearing face masks and regular customers checking of temperature of employees

• Due to the ban of all tourists since March 2020 in Qatar, it is estimated there might a monthly loss of 20% of total revenue for the F&B sector

.06 Non-Food Retail Sector

• Due to temporary closing of non-essential retail • Non-Food retailers resorted to third party online stores countrywide since March 2020, there was platforms or directly connected to customers by an estimated average 40% YoY fall in sales of providing services of a shopping assistant. categories of non-food retailing divisions such as Retailers with a heavier concentration of in-store apparel, footwear, electronics, accessories and sales (such as mid-tier department stores and entertainment out of home fast-fashion retailers) faced even great pressure to drive consumers online • Due to loss of sales, retailers observed pile up of inventory. This is expected to become worse if the • Protective measures were introduced in all crisis persists for a longer period outlets that were allowed to open

.07 Retail Supply: Q1 2020

• There was no addition of organised retail Distribution of GLA of Shopping supply during Q1 2020. As per ValuStrat Centres/Malls Across Municipalities research, the total supply of organised retail space was just over 1.89 million sq m, excluding street retail and 3% hypermarkets 15%

• Super-regional malls dominated the retail landscape by taking up 52% of the 5% total Gross Leasable Area (GLA). In 30% terms of geographical distribution, Doha comprised 42% of the total GLA of organised retail space. The remaining was distributed in (3%), (5%), Al Wakrah (5%), (15%) and (30%). Doha Festival City, the largest mall in Qatar, comprises 5% of 250,000 sq m GLA 42% • Doha Mall in Al Maamoura, 04 Mall in The Pearl and J Mall in Al Markhiya comprising of 170,000 sqm GLA Al Khor Al Rayyan Al Wakra combined are estimated to be completed Doha Umm Salal Al Daayen by the end of 2020. With these additions, retail supply would exceed 2 million sq m Source: ValuStrat GLA by by end of 2020, assuming no construction delays Retail Malls and Shopping Centres • There was an addition of approximately ‘000 SQ M GLA 25,000 sq m of unorganised retail space during the first two months of 2020. Assuming no construction delays, there is 75,000 sq m GLA in the pipeline for the 100 remaining quarters of 2020 including Souq Haraj in Zone 91 comprising 35,000 sq m BUA with 324 shops 70 • Al Meera opened a store at The Mall, 981 D-Ring Road, spread over 1,800 sq m

BUA, leading to 55 Al Meera stores in 673 total in Qatar. In addition, Al Meera 200 launched Sainsbury products (leading 40 British supermarket chain) within all outlets Neighbourhood Community Regional Super Regional [3k - 10k sq m] [10k - 30k sq m] [30k - 90k sq m] [>90k sq m]

Existing Stock Expected Supply (till 2020)

Source: ValuStrat

.08 Retail Trends: Medium to Long-Term Impact of COVID-19 on Retail Market

Essential Versus Non-Essential Retailing

• Due to expectations of economic fallout and • Consumers have started to demand value for widespread concern for safety and health, there money across retail sectors. This was observed was an observed fall in demand for non-essential with increasing promotions being offered in (apparel & footwear, home & furniture, grocery and food shops. The longer the crisis electronics and health & beauty). On the contrary, extends, the worse will be the economic there was an increase in demand for food, uncertainty and fallouts, therefore the trend of hygiene products and household supplies. This value for money is likely to persist in the medium might continue into the recovery stage, until the term and consumer spending on non-essential crisis is resolved items is not projected to return to pre-pandemic levels until the long-term growth stage • Amidst the probable scarcity of some highly demanded international and regional products, there is a chance consumers will shift to other brands, than the ones they're already loyal to. Thus, an opportunity might arise for local manufacturers to offer readily available local alternatives and capture market share of highly demanded products

Online Versus Physical Retailing

• COVID-19 boosted e-commerce in Qatar. As per • Consumers might be hesitant to return to Ministry of Transport and Communications in-person activities that were the norm before the (MOTC), in 2019 60% of the consumers in Qatar advent of COVID-19. Globally, consumer had a desire to shop online. This referred to the sentiment surveys indicated that shopping extensive potential it had pre-COVID-19. Due to mall visits will be limited once the pandemic the pandemic, e-commerce got an uplift as subsides. However, consumers behave differently consumers forced to stay at home were in the GCC region as the majority prefer motivated to rely on online channels. Retailers in-person retailing. Therefore, it is unlikely there can leverage this trend and restructure their will be slow growth of footfall in malls during the sales strategy, marketing tactics and supplier recovery stage. However, this is conditional upon base to incorporate online sales platforms. There what actions retailers will take to encourage is medium level potential for sellers of home & consumers back in their stores. Retailers might furniture, electronics, health & beauty to improve have to restructure the layout of their outlets, sales through online platforms, while high level introduce touchless shopping experiences and potential for retailers of grocery and food follow strict protocols of ensuring health and products to expand revenue using e-commerce hygiene of staff and shoppers platforms

.09 Supply Chain Adjustment

• During March and April 2020, limited hindrances • Logistical challenges might also arise in the to food supply chain was observed due to the coming months. There is a projected fall in the existence of buffer stocks. While there were some workforce within the short to medium-terms, and major readjustments to non-food supply chain due to the existence of social mobility measures, due to existence of strict social mobility logistical footprint will have to be planned out in measures in exporting countries. In the order to reduce delays in ‘last mile’ deliveries to medium-term, when the retail market will be in consumers. In addition, more businesses will be recovery stage reliable routes will have to be looking into E2E (End to End) or O2O (Online to established in order to contain the shortage of Offline) supply chain visibility and resilience. All of stocks and maintain a steady flow of goods. There this will have to be taken in account, to make might be increased reliance on local necessary changes in supply chain and support manufacturers to fill the gap particularly for the growing e-commerce sector essential products • Government of Qatar signed agreements with 14 • Retailers of non-essential products will have to food companies in May 2020 to raise the state's realistically forecast sales in the medium term strategic stock of food commodities, which is to take into account changes in consumer considered sufficient to cover demand for a year demand in order to adjust supply chain routes so shortages or inventory built up can be avoided

Food & Beverage (F&B) Sector

• Restaurant dining might not suddenly increase • This is a financially challenging time for many during the recovery stage, as consumers might restaurant retailers, especially for the ones who be wary of being in densely populated areas rely on ‘Dine in’ for a major portion of their revenue. In the medium-term, there is a high • Demand for take-away has been observed to be probability that restaurants may not be able to high in the past two months. Therefore, in sustain further revenue losses and decide to recovery stage, it projected to reach dissolve operations. However, countermeasures pre-pandemic levels can be taken by businesses to avoid such situations such as strict cash flow oversight, use • As mentioned earlier, there has been an observed of relevant policies to reduce financing costs, demand for at home food consumption during disposal of non-core assets and faster business March and April 2020. This is projected to transformation (development of online sales continue in the medium term as well, with channels) consumers likely to spend more on food delivery, groceries and prepared food .10 How Can Help

Our firm is extremely well-equipped to help our clients navigate

uncertain times. We respond quickly to challenging situations

and are constantly helping clients to analyse, structure,

negotiate and execute the best possible solutions from both a

strategic and financial perspective.

What We Offer Valuations Market Research Advisory

Primary & Secondary Comprehensive strategic Adherence of Research Tailor Made advisory at various RICS Standards for Client Needs stages of life-cycle

• Commercial Valuations • National and Zone Level • Feasibility Study/ Business (including Shopping Malls, Supply & Demand Analysis Plans High-Street Retail Centres, Office Building, Mixed-Use • Forecasting Analysis: Prices • Highest and Best Use Buildings and Indusrial and Rents Across All analysis (HBU) Complexes) Sectors • Leasing Support • Valuation for secured • Rental Assessment of Retail, lending, auditing purposes Office, Residential and • Market Entry strategy and investment valuet Mixed-Use Properties • Retail strategy • Portfolio Valuations • Target Market Assessment All Sectors

• Occupancy and Demand Analysis-All Sectors

.11 Market Intelligence. VPI Simplified. ValuStrat Price Index

Premium Subscription Also accessible via ValuStrat Price Index Qatar In-Depth Reports

ValuStrat offers premium subscription reports for clients allowing them to access to in-depth, statistical analysis of what is happening in residential real estate; allowing for more informed decision making and forward planning. The full in-depth 100+ page Qatar report includes citywide analysis of freehold districts, including the ValuStrat Price Index, transaction volumes, service charges, Price to Rent Ratios and Net Yields.

About VPI

The ValuStrat Price Index for Qatar’s residential sector is Subscribe constructed to represent the quarterly price change for regular market intelligence experienced by typical residential units within Qatar. The VPI is a valuation-based weighted price index that uses a data sample representing influential locations across the city and is built by our expert RICS Registered Valuers. For subscription, please visit www.valustrat.com/vpi-qatar or email at [email protected]

.12 About

ValuStrat Qatar is part of a leading consulting firm providing Advisory, Valuation, Research, Due Diligence, and Divestment services across a Strategic Partners of diverse range of industry sectors since 1977.

ValuStrat’s office network provides services to over 1,000 corporate clients including financial institutions, local corporates, multinationals, Financial Institutions governments, SMEs, family businesses and start-ups.

Some of the key sectors serviced by ValuStrat’s consulting team include real estate, hospitality, healthcare, education, manufacturing, retail, entertainment, transport, and FMCG. ValuStrat is a Royal Institution of Chartered Surveyors (RICS) Regulated Firm and the first company head quartered in all of MENA and Asia to be accepted into the prestigious RICS Tech Affiliate program.

Research Methodology Every effort has been made to ensure the accuracy of this document. New supply data covers all the eight municipalities of Qatar. Only completed and under construction projects are included. The new supply data does not include announced projects, and projects in design phase. The new supply database does not take into account most private building projects. Prices are calculated from actual transactions extracted from the Ministry of Justice data that have been carefully cleansed to exclude duplicates and outliers. Rental data is derived from carefully chosen listings from predetermined areas and districts for commercial and residential properties.

Market Research Manager Copyright © ValuStrat LLC 2020 This document is the property of ValuStrat LLC and must not be reproduced or transmitted in any form or by any means, without the prior written consent of ValuStrat LLC. We welcome your constructive feedback and any corrections that may need to be made to this document. ValuStrat LLC does not accept any liability in negligence or otherwise for any damage suffered by any party resulting from reliance on this document.

Doha +974 4 039 9001-02 [email protected]