Real Insights Qatar 10 | Real insights Qatar Real estate rental market in Qatar is becoming more tenant-favorable H1 2019 November 2019 home.kpmg/qa Market Highlights Commercial Office Residential Sector Sector 10 | Real insights Qatar 2 percent 3.6 percent Rental decline in H1 2019 Rental decline in H1 2019 Smaller suites and serviced office Vacancy levels in catchments catering space are witnessing an uptick in to affordable segment, especially, in demand as they become more the south of Doha has seen an affordable. upward trend. The premium locations can be seen receiving positive demand due to increasing affordability and price corrections. Retail Hospitality I c e C r Sector e Sector a m 2 percent 5.7 percent Rental decline in H1 2019 Increase in total number of visitor arrivals to Qatar in H1 2019 The high-end malls of Qatar are compared to H1 2018 receiving active demand from luxury retailers, resulting in stable Average Room Rate across hotels outlook on the retail rental sector. and hotel apartments experienced a marginal decline in H1 2019, while Occupancy and RevPAR observed an overall increase. Commercial office sector 10 | Real insights Qatar Vacancy rate in the major commercial districts of Doha have been increasing as new supply KPMG - Office Rental Index (K-ORI) comes online and demand continues to remain subdued. According to KPMG’s –Office Rental 120.0 Index (K-ORI), the overall office rentals in Qatar witnessed a further drop from 78 index points 100.0 in Q2 2018 to 72.0 index points in Q2 2019. 99.2 97.9 100.0 95.8 91.6 The initial two quarters of 2019 witnessed a 88.7 86.5 marginal drop of 2 percent in the rental index 84.2 81.7 compared to a 5 percent drop during the last 78.0 76.9 two quarters of 2018. This is because landlords 80.0 73.7 72.7 72.0 do not necessarily see increase in demand for any further reduction in the rentals. Turnkey developments, particularly, smaller 60.0 suites and serviced office space are witnessing Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 an uptick in demand as they become more 2016 2017 2018 2019 affordable and many businesses can be seen Source: KPMG Qatar Real estate Rental Index Q2 2019 relocating in search of better deals. Estimated current stock and future supply Tenants can be seen negotiating further on the (2016 E – 2020 F) lease terms, particularly, for ‘bare shell and core’ office space. This has resulted in owners agreeing to provide fit-out based on the 5.15 tenant’s requirement, but on the 5.05 understanding that the tenant guarantee a lock-in period. Such discussions were observed 4.91 primarily for large space commitments. 4.55 Commercial office supply 4.00 The total leasable stock is estimated to touch 5.0 million sqm by end of 2019, with grade A office buildings constituting to approximately GLA (sqm millions) in GLA 50 percent of the total commercial office developments in Qatar. 2016 E 2017 E 2018 E 2019 F 2020 F Source: KPMG Market Research and Assessment Lower than expected levels of office supply was delivered, which could be attributed to delays in construction. Smaller suites and serviced office space are witnessing an uptick in demand as they become more affordable and many businesses can be seen relocating in search of better deals. Going forward, with the government introducing initiatives such as 100 percent FDI in several sectors, we expect demand for office space, especially the smaller suites to strengthen over the middle term. Source: KPMG Qatar Real estate Rental Index Q2 2019 E - Estimate F - Forecast Central business district The central business district in Qatar comprises of West Bay, which is predominantly a Grade-A office location and ~1.60 the latest entrant, Msheireb Downtown Doha, Estimated mn sqm which is nearing completion and has started current stock the leasing activity . West Bay As of H1 2019, the total Grade A office stock in West Bay is estimated at over 1.60 million sqm. Future supply in the form of QP District, QIMC Tower and Burj Al Mana Tower will increase total supply in the district to more than 1.70 million sqm by 2020. Average occupancy KPMG estimates the overall occupancy across across the West Bay micro-market to be in the range 60% of 55 - 60 percent with a vacant stock of West Bay approximately 0.64 million sqm. Average asking office rentals in the West Bay micro- market range from QAR 95 to 130 per sqm per month for larger units and QAR 140 to 160 per sqm per month for smaller units. Msheireb Downtown Doha is more than 90 percent complete and expected to be ready by 2020. The development has actively started leasing the office spaces in 17 commercial buildings adding up to 193,000 sqm of 95 - 160 commercial office space with the monthly Monthly asking rentals in the range of QAR 125 to QAR 150 rentals QAR/sqm per sqm per month. West Bay Leasing activity in the central business district of Doha continues to remain subdued. The Median asking rentals for central business districts reduced rentals and attractive incentives are (QAR per sqm) generating new demand for turnkey developments such as smaller suites and serviced office space in West Bay. West Bay We have also noticed landlords offering 2 – 3 months rent free period and providing fit-outs based on the tenant’s requirement, typically, Msheireb Downtown Doha for longer lease commitments. H2 2018 saw Gulf Drilling International Ltd 70 110 150 190 relocating its operations to Gate Mall (Tower-3) and Qatar Gas occupied few floors in Gate Mall (Tower-2). Source: KPMG Market Research and Assessment Msheireb Properties announced the moving of QNB to Msheireb Downtown Doha. Secondary business districts Most of the developments in the secondary business districts (SBD) of Qatar lean heavily Average towards the Grade B category with few Grade occupancy A office developments concentrated in Al across SBD Sadd. 60% H1 2019 saw addition of approximately 35,000 sqm of office spaces largely in the form of multi-tenant buildings offering small to medium unit sizes, along with the option to lease entire buildings. As of H1 2019, occupancy levels in secondary business districts ranged between 60 - 65 percent. The overall decline in rentals in the prime 75 - 110 commercial district, West Bay, has impacted Monthly asking the demand for office spaces in the secondary QAR/sqm business districts. However, there has been a rentals SBD marginal uptick in the absorption especially by local firms and small players opting for office space in these areas. Developments offering Median asking rentals for secondary business districts mixed-use components are witnessing a surge (QAR per sqm) with health and fitness providers and shopping centers generally leasing larger space. Rentals in these areas have experienced a C Ring Road/Al Sadd decline by approximately 8 percent between H1 2018 and H1 2019 and is expected to Old Salata maintain this trend over the short to middle term. As per our research, a majority of recent office B Ring Road leasing transactions reflect monthly rentals from QAR 75 to QAR 110 per sqm per month, along with attractive incentives of rent-free Airport Road periods ranging between 3 to 6 months plus fit-outs, typically for large space commitments and longer lease periods. D Ring Road Salwa Road 70 80 90 100 110 Source: KPMG Market Research and Assessment Peripheral business districts The peripheral business districts (PBD) in Qatar primarily comprises of Lusail and Al Wakra micro markets. Average occupancy H1 2019 experienced new additions to Qatar’s office supply, predominantly, in the across PBD form of Grade A commercial office buildings. 45% Lusail City led the way with launch of Grade A office buildings in Marina District and Energy City. In H1 2019, Lusail’s Marina District added approximately 125,000 sqm of Grade A commercial office space. Occupancy levels average between 40 to 45 percent and the asking monthly rentals are in the range of QAR 90 to QAR 100 per sqm along with 70 - 100 incentives such as 3 -6 months rent free period Monthly asking QAR/sqm Al Wakra, located towards the south of Doha, rentals PBD is predominantly a Grade B commercial office location. The location typically offers office space of smaller floor plates and witnessed a drop in the overall rentals by around 10 Median asking rentals for peripheral business districts percent between H1 2018 and H1 2019. Asking rentals are in the range of QAR 70 to (QAR per sqm) QAR 80 per sqm per month with overall occupancy dropping to 60 percent from 70 percent as recorded in H1 2018. Al Wakra In a latest development, Ezdan Real Estate launched a new promotional campaign offering 15-month rent-free on 500 Lusail commercial units at Ezdan Oasis, in Al Wukair, targeting primarily small and medium-sized enterprises in Qatar. 60 70 80 90 100 110 Source: KPMG Market Research and Assessment Major transactions Lusail experienced a sale of an under- construction mixed-use development having NOTE: commercial and retail component for an – Rental rates for commercial office space across all business districts vary amount of QAR 26.5 million. The building is depending on the size, location, visibility, fit-outs (core shell, furnished suites, semi furnished suites etc) and other related factors. being built on a plot area of 4,000 sqm. – Currently, Lusail is being considered under peripheral business district, however, going forward as the market matures it will be a part of the central Al Dafna experienced a commercial office business district.