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Real insights Qatar

Q2 and Q3 2017 An update on Qatar’s real estate sector

KPMG named ‘Best Overall Real Estate Advisor in Qatar’ by Euromoney.

December 2017

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©2017 KPMG LLC, a limited liability company registered with Qatar Financial Centre Authority (QFCA) and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Version: KRE0117

Foreword

I am pleased to share the According to the Ministry of latest issue of Real insights Justice (MoJ), the combined Qatar, a summary of the real value of real estate deals in estate sector’s performance Qatar rose to QAR 9.6 billion in in Qatar over the last two Q2, generated from around 850 quarters, Q2 and Q3 2017. deals, a significant increase when compared to QAR 4.3 It is well known that Qatar has billion for the same quarter last put many measures in place year. to sustain its economic success. As the country However, Q3 witnessed the continues preparations to host overall value of transacted deals the FIFA World Cup 2022 and fall by almost 49 percent to QAR strives towards achieving the 4.8 Bilion with the month of Qatar National Vision 2030, August recording maximum strategies such as increasing transactions of QAR 2.4 Billion. focus on tourism, taking decisive actions to reduce Over the last two quarters, office supply-chain bottleneck, and and residential real estate Venkatesh Krishnaswamy promoting industrial sectors have shown marginal development, are no doubt improvement in overall leasing Partner – Deal Advisory helping to secure the activity. However, due to a surge KPMG in Qatar country’s economic vibrancy. in supply, rentals continue to remain under pressure of both Whilst the diplomatic dispute these asset classes. with neighboring nations has had a short-term impact on In addition to this, there has the overall economy, most been an increased supply in the businesses are viewing it as retail sector since the beginning an opportunity for growth and of 2017. Approximately 160,000 there has certainly been no sqm of organized retail space notable impact on the real entered the market in the last estate sector. two quarters, largely new malls which have managed to achieve Specifically in the real estate high occupancy levels, together and infrastructure space, all with firm rental rates. major planned projects are being delivered with little On the hospitality front, we have disruption. Qatar’s strategic witnessed increased activity, reserves and advanced especially in areas such as planning have protected Lusail and West Bay, where ongoing infrastructure many major developments can development and real estate be seen taking shape. projects from potential disruptions in the supply of construction materials. Hotel Mondrian recently market performance statistics The positive opened its doors to the based on our research and attitude, forward- public in Lusail and Centara also relied on insights “ Grand in West Bay is almost published by ValuStrat on looking approach ready. Overall, Qatar, is Qatar’s real estate of both local and expected to receive around performance over the last international real 1,000 keys in the 5-star two quarters. We believe that category by Q4 2017. the compiled information estate developers would be a valuable and and investors in In the last two quarters, informative read. occupancy levels of some Qatar is strongly hotels have fallen – mainly We welcome your feedback contributing to the those that relied on guests and the opportunity to country’s ability to from the blockade nations. discuss the contents of this Overall occupancy for the edition, along with any other overcome YTD Q3 2017 is estimated to enquiries you may have challenges and be at 57 percent, against 64 about the industry, the percent for the same period market and our real estate grasp during 2016. advisory and valuation opportunities. services. In the past few months, ” Qatar has taken significant Finally, I’m proud to measures that will positively announce that KPMG’s Real impact the tourism and Estate team was recently hospitality sector. It named the ‘Best Overall Real introduced the visa waiver Estate Advisor in Qatar’ by program for approximately Euromoney Real Estate 80 nationalities and launched Awards 2017. Being an online visa application acknowledged in this way service for visitors of all reflects our commitment to nationalities. Qatar Tourism the sector and our success at Authority (QTA) also delivering high-quality launched its new tourism services, which adhere to strategy ‘The Next Chapter’ global standards for our local revealing its growth targets clients. for 2023.

In this second issue of KPMG’s Real insights Qatar, we have shared our observations on all aspects of the Qatar real estate market. We have drawn on Contents

KPMG viewpoint

• What is the most pertinent 6 question in developing the tourism market in Qatar? • REITs in Qatar – an opportunity 8 awaits

Real estate highlights 11

Sectoral overview

• Office 13

• Residential 16

• Retail 19

Hospitality • 22

• Land 25

Qatar in figures 27

KPMG Real Estate Advisory 29 profile

KPMG in the news 32 KPMG viewpoint

By Anurag Gupta Head of Real Estate Advisory and Valuations

What changes are required to further enhance the leisure and tourism sector in Qatar? Tourism sector introspection Yes, FIFA World Cup, but what due to the decline in global after that? oil prices. Globally, from a travel and tourism perspective, Qatar is Today the key question that Several growth opportunities recognized as a key business echoes across Qatar, be it in the tourism space lie destination of the Middle East, business or public circles, is – ahead of us, but to ensure with few people travelling to the ‘What will happen to business history repeats itself and country for leisure, other than growth across all sectors when Qatar continues to grow even those visiting family and friends.. the football extravaganza is over after the World Cup, a well- National tourism and travel data in 2022’ Most of the businesses, coordinated and planned also tells the same story. specifically the hospitality effort is required. According to the country’s sector, has budgeted a steep Ministry of Development and decline for at-least two In the tourism and hospitality Planning Statistics (MDPS), Qatar consecutive years post-2022. sectors particularly, we have received 2.89 million tourist The population projections are seen for some time that arrivals annually (on an average also getting flattened if we rely policymakers are taking a over the last 3 years), of which on data from the International consolidated view of the 1.73 million arrivals (60 percent) Monetary Fund (IMF). situation and creating an were through land and sea ecosystem to support routes. If we look back in history, the growth. Regulators, airlines, same question was asked in the travel agents, hotels, Analysis of air travel data run-up to the Asian Games, held suppliers, concept revealed that Qatar is emerging in Qatar in 2006. The answer is developers, hospitality as a transit hub, with total air no secret. Despite the global trainers/ educators etc. are passenger movement reaching financial crisis in 2008, being encouraged to come 37.2 million in 2016, of which 36 economic activity in Qatar after together to identify gaps percent were transfer passengers. the Asian Games remained (which should be filled) and This provides tremendous scope robust (after a brief initial slow- synergies (that can be for conversion of this group into down). Once the FIFA World integrated for a better and tourist arrivals. Given that Qatar’s Cup 2022 was secure by the end more powerful offering), capital investment on tourism is of 2010, development activity thereby creating a clear approximately QAR5.6 billion and growth on the whole roadmap. Additionally, annually, the growth in tourist surged and has remained overlaying this collaborative arrivals over the past 3 years has steady ever since, even through effort, the QTA is investing remained relatively flat. the recent turbulence in 2013-14 heavily in new initiatives to support the sector’s growth. 6

Today, in the tourism development space, Once tourists are drawn in by the country’s attractions, they Qatar should keep on asking this question will use the various services “ directly, such as hotels, resorts, to itself – again and again – as to why an car rentals, public transport etc., international tourist would choose to visit or indirectly, such as cleaning and maintenance, energy Qatar over any other destination? providers, catering and food production etc., contributing to Think different, do different retail offerings, uniquely ” the economy in many ways. themed experience centers etc Tourism is not about creating Strong intent, but proof of the some eye-catching fancy assets. Compete with self: While it is pudding lies in smart These are only a stepping stone useful to benchmark with other implementation to deliver a great tourism geographies, it is important to offering. It is the service aspect customize offerings to a Qatar’s government has been of tourism where the value lies, countries unique positioning. spending generously in the and, as such, offerings that Tourism strategies must be travel and tourism sector. We integrate the human touch in developed according to their have witnessed a 10 percent their service design make a specific needs, available compounded annual growth in difference. A good example of opportunities, strengths and spend over the past 5 years, and this in practice is Iceland, where requirements. Comparison it is hoped that, based on the the government partnered with should be limited to some key new tourism strategy, this will citizens and businesses to metrics; however, tourism continue to increase. create a vibrant tourism development should be based ecosystem. Notable efforts on local design thinking. Investment that is likely to have included creation of a single a significant impact on the body to promote tourism – Local touch: Involvement of tourism sector includes the ‘Promote Iceland’ – which locals in the tourism sector redevelopment of Doha Port introduced an initiative to could add significant value, into a sea cruise hub (The encourage positive story writing particularly to those travelers Falcon of Doha), Qetaifan Island by Icelandic people around the visiting Qatar who want to North Aqua Park and Hospitality world etc. By promoting and receive an authentic experience. Development, various beach encouraging some behavioral Currently, tourists have limited resorts, Qatar National Museum, changes of how Qatar should opportunities to interact with new retail developments and conduct its tourism business, the Qatari community - as all complementing the existing we are bound to see great tourist touch-points are development of Katara Cultural improvements. managed by expats. Village etc.

So what can Qatar do? Concentrate on core: Qatar is Given the size and scale of these witnessing massive planned developments, there is There are a number of non- construction across the length the potential for cost overrun asset related tourism initiatives and breadth of the country and and often the payback period for which Qatar could explore to given the upcoming deadlines this can be quite long. With this enhance its service offerings for the FIFA World Cup 2022, in mind, it is important to strike and entice more visitors. this is expected to be the status the right balance between the quo in the country over the next cost and return profile for Differentiated products: Qatar 5 years. The country has seen tourism development and to already has many resorts and huge investment in ensure that any new hotels for varying budgets and infrastructure development, developments or products are creating more of these may not creating many public assets. It is able to attract international add value. There are also many important to develop ways to tourists in large numbers and similar offerings elsewhere in maximize on these assets, retain them for at least 2-3 days. the region, further adding to the ultimately creating large competition. magnets (developments) for Radical thinking should be tourism which possess the applied to tourism product ability to convert transfer development to create passengers into tourist arrivals differentiated products, such as. and, at the same time, promote immersive and experiential destination tourism. 7

By Sayantan Pande Manager, Deal Advisory Throwing light on the untapped potential of the real estate investment trust (REIT) market in Qatar Real Estate Investment Trusts countries, with a total market Major characteristics of REITs (REITs) have been increasing in capitalization of more than US$2 • Convenient entry and exit: popularity in developed and trillion. As REITs are listed on the mature economies, such as the What are REITs? stock exchange market, UK, the US, Europe and investors can make short- Singapore, for quite some time ‘REITs’ are investment vehicles term bets on the property now, primarily as tax efficient that own and operate real estate markets and, to an extent, liquid real estate investment assets and allow individual transform investments in vehicles. However, the investors to earn income properties as liquid. introduction of REITs in the through partial/equity-level Middle East has had less of an ownership of real estate, • Low ticket-size investments: impact with tax efficiency being without actually having to buy REITs allow even small less relevant to the region. those assets. investors to invest in real Nevertheless, the regional estate assets. REITs are scenario seems to be have shifted Fundamentally, REITs are particularly beneficial for in recent years with a rise in the designed after mutual funds and individual investors who number and use of REITs, provide investors with all types prefer to have exposure to primarily due to the liquidity and of income streams, as well as the real estate sector in their flexibility benefits. long-term capital appreciation. investment portfolios. REITs also trade on major stock REITs have existed in the US for exchanges and provides more than five decades now. In investors with a highly liquid 1969, the Netherlands passed the stake in real estate assets Fundamentally, first European REIT legislation, typically offering high yields. REITs are designed after which REITs rapidly spread “ across Europe and around the REITs essentially take the shape after mutual funds world. of an enterprise that owns or and provide finances income-generating real Over the last decade, globally, estate assets, typically paying investors with all REITs have developed into a out all or the vast portion of types of income mature market force, providing taxable income as dividends to easy access to high-quality assets shareholders. In turn, streams, as well as along with stable returns on shareholders pay the income the benefits of investments. taxes on those dividends. long-term capital Currently, there are over 500 REITs operating across 37 appreciation.

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Dividends

Key Investors sponsor through (seed IPOs Reinvestment investor)

Investment Returns REIT

Supervisor Manager Income generating assets (with high REIT Trustee yields) manager

• Transparency: Many • Australia: The first REIT in Since then, the UAE has played countries have a regulating Australia was a listed a pioneering role in establishing body which has a strict property trust initiated in REITs across the region, and framework and legislation 1971. A-REITs are the largest both Dubai and Abu Dhabi have for the operation of REITs, REIT market in the Asia separate listed and non-listed which can add appeal for Pacific region, with a total REIT entities. investors. market capitalization of almost US$85.9 billion, In Dubai, Emirates REIT and Emirates NBD REIT lead the • Steady income and capital accounting for 9.36 percent gains: REITs are required to of the global REIT market way, and are listed entities on distribute a significant capitalization. Nasdaq Dubai. In Abu Dhabi, the portion of their net income to private (non-listed) entities are avoid taxes. In addition to • Singapore: The first The Residential REIT and The regular income, REITs Singapore REIT was Logistics REIT, both registered investors also benefit from launched in 2002, and has in the financial free zone of the appreciation in the value of since become one of the Abu Dhabi Global Market. the underlying assets. biggest success stories of the Singapore Stock Exchange Though Saudi Arabia A look at REITs globally (SGX). Singapore REITs has introduced REITs in 2006, it rapidly grown into a US$53 opened its market to REITs only USA: US-REIT was • billion market. Currently, the last year. In Saudi Arabia, the introduced in 1960 to make total ‘REIT stock’ available in rise of the REIT is more large-scale, income- Singapore’s central business recognized as an increased generating real estate district is approximately diversification from the investments accessible to 2.687 million sqm. Kingdom’s reliance on oil. Some smaller investors. Since of the prominent funds Tadawul then, US-REIT has REITs in the Middle East now hosts are Al Jazira Mawten dominated the global REIT Fund, the Riyad REIT Fund market, and has a market The first REITs were introduced and the Jadwa REIT Al capitalization of US$1 in 2006 in Saudi Arabia and the Haramain Fund. trillion, as recorded in 2016. United Arab Emirates.

Bahrain announced regulations Islamic REIT However, unlike other nations for REITs in November 2016, where the majority of REIT and in January 2017, the Islamic REIT is a collective income is distributed among the country’s first REIT was investment scheme in real investors, in Qatar, as per the launched as the Eskan Bank estate wherein the tenants guidelines set by QFMA, the Realty Income Trust. Though, operate permissible activities fund does not require the Kuwait introduced REITs in according to the Sharia law. The majority of REIT income to be 2007, it is yet to establish any first Shariah compliant REIT was distributed among the investors. regulations for the trading of launched in Malaysia in 2006 The impact of this is too early to REITs on the stock exchange and has since gained popularity measure, as REITs have been market. This is also the case for in Malaysia and Singapore. introduced only very recently in Qatar. However, the total number of Qatar. It will take some time to (listed) Islamic REITs has not analyze the effectiveness of Whilst Saudi Arabia and the been able to spread across establishing REITs and the UAE, have created clear other geographies including the interests of investors and third opportunities for listing REITs, Middle East. The number is still parties, though these guidelines the legal restrictions on foreign low in relation to demand from are only the first step towards ownership of real estate investors. Despite high returns the widespread introduction of properties and shares on local of between 6-8 percent REITs in Qatar. However, the exchanges create challenges. annually, investors focusing on legislation issued by QFMA For instance, Dubai restricts short-term investment might mainly focuses on transparency foreign ownership of REITs to shy away owing to the lower and prevention of conflict of only 49 percent, while in many liquidity of Islamic REITs, as interest, and is expected to drive developed markets, 100 percent compared to the conventional investors’ interest in exploring foreign ownership is the usual REIT market. However, for long- this new investment vehicle. norm. Similarly, Saudi Arabia’s term investors, Islamic REITs stringent criteria for Qualified are indeed an outstanding Benefits of REITs to the Qatar Foreign Investors (QFIs) mean option to create income flows economy that REITs will mostly be owned and preserve Islamic values at by locals. the same time. REITs will: • Allow Qatari investors As the REIT market continues to REITs in Qatar (individuals and institutions) evolve across the Middle East, to access high yielding liquid we anticipate continued Qatar introduced REITs investment opportunity, diversification. There are no legislation very recently, which through dividends and restrictions as to asset classes in will help provide attractive capital appreciation. which REITs can invest. Apart opportunities to diversify • Provide much-needed from investing in commercial investments in a sector thought liquidity to the market. assets, such as office and retail, to be one of the more robust in • Become a catalyst for some of the popular asset the country. improvement and further classes across the region are development of the real The Qatar Financial Markets investments in accommodation estate sector in Qatar. Authority (QFMA) allows only for students and staff, the Provide diversification listed joint stock companies to • warehousing and industrial opportunities. act as REITs, following approval, sector, the hotel sector (a Create an environment to which is granted if applicants • burgeoning sector in Saudi develop investment grade are able to meet several pre-set Arabia) and, recently, the UAE projects for developers. criteria which are in-line with has also started to foray into the Improve market maturity international REITs regulations, • residential sector. Typically, any levels. which primarily includes: asset class that is income Encourage government to • The capital of the company • producing can be used for must not be less than regulate market activities by investment within a REIT QAR40,000,000. strengthening its legal vehicle. Ultimately, those system and real estate • The public must be allowed investing in REITs are only to invest at least 25 percent policies. looking for strong, stable and of the IPO amount. sustainable returns.

• Prime commercial office space has witnessed a dip in rentals by an average of 7 percent over the last two quarters (Q2 and Q3 2017) owing to lower demand and an increase in new supply. • Average occupancy across the West Bay micro-market ranges between 55 to 65 percent, with maximum occupancy being noted in Al Dafna area. For Lusail, Q2 –Q3 2017 occupancy is averaging at 65 to 70 percent.

Residential

• Rental levels in prime residential districts in Doha witnessed a 5 to 10 percent decline throughout Q2 and Q3 for one, two and three bedroom apartments, as new supply increased competition in the market. • The premium housing market in Qatar witnessed a higher fall, by approximately 10 to 15 percent in both, sale volume and apartment rentals.

Retail

• Average monthly rentals in malls are in the range of QAR260 to QAR290 per sqm per month for standard line units, while the larger stores can secure rents of between QAR150 and QAR210 per sqm per month. • Retail is the only sector that did not witness any change over the last two quarters. Despite the rise in overall supply, rentals have remained firm with positive demand.

Hospitality

• The hospitality sector remained under pressure throughout Q2 and Q3 2017, with room rates averaging at QAR464 during these quarters. • Overall occupancy declined to 58 percent during the last two quarters from 67 percent in Q1, experiencing a decline by almost 10 percent.

Land

• The combined value of real estate transactions in Q2 and Q3 of 2017 reached QAR14.5 billion, with land transactions contributing QAR7.08 billion, i.e. 49 percent of the total transacted value. • Al Daayen municipality was the most active region in terms of sale and purchase of land parcels, contributing 25 percent of the overall land transactions in Qatar.

The office real estate market in Qatar continues to be oversupplied. Historically, Estimated current stock and future supply demand for prime office spaces in Doha was (2015 – 2018) dominated by government ministries, government linked agencies and the thriving hydrocarbon sector, which would typically lease entire buildings. However, the fall in oil 4.86 prices in late 2015 has resulted in substantial fiscal consolidation, leading to a slump in the 4.50 overall demand for large commercial office spaces. This prolonged decline in demand for 4.00 office space, along with growing geopolitical uncertainty has maintained a downward 3.40 pressure on rentals. This has also translated in some proposed developments being put on millions) (sqm GLA in hold over the next decade to manage potential oversupply – although very little impact was witnessed on projects already under construction.

Primary business districts 2015 2016 2017 (E) 2018 (E) The prime commercial district, West Bay, Source: KPMG Market Research and Assessment continues to experience a surge in the supply of Grade A office spaces, as new towers reach completion. Currently, approximately 1.64 Commercial office sector fact sheet (Q3 2017) million sqm of Grade A office space is available in the West Bay area, of which more than 300,000 sqm is vacant. We estimate the gap between increasing supply and sluggish Total demand for office space in West Bay has ~4.25 mn Leasable resulted in an overall decline in office rentals sqm. by approximately 8 percent over Q2 and Q3 Office Stock 2017.

Average occupancy across the West Bay micro-market ranges between 55 and 65 percent, with maximum occupancy being noted in Al Dafna area, which is estimated to be approximately 79 percent. Currently, commercial office space in West Bay is Estimated ~2.0 mn oversupplied and additional supply is future supply sqm. expected in the coming 2 to 3 years. by 2026

Qatar is set to witness around 2 million sqm of new office supply over the next decade, with Source: KPMG Market Research and Assessment the majority of developments planned in Lusail. Recent building completions in Lusail Office sector rental trends (Q3 2017) include Burj Al Marina, Marina Commercial 039 Tower and Al Khayrein Tower, which has increased the overall office supply in the district to almost 200,000 sqm with occupancy -15% -7% -2% rates averaging at between 65 and 70 percent.

Last year Last 6 months Last quarter

Source: KPMG Market Research and Assessment

Market Intelligence Source: KPMG Market Research and Assessment, ValuStrat (Q2 & Q3 Real Estate Research Report) 14

Major announcement West Bay office market (fact sheet Q3 2017) Qatar Industrial Manufacturing Company (QIMC) announced an additional 120,000 sqm of mixed-use project in West Bay, Abraj Al Average rentals Average Tahwiliya, with a dedicated 24-storey office occupancy range tower. (QAR/month) 140-210 ~1.64 mn Leasing activity sqm 60-65% Though Q1 2017 started on a sluggish note, Current stock Q2 2017 witnessed considerable improvement in the overall leasing activity. In the second quarter, the MoJ occupied a 15,000 sqm building which was formerly occupied by the Ministry of Economy and Commerce, which 8% relocated to Lusail.

Other major leasing activities were the North Total future Oilfield Company leasing the QIIB Tower, on supply by 2019: Majlis Al Taawon Street in West Bay, and a 36% few international occupiers leasing office 56% ~0.30 mn sqm space in Burj Doha, Tornado Tower and Al Ashmakh Tower during Q3 2017.

Secondary business districts

Q2 2017 observed the addition of three office buildings in Al Sadd and Abu Hamour. Q3 Al Dafna Diplomatic Area Onaiza 63 2017 experienced a surge in overall supply with the completion of office space in North Source: KPMG Market Research and Assessment Gate Mall adding approximately 44,000 sqm gross leasable area (GLA) and an additional Average office rentals in Doha Q3 2017 (QAR/month) 28,000 sqm of office space in Mirqab Mall, taking the overall purpose-built office supply in Qatar to excess of 4 million sqm. Salwa Road 85 - 110 Interestingly, the majority of recent office leasing transactions reflect monthly rentals of between QAR110 and QAR160 per sqm, with D Ring Road 90 - 110 most tenants favoring office spaces in the secondary business districts. Airport Road 100 - 120 Occupancy levels in secondary business districts such as Old Salata, Al Sadd, C and D Ring Roads and Salwa Road continue to be C Ring Road/Al 90 - 150 healthy, as these locations offer quality office Sadd spaces at relatively lower rentals than the prime locations. However, due to the increase in new supply and reduced economic activity, Old Salata 100 - 150 rentals in these areas have witnessed a decline of around 5 percent over the last two quarters. West Bay 140 - 210

QAR/Month Source: KPMG Market Research and Assessment

Market Intelligence Source: KPMG Market Research and Assessment, ValuStrat (Q2 & Q3 Real Estate Research Report) 15

Population growth trend Qatar residential market (current stock and future By the end of Q2, the overall population reached supply*) 2015 – 2018 2.55 million, showing an increase of 2.7 percent from the same time during 2016. By the end of Q3 2017, the overall population in Qatar 297 surpassed the 2.63 million mark, showing an increase of 3 percent quarter-on-quarter (QoQ). Though the population increased marginally, 288 this represents a slowdown in annual population growth which, historically, averaged in excess of 280 7 percent.

Recent fiscal consolidation, reduction in white 275 collared workers and the impact of the blockade

from neighboring countries has resulted in ‘000 No. ofin units growing vacancy levels across Doha. Moreover, increased supply of new buildings has resulted in declining rentals across Doha.

Rental trends 2015 2016 2017 (E) 2018 (E) Average rental levels in the prime residential Source: KPMG Market Research and Assessment districts of Central Doha witnessed a decline of between 5 and 10 percent during Q2 and Q3 for one, two and three-bedroom apartments, as new Residential fact sheet (Q3 2017) supply was introduced in the market.

Prominent developments in areas primarily catering to low to mid-income housing Total no. of segments such as Al Wakrah, Muaither, Al estimated 284,000 Aziziya and Fereej Bin Mahmoud continue to residential experience stable rental levels while new units developments can be seen struggling with the leasing activity.

The premium housing market in Qatar witnessed a higher fall, by approximately 10 to 15 percent in both, the sale volume, as well as rentals in the apartment category. This can be explained by Estimated the general decline in white-collared worker supply by the 4,000 population and reduced economic activity. end of 2017

Residential supply Source: KPMG Market Research and Assessment There has been a considerable increase in the number of new residential buildings especially Residential rental trends (Q3 2017) in areas such as Al Sadd, Al Mirqab, Umm Ghuwailina and Bin Mahmoud.

Areas such as Al Khor, Al Soudan, Duhail, Al -15% -8% -4% Wajba and Umm Salal added about 750 new villas with the completion of several villa compound projects. Last year Last 6 months Last quarter

Source: KPMG Market Research and Assessment

Market Intelligence Source: KPMG Market Research and Assessment, ValuStrat (Q2 & Q3 Real Estate Research Report) 17

Most of these developments have been released to the market at the prevailing rental levels even Average rentals for apartments in Doha though they offer higher quality apartments and superior amenities. The Pearl Recent launches

Q2 2017 saw 500 residential units being West Bay launched in villa compounds in Muraikh and Al Messila and two apartment buildings in Fox Lusail Hills, Lusail.

Barwa Real Estate, recently inaugurated Phase 2 Al- Sadd of Madinat Al Mawateer; a mixed-use development, which houses 176 residential Al- units. Mansoura Bin- In Q3 2017, the first phase of the Ezdan Oasis Mahmoud project was inaugurated. The project spreads over an area of 1 million sqm, with a total Old development plan of over 9,000 residential units. Airport Currently, leases are open for approximately Al- 1,875 fully furnished housing units of 1, 2 and 3 Muntazah bedrooms. This development also houses 183 commercial outlets and other essential amenities Bin Omran such as a school, which is already operational. 000 5,000 10,000 15,000 20,000 Al Mirqab Real Estate recently announced the QAR/Month launch of one of its largest residential projects ‘Fox Homes’ in Lusail, which is comprised of 429 3 Bedroom 2 Bedroom 1 Bedroom Studio residential units ranging from one to three Source: KPMG Market Research and Assessment bedroom apartments, as well as duplex units and comes equipped with top-tier amenities. Average rentals for villas in Doha

Emerging trends

Due to the increase in the supply of premium West Bay residential housing and mounting vacancy levels Lagoon over the last few quarters, we have noticed a change in trend, wherein landlords have largely Al Waab become more willing to accept rent-free periods or drop rental prices for properties that have Ain Khaled been lying vacant for some time. In a few cases, they are also offering premium furnishing, which is a way to increase the value proposition and Abu Hamour attract tenants. Al Hilal Due to rent corrections in premium areas, there is an increase in corporate leasing activity as well. As per our assessment, residential Al Gharrafa precincts that stand to gain from corporate leasing activity are primarily The Pearl, Lusail, Al Wakrah Al-Baaya, Al-Duhail, Al-Waab and Abu Hamour. We believe that, if this trends continues, 0 10,000 20,000 30,000 40,000 occupancy levels in premium locations would QAR/Month improve, resulting in stabilized residential rents 5 Bedroom 4 Bedroom 3 Bedroom over the near-term. Source: KPMG Market Research and Assessment

Market Intelligence Source: KPMG Market Research and Assessment, ValuStrat (Q2 & Q3 Real Estate Research Report) 18

Qatar’s retail market continues to outperform all other asset classes. One of the primary Total organized retail supply reasons for this robust growth is the high disposable income of a significant section of the population. According to the 2015 World Bank estimates, the gross domestic product (GDP) per capita in Qatar reached US$143,788, 2.35 representing the highest level of disposable income per capita in the world. However, the oil price corrections in late 2015 (which 1.72 resulted in a prolonged economic slowdown) and the recent geo-political issue has reduced the overall retail spending by 10-15 percent 1.01 since 2015. KPMG believes that, despite the 0.86 slowdown, retailers are hopeful about Qatar’s area Leasable in sqm million retail performance over the short to medium- term.

Retail space per capita

Currently, the overall organized retail space 2015 2016 2017 (E) 2018 (E) stands at approximately 1.63 million sqm. Over Source: KPMG Market Research and Assessment the years, retail malls in Qatar have performed well, with high occupancy, increasing rental Retail sector fact sheet (Q3 2017) levels with subsequent demand from new tenants. Interestingly, based on leasable area and population figures, the retail space per capita for Qatar is estimated to stand high at Total 630 sqm per 1,000 capita when compared to ~1.63 estimated the GCC average of 550 sqm per 1,000 capita Retail Stock million sqm by the end of 2017. This is quite evident from the number of new malls that are due to open in the next few months, including Doha Mall, Tawar Mall and Al Mirqab Mall.

Retail supply Total North Gate Mall, a mixed-use development, Estimated with a GLA of 92,000 sqm retail space, has ~1.72 started handing over spaces for fit-out and is Supply by the end of 2017 million expected to have a soft opening in the first sqm quarter of 2018. United Development Company (UDC) launched ’04’ Mall in La Plage, South Source: KPMG Market Research and Assessment District in The Pearl, and is expected to add 40,000 sqm of GLA once completed by the end Retail space per capita (2016-2019) of 2018.

Q2 2017 witnessed the launch of Doha Festival City, which increased the overall supply of organized retail space in Qatar to more than one million sqm of leasable space, distributed across 19 shopping malls. Expected to be fully operational by the year end, Doha Festival City Last year Last 6 months Last quarter spans over approximately 250,000 sqm of GLA and has overtaken the Mall of Qatar as the Source: KPMG Market Research and Assessment country’s largest shopping destination.

Market Intelligence Source: KPMG Market Research and Assessment, ValuStrat (Q2 & Q3 Real Estate Research Report) 20

Q2 also noticed the soft opening of Al Hazm Mall. Average rental trends Built at a budget of QAR3 billion, Al Hazm Mall will QAR per sqm. per month of leasable area add 36,000 sqm of leasable area that will primarily feature luxury brands along with food and 300 280 270 270 beverage outlets and is expected to have a grand 255 opening towards the end of the year. 245 250 220 These newly-opened malls offer a wide range of shopping, dining and entertainment experiences. 200 165 150 150 155 They have been successful in attracting healthy 145 145 150 footfalls, with Doha Festival City and Mall of Qatar welcoming more than 3 million combined visitors 100 per quarter, despite the slower months of summer, Ramadan and the impact of travel 50 embargoes from neighboring nations. Initiatives by many retailers including promotional festivals, 0 such as the Summer Festival and Garangao during 2012 2013 2014 2015 2016 2017 the Eid break, have been positively reflected in the Shopping Mall Rental Rates number of people visiting malls, as well as in Showroom Rental Rates increased retail sales. Source: KPMG Market Research and Assessment

Currently, there are around nine new malls under various stages of construction, out of which four Distribution of retail space across Municipalities have experienced soft openings, or launched in phases and have expansion plans that are slated to be delivered within a 3-year period. This will 34% take the overall organized retail space in excess of 2 million sqm. While this has allowed a host of 3% new international retailers to enter the market, it 4% has also led to fears of oversupply. In the medium- 16% term, placement of new malls in neighboring zones may present challenges for older shopping malls as they might not be able to retain tenants under competitive pressure in the same catchment 43% area. Al Rayyan Al Wakra Al Khor Doha Umm Salal Retail rentals Source: KPMG Market Research and Assessment Typically, the average monthly rentals malls Future supply of retail malls command are in the range of QAR260-QAR290 per Expected sqm per month for the standard line units, while Project Location the larger stores can secure rents of between completion QAR150-QAR 210 per sqm per month. Tawar Mall Al Duhail 2018 Interestingly, new retail malls have been able to Northgate Mall Umm Salal 2018 secure a number of international brands at premium rents; however, increasing competition Doha Mall Abu Hamour 2018 for tenants has resulted in more flexibility being Place Vendome Lusail 2018 shown for ‘non-prime’ retail spaces. Fereej Abdel Doha Oasis 2018 Azeez West bay Katara Plaza 2018 Lagoon Al Waab Mall Al Waab 2019 Source: KPMG Market Research and Assessment

Market Intelligence Source: KPMG Market Research and Assessment, ValuStrat (Q2 & Q3 Real Estate Research Report) 21

Tourism and hospitality sector Distribution of hotel keys in Qatar (Q3 2017) In 2017 the QTA organized an enhanced Summer Festival following the previous year’s successful campaign, which resulted in an economic impact of QAR641 million in 2016. As a part of the festival, free visa and hotel stays 11,930 were provided to Qatar Airways stopover passengers, which resulted in an increase of 40,000 visitors compared to Q4 2016, as per QTA 9,254 statistics. 2,627 During Q2 2017, the total number of visitor No. of Keys arrivals reached nearly 1.37 million, a 7 percent year-on-year (YoY) rise. However, this growth in 289 arrivals did not translate into higher hotel occupancy rates which, overall, fell by 3 percent when compared to same time last year. An exception to this was 3-star hotels, which experienced a rise in occupancy rates by 13 percent. 5 star 4 star 3 star 1&2 star Source: MDPS, QTA, KPMG Market Research and Assessment In June 2017, Saudi Arabia, the United Arab Emirates, Bahrain and Egypt, severed diplomatic Hotel sector fact sheet (Q3 2017) relations with Qatar and imposed trade and travel restrictions. To mitigate any impact on tourism, Qatar has taken many measures such as implementing the new ‘visa on arrival’ Total no. of system, with visa waiver programs to 80 hotel keys 24,100 countries and launched e-Visa services for 242 nationalities.

As per our research, during the first 8 months of 2017, visitor arrivals in Qatar reached 1.69 million, representing a decline of approximately 12 percent during the same period last year. Moreover, the overall number of visitors fell by Projected no. approximately 51 percent YoY due to the travel of hotel keys embargoes and quieter summer months, 28,200 coupled with Ramadan. However, despite the by 2018 significant fall in number of visitors from neighboring countries, Qatar experienced Source: MDPS, QTA, KPMG Market Research and Assessment positive growth in tourist arrivals from Europe and America. Overall average room rate trends (Q3 2017) The QTA also released the next chapter of the National Tourism Strategy in September, which aims to attract 5.6 million visitors annually by 2023 and achieve 73 percent occupancy across -5% -2% -1% all hotel establishments. Last year Last 6 months Last quarter

Source: MDPS, QTA, KPMG Market Research and Assessment

Market Intelligence Source: KPMG Market Research and Assessment, Qatar Tourism Authority, Ministry of Development and 23 Planning Statistics, ValuStrat (Q2 & Q3 Real Estate Research Report) ©2017 KPMG LLC, a limited liability company registered with Qatar Financial Centre Authority (QFCA) and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Hospitality sector overview

Supply scenario Projected supply of 5-star hotels in Doha Our analysis estimates that there are approximately 24,100 hotel rooms and hotel 35,000 3,500 apartments in Qatar, across 138 properties. This 30,000 includes the recent opening of The Mondrian 2,500 Doha (Falcon Tower) which added 270 rooms, Al 25,000 Mansour Plaza (113 keys), Premier Inn Education 20,000 City (217 keys) and Holiday Inn Business Park 1,500 (307 keys), along with three more hotels, 15,000 namely, Green Garden Hotel, Al Mansour Suites 10,000 and La Villa Suites, which opened in Q3. 500 5,000 In Q3 2017, Manateq announced a QAR488.5 million investment for a number of hospitality - -500 projects in the Ras Bu Fontas Economic Zone along the waterfront area. Upon completion, this will add at least 670 keys by 2019. Total Supply Year on Year supply

Cheval Residences and Msheireb Properties Source: MDPS, QTA, KPMG Market Research and Assessment announced the launch of luxury serviced apartments in West Bay and Zulal Wellness Overall occupancy of hotels in Doha Resort in Al Shamal respectively, to be completed by 2020. Paramount Residences and Damac Properties also launched luxury serviced 70% apartments in The Pearl and Lusail, respectively. 65% Both of these will add around 400 hotel apartments by 2020. 60%

Occupancy 55% 50%

The average occupancy rate across all hotels Occupancy Rate was 57 percent in Q2, with the 4-star segment 45% performing the best at 58 percent and 1 and 2- star segment, with the lowest recorded 40% occupancy at 48 percent. All Hotels 5-Star 4-Star 3-Star 1 & 2 Star Q1 Q2 Q3

As per our research, occupancy levels of hotels Source: MDPS, QTA, KPMG Market Research and Assessment which had high exposure to guests from the blockading nations fell to 20 to 30 percent Overall average room rates of hotels in Doha during Q3; however, the overall occupancy YTD (2017) Q3 2017 is estimated to be at 57 percent.

Average room rate (ARR) 700 600 At an overall level, Q2 witnessed the ARRs grow by 1.7 percent QoQ from QAR458 in Q1 to 500 QAR466 in Q2. However, corporate demand 400

continues to be a driver and, given the increase QAR in room supply, hotel price competition has 300 intensified. 200

Q3 experienced a marginal dip in average room 100 rates by 1 percent, reaching QAR462 due to 0 reduced tourism activity. Q1 Q2 Q3 All Hotels 5-Star 4-Star

3-Star 1 & 2 Star

Source: MDPS, QTA, KPMG Market Research and Assessment Market Intelligence Source: KPMG Market Research and Assessment, Qatar Tourism Authority, Ministry of Development and 24 Planning Statistics, ValuStrat (Q2 & Q3 Real Estate Research Report) ©2017 KPMG LLC, a limited liability company registered with Qatar Financial Centre Authority (QFCA) and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Land sector overview Land sector overview

After a period of uncertainty and hitting a record low in 2016, real estate prices in Qatar showed a Land transactions in Qatar (Q2 –Q3 2017) marginal recovery during Q1 2017. However, there has been a considerable decrease in the overall number of real estate transactions. The combined value of real estate transactions in the first three Al Shamal quarters of 2017 reached QAR21.5 billion, with land 7% transactions contributing QAR8.4 billion, totalling Umm Salal Al Daayen 9% 39 percent of the total transacted real estate deals 25% in YTD Q3 2017. Al-Khor & The combined value of real estate deals in Q2 and Al- Q3 reached QAR14.5 billion, with a total of about Thakhira 1,562 deals implemented during the last two 10% quarters, and land transactions contributing QAR7.08 billion (49 percent of the overall value of Al Wakra transacted deals). 12% Al Rayyan 19% In Q3 2017, the overall transacted value of real estate deals dropped to QAR4.8 billion, almost 48 percent down from the previous quarter which Doha 18% recorded QAR9.6 billion.

The maximum transaction volume occurred in June, reaching QAR4.3 billion, whereas the average Source: Ministry of Justice, KPMG Market Research and monthly transaction volume in Q2 and Q3 was Assessment QAR2.4 billion. In 2017, there was considerable improvement in overall land transaction activity. Around 639 land transactions were implemented during Q2 and Q3 2017. Al Daayen municipality was the most active region in terms of sale and purchase of land parcels, contributing 25 percent of the overall land transactions in Qatar, with 172 land transactions over the last two quarters. Al Rayyan municipality, which witnessed about 41 percent of the total land transaction activity during Q1, dropped to about 19 percent with 132 real estate transactions in Q2 and Q3.

As per our analysis, the sudden increase in land transaction activity was largely due to the blockade, with investors from blockading nations selling their investments in Qatar and local investors making the most of this opportunity.

Total value of real estate transactions vs total value of land transactions (2015 – YTD Q3 2017)

60.0 50%

39% 50.0 40%

40.0 30% 30% 23% 30.0 20% 20.0 In Billions QARs Billions In 10% 10.0 % of Land Transactions to RE - 0% 2015 2016 *YTD Q3 2017 Total Value of RE Transactions Total Value of Land Transactions % of Land Transactions to RE

*YTD = Q1+Q2+Q3 2017 Source: MDPS, Ministry of Justice, KPMG Market Research and Assessment

Market Intelligence Source: KPMG Market Research and Assessment, Ministry of Justice, Ministry of Development and 26 Planning Statistics ©2017 KPMG LLC, a limited liability company registered with Qatar Financial Centre Authority (QFCA) and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Qatar in figures

GDP growth 2012-2018 GDP growth by sectors 2015-2019

9 8.2 800 5.0% 4.7% 8 6.7 6.7 4.4% 4.0% 7 4.0% 6 750 3.70% 3.80% 6 5.2 3.40% 3.0% 5 700 3.7 3.8 3.9 2.60% 4 3.4 2.0% 3 2.6 650 2 1.0% 2 0.8 0.8 1 600 0.0% 0 2012 2013 2014 2015 2016 2017 2018 -0.5 -0.5 2015 2016 2017 E 2018 E 2019 F (E ) (E ) -1 GDP Growth (%) Real GDP Hydrocarbon GDP Non-Hydrocarbon GDP

Revenue – expenditure – deficit Inflation (2015-2018) (2016 vs. 2017) in Billions

4 250 3.5 198.5 202.5 200 170.1 158 3 2.7 150 2.2 1.9 100 2 50

1 0

-50 -28.4 0 -48.5 2015 2016 2017 2018 E -100 Revenue Expenditure Defecit CPI Inflation 2016 2017

Total contribution of travel and tourism to Capital Investment in travel and tourism GDP vs. percentage of whole economy GDP

70 10 3.00% 60 2.60% 2.60% 2.55% 2.50% 9.1 2.40% 2.50% 8.2 8 2.25% 50 7.9 GDP% of 2.00% 40 6.6 6 6.9 QARBn 31.2 6.1 29

5.3 QARBn 5.7 1.50% 30 4.7 26.6 5.1 22.2 4 4.6 4.8 15.8 1.00% 20 14 2 0.50% 10 17.4 18.9 20.4 12.5 14.1 14.5 0 0 0.00% 2012 2013 2014 2015 2016 2017F 2012 2013 2014 2015 2016 2017F Direct Indirect Induced QAR Bn % of GDP

Source: Ministry of Development Planning and Statistics (MDPS), IMF Forecast, QNB Monthly Monitor, KPMG Market 28 Research & Assessment

In Qatar, KPMG has a dedicated and Our client focus, our commitment to specialized Real Estate Advisory and excellence, our global mindset and Valuation team, consisting of qualified consistent delivery has built trusted architects, master planners, urban relationships that are at the core of our designers and transaction advisors with business and reputation. over a decade of experience. A member of Global KPMG Building, The team has undertaken more than 300 Construction & Real Estate (BC&RE) projects in Qatar, covering the breadth of Network real estate asset classes. Our The global KPMG BC&RE Network is knowledgeable real estate professionals made up of nearly 350 partners and 5,000 focus on providing informed practitioners, and provides a broad range perspectives and clear solutions, drawing of professional services. The Global experience from a variety of backgrounds BC&RE Network was set-up within KPMG including accounting, tax, advisory, to assist the specific needs of clients banking, regulation and corporate active in the real estate business. finance and valuations. Whether your focus is local, national, Our team is involved in every stage of regional or global, we can provide you the asset and investment lifecycle, and with the right mix of experience to offers experience in working with all support and enhance your needs and levels of stakeholders throughout the real ambitions. estate industry.

Market research/opportunity Financial modeling development/ analysis studies financial model review Assisting clients in making market Creating/validating financial models and knowledge-based decisions for scenarios for possible business venture, infrastructure and real estate related funding etc. projects. Detailed market and financial Property valuation feasibility studies Real Property valuation for various real Understand the viability of the estates enabling management to proposed development /business from Estate make informed decisions for both, a financial and market perspective. Advisory transactions and IFRS purposes. Policies and procedure Highest and best use option Services manuals studies Development of operational policies, Assisting clients in making appropriate and procedures for real estate real estate product mix decisions to property and facilities management. attain best value. Corporate real estate strategy Business performance development and business plan reviews and operation plan Defining vision, mission, and creating complete Developing and reviewing business performance business plan and creating corporate strategy. and recommending on changes required.

Our diverse sector experience

Residential Retail Multi-storied apartment Organized retail malls developments High street retail Integrated villa and compound Traditional retail and souqs developments Integrated townships Social housing Industrial Commercial office Real Estate Industrial developments Exclusive commercial offices (individual developments and Integrated commercial asset industrial areas) developments (including retail Logistics and warehousing and/or residential components) classes Economic zone developments

Hospitality and Social sectors: entertainment Education and healthcare Resorts Kindergartens Leisure and business hotels K+12 Schools Serviced apartments Higher education and Clubs and recreation centers universities Spas and wellness centers Hospitals, health centers and polyclinics Exhibition and convention centers Amusement and theme parks, including Indoor and outdoor family entertainment centers (FEC)

Thomson Reuters 12th October 2017 Link: https://mena.projects.thomsonreuters.com/newsDetails.html?newsId=ZAWYA20171012083908#/

“As per our assessment, there has been around a 15-20 percent increase in corporate leasing activity in premium locations. As rents are falling, developers and property owners prefer corporate tenants to make the most of the falling prices.“ Anurag Gupta Director and head of Real Estate Advisory, KPMG Qatar.

Gulf News 24th May 2017 Link: http://gulfnews.com/business/property/qatar-realty-sustains-measured-recovery-1.2031647

“In the first month of the year, the total real estate transactions estimated were worth 2.5 billion Qatari riyals [Dh2.52 billion], which is around 25 percent more than the same period in the previous year.” Anurag Gupta Director and head of Real Estate Advisory, KPMG Qatar.

Anurag Gupta Head – Real Estate Advisory and Valuations Director, KPMG in Qatar Tel: + 974 4457 6444 Email: [email protected] Author

Siddhant Vernekar Research analyst, Deal Advisory KPMG in Qatar Tel: + 974 4457 6417 Email: [email protected]

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©2017 KPMG, Qatar Branch is registered with Ministry of Economy and Commerce, State of Qatar as a branch of KPMG MESA Ltd and a member firm of the KPMG network of independent member affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

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