Q2 Real Estate Market Review

PROPERTY TIMES Q2 REAL ESTATE MARKET REVIEW

QATAR Q2 2021

PROPERTY TIMES Q2 Real Estate Market Review

Qatar Q2 2021

• COVID-19 related restrictions continued to ease gradually throughout Q2. There 30/06/2021 has been an increase in footfall in indoor retail malls, and an increase in the number of people returning to offices and other workplaces in Qatar. Contents • Various sources have reported that Qatar’s economic recovery has gained pace in Economic Overview 2 recent months. This is due to the easing of COVID restrictions and the resurgence in energy prices. Office Market Overview 3 Residential Market Overview 4 • Qatar’s economic recovery is expected to gain pace in H2, as the country’s rapid vaccination programme will enable the further lifting of restrictions. Hospitality Market Overview 5 Retail Market Overview 6 • The restoration of economic ties between Qatar and Saudi Arabia has boosted economic growth in recent months. The easing of travel restrictions is expected to

increase travel between the countries and boost bilateral commercial activity. • Qatar’s real estate market continues to feel the impact of the COVID-19 pandemic; however, Cushman & Wakefield expects to see a significant increase in activity as travel restrictions ease and the 2022 FIFA World Cup approaches. • According to the Planning and Statistics Authority (PSA), year-to-date real estate transactions have increased by 82% by the end of May. • Residential house/apartment sales increased by 180% in April and May compared to the corresponding months in 2020. The increase in sales activity suggests that the expansion of ‘freehold’ designation to areas such as Lusail under Law No. 6 of 2018, and the availability of new apartment developments in these areas, have boosted the investment sales market.

Figure 1 No. of real estate transactions in Qatar, Oct 2016 – May 2021 800 700 600 500 400 Author 300 Johnny Archer Director 200 Consulting & Research, Qatar 100 +974 44837395 0 [email protected]

Contacts Edd Brookes No. of Sales Transactions Head of Middle East +974 44837395 Source: PSA [email protected]

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Qatar Q2 2021 QATAR Q2 2021

Economic Overview Figure 2 Economic indicators and projections continue to GDP (QAR billion) and real GDP growth (%), 2013 - 2020 800,000 6% be affected by COVID-19 related restrictions 700,000 4% Recent data shows that Gross Domestic Product in Qatar 600,000 shrank by 2.5% year on year in Q1, after a 3.7% decline in Q4 500,000 2% 2020. This stemmed primarily from a slower pick-up in the non- oil sector, which declined by 2.8% year on year, while the oil 400,000 sector shrank by 2%. However, despite the annual fall, quarterly 300,000 0% growth accelerated reached 1.5% in Q2 2021 showing signs of 200,000 a recent recovery after the contractions of 2020. -2% 100,000 Qatar began to ease its virus-containment measures on 28 May, 0 -4% with the third of four reopening phases due in early July. This 2013 2014 2015 2016 2017 2018 2019 2020 has seen capacity restrictions loosened further in many settings, including public transport and restaurants, with children allowed Nominal GDP (Oxford Economics), QAR Million Real GDP (Oxford Economics), QAR Million in a greater number of venues. Google data shows mobility is Qatar Real GDP Growth now consistently in line with the pre-pandemic baseline. New Source: PSA/Oxford Economics infections had reduced to around 140 a day in July, from almost 1,000 a day in mid-April. The domestic recovery is expected to gain traction in H2 as the number of vaccinated residents Figure 3 increases. Consumer Price Index & Consumer Price Inflation (%), High energy prices bode well for export receipts and fiscal 2013 - 2020 revenues. Oxford Economics forecast that both the current 102 4% account and fiscal balance will turn positive in 2021. Spending restraint had limited the deterioration in public finances in 2020 100 3% 98 when the budget deficit stood at 2.1% of GDP. 2%

96 Despite the gradual reopening of economic activity, consumer 1% prices fell by 0.7% month on month in June after three months 94 0% of increases, with most categories including transport costs 92 falling. Consequently, year on year inflation slowed to 2.0% from -1% 2.5% in May. Oxford Economic forecast CPI inflation at 1.5% in 90 2021 before rising to about 2% in 2022. 88 -2%

Qatar has based its 2021 budget on a conservative assumption 86 -3% 2013 2014 2015 2016 2017 2018 2019 2020 of a $ 40bp oil price, well below the $ 69pb average now Consumer Price Index Consumer price inflation, % forecasted for this year. While reduced oil prices have taken their toll, spending restraint limited the deterioration in public Source: PSA/Oxford Economics finances in 2020. The budget shows another year of deficit, with low oil and gas prices continuing to take a toll, and spending Figure 4 rising. Oxford Economics expects the balance to swing into surplus at about 1.6% of GDP this year, with official statements Real estate pricing index, Q1 2012 – Q1 2021 (base 100 - suggesting a modest surplus in Q1 Q1 2009)

350 (Economics Overview insight provided by Oxford Economics 300 Country Economic Forecast as of June 2021). 250

200

150

100

0 2009 Q2 2010 Q1 2010 Q4 2011 Q3 2012 Q2 2013 Q1 2013 Q4 2014 Q3 2015 Q2 2016 Q1 2016 Q4 2017 Q3 2018 Q2 2019 Q1 2019 Q4 2020 Q3 2021 Q2

Qatar Real Estate Index Source: QCB

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Qatar Q2 2021 QATAR Q2 2021

Office Market Overview Figure 5 Activity remains sluggish as corporate occupiers Grade A office supply (West Bay, Lusail, Msheireb), Doha take time before committing to new office leases (million sqm) 2014 - 2020 3.0 30% New leasing activity in the commercial office sector has remained slow in Q2, with many corporate occupiers taking their 2.5 25% time in committing to new leases. One of the most notable tenancies in recent months saw Lusail University acquire an 2.0 20% entire building in Lusail’s Energy City. Cushman & Wakefield has seen an increase in companies 1.5 15% looking to secure new office accommodation in recent months; however, this has been largely driven by lease expiries from 1.0 10% companies within Qatar. 0.5 5% The majority of new demand is focussed on Lusail’s Marina District. Companies are being attracted to Lusail by the 0.0 0% improved access, infrastructure provisions, car parking 2013 2014 2015 2016 2017 2018 2019 2020 availability, rental prices, and the number of government entities West Bay Lusail locating in the area. Msheireb Vacancy Prime Stock COVID-19 and the reduction in international travel continue to Source: Cushman & Wakefield influence the pace at which international companies’ secure new office space. Cushman & Wakefield’s global clients are Figure 6 increasingly of the view that most employees will return to the office over the coming months, but new acquisition strategies Overall supply by district (2021) (total approx. 4.9m sqm) continue to be put on hold in many cases. 2% Within Qatar, the successful take-up of vaccines has seen an 10% West Bay increasing number of employees return to the office. Phase 2 of the lifting of lockdown restrictions, which was introduced in June, Lusail saw an increase in workplace capacities to 80%. 13% 39% Msheireb New office supply continues to reach the market in Qatar, most Old Salata notably in Lusail, where supply has now surpassed 600,000 sq Airport Rd m. Overall office supply in Qatar will shortly surpass 5 million sq 8% m. The increasing supply of office accommodation, and B/C/D Ring relatively slow take-up from new tenants, has seen a reduction Al Sadd in overall occupancy levels. Cushman and Wakefield estimate 9% Other that approximately 20-25% of supply in West Bay and Lusail is 4% now available to lease. 15%

Office rents have fallen significantly since 2015, after a fall in oil Source: Cushman & Wakefield prices saw a dramatic reduction in new demand from government entities and the oil and gas sector. Prime office Figure 7 rents in West Bay now range between QAR 100 and QAR 130 per sqm per month exclusive of service charges. Office spaces Office rents by district (QAR/sqm/month), 2014 – Q2 2021 fitted to ‘shell and core’ command significantly lower rates as tenant’s look to avoid the significant capital expenditure involved 300 with office fit-outs. Office suites in Lusail usually command rents of between QAR 200 80 and QAR 120; however, we expect rents to match those in West Bay soon as occupancy rates increase in the area.

Office rents in Old Salata, Al Sadd and C-Ring Road are typically 100 between QAR 60 and QAR 80 per sq m per month, with rent- free incentives also available to attract new tenants.

0 2013 2014 2015 2016 2017 2018 2019 2020 Q2 West Bay - Prime West Bay - Average 2021 Lusail - Average Lusail - Prime C/D Ring Road and Al Sadd

Source: Cushman & Wakefield

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Qatar Q2 2021 QATAR Q2 2021

Residential Market Overview Figure 8 Occupancy rates climb in prime locations as Prime apartment supply, West Bay, Pearl Qatar & Marina residents capitalize on reduced rents District, 2018 – Q2 2021

Demand for apartments in locations like The Pearl-Qatar, West 30,000 Bay, and Lusail’s Marina District surged in recent months as residents take advantage of the more affordable rental levels in 25,000 these areas. In addition, our research shows that residential 20,000 tenants increasingly prioritise their rental budget, with reduced spending on international travel and holidays, primarily due to 15,000 COVID-19. Occupancy levels in The Pearl-Qatar and West Bay Lagoon are 10,000 currently at their highest point in more than four years. This has led to some evidence of rents increasing for certain apartment 5,000 types, although most rents remain stable, as they have been 0 over the past year. 2018 2019 2020 Q2 2021 The vast majority of rental activity has been generated by those West Bay Pearl Qatar Marina District re-locating within the country; however, there have been Source: Cushman & Wakefield increasing signs of new residents moving to Qatar, largely on projects that are either directly or indirectly related to the FIFA World Cup in 2022. Figure 9 The importance of high-quality building finishes and amenities Average apartment rents, Porto Arabia, (QAR/month), 2013 has become more apparent in recent months in areas such as – Q2 2021 Bin Mahmoud, Al Sadd, and Msheireb. High specification 21,000 buildings that offer tenants swimming pools and gyms have 18,000 retained high occupancy rates, while older buildings generally see vacancy rates increase, and rental levels falling. 15,000

Semi-furnished, two-bedroom apartments in Porto Arabia 12,000 typically command monthly rents of between QAR 10,000 and QAR 12,000. In districts such as Bin Mahmoud rental values can 9,000 vary significantly depending on the quality of the buildings. New buildings can command rents between QAR 9,000 and QAR 6,000 11,000 per month for two-bedroom apartments, while similarly 3,000 sized apartments in older buildings may struggle to generate monthly rents of QAR 6,000. 0 2013 2014 2015 2016 2017 2018 2019 2020 Q2 Demand from tenants has shifted towards fully furnished units 2021 One Bed Two Bed Three Bed or serviced apartments over the past year. This is especially the case for new residents on short term contracts – including those Source: Cushman & Wakefield moving to Qatar on World Cup-related projects Residential investment sales in Qatar have been boosted by the Figure 10 expansion of Freehold Zones, which allow ownership of property Average compound villa rents, Al Waab (QAR/month) by foreign nationals. Residential sales in Qatar increased by 2013 – Q2 2021) 180% in April and May compared to the same months in 2020. Properties in Al Daayen represent approximately one-quarter of 25,000 all residential sales, indicating the popularity of new freehold sales projects in Fox Hills, Al Erkyah City and Yasmeen City in 20,000 Lusail. 15,000

10,000

5,000

0 2013 2014 2015 2016 2017 2018 2019 2020 Q2 2021 Three Bed Four Bed Five Bed

Source: Cushman & Wakefield

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Qatar Q2 2021 QATAR Q2 2021

Hospitality Market Overview Figure 11 Delays in projected hotel openings due to COVID- Hotel keys by classification 2021 (Total 28,300) 19 pandemic 5% The total supply of hotel keys in Qatar reached 28,300 by the 13% start of 2021, which represented an annual increase of 1,200 keys. There are approximately 20,000 hotel keys under 1&2-star construction and expected to be completed by mid-2022. The 48% delivery of hotel keys has been lower than expected over the 3-star past 12 months, indicating that COVID-19 has delayed 4-star construction schedules and projected opening dates. 5-star The completion of new hotel projects remained slow in Q2 2021. 34% The most notable new arrival to the market has been Banyan Tree by La Cigale, a luxury hotel located in the landmark Doha Oasis development in the Msheireb District.

The hotel market remains significantly affected by the COVID- Source: NTC 19 epidemic and the related restrictions. According to the National Tourism Councils latest statistics report, visitor arrivals Figure 12 to March were 92% down compared to Q1 2020. Hotel performance in 2020, ADR & RevPAR (QAR), Demand for hotel rooms has been more difficult to quantify over Occupancy (%) the past year due to the Ministry of Public Health’s designation of a large number of hotels as quarantine facilities. Of the hotels 500 80% that are available to guests, occupancy rates fluctuated between 450 70% 54% and 65% for the first three months of the year. These levels, 400 60% which are comparable to pre-COVID levels, are primarily driven 350 by domestic tourism. 300 50% Average daily rates in January and February matched the 250 40% equivalent levels for 2020 at QAR 361 and QAR 369, 200 30% respectively. March saw a significant improvement in revenues, 150 with average ADRs increasing to QAR 408. This reflected an 20% increase of 8% on the previous month and a 48% increase on 100 10% March 2020. 50 0 0% The easing of COVID-related restrictions, the take-up of Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec vaccines, and the resumption of diplomatic ties in the GCC are all expected to boost regional travel, which will be a welcome ADR 2020 RevPAR 2020 Occupancy 2020 development to the hotel sector in H2. While we hope to see an increase in arrivals to Qatar over the next six months, the re- Source: NTC (Quarantine hotels removed through 2020) introduction of quarantine hotels to the open market and the completion of new supply will maintain pressure on occupancy Figure 13 rates and room revenues. Visitors to Qatar Q1 2021 (92% fall since Q1 2020 / pre- Covid) The recovery in tourist numbers, post-pandemic, will rely on the delivery of new resorts, attractions, and leisure facilities. The importance of leisure tourism to Qatar has increased over the India past year as the growth of virtual meetings and a general avoidance of unnecessary trips is likely to have a prolonged GCC impact on global and regional business travel. Turkey

Pakistan

USA

Other

0 3,000 6,000 9,000 12,000 15,000 18,000 Source: NTC

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Qatar Q2 2021 QATAR Q2 2021

Retail Market Overview Figure 14 Retailer demand focused on developments with Organised retail supply, Qatar (sqm/millions) year end high footfall 2014 – 2021 2.5 The phased easing of COVID-19 restrictions has resulted in an encouraging return to pre-lockdown footfall levels in most retail 2.0 malls. While social distancing measures and reduced capacity remain a consideration, retailers in Qatar generally feel that the 1.5 most challenging period is behind them, and a brighter outlook is emerging. 1.0 New demand for retail accommodation remains subdued, as retailers retain a cautious approach with COVID-19 in mind; 0.5 however, recent evidence suggests that several retailers are looking to secure space in some of Doha’s prime retail 0.0 developments where strong footfall can be guaranteed. 2014 2015 2016 2017 2018 2019 2020 2021 The recent reconfiguration of City Centre Mall saw the delivery Destination Malls, Doha Neighbourhood Malls, Doha of a number of ‘big-box’ units, which have enjoyed strong Al Wakra & Al Khor Malls demand from tenants. Research from Cushman & Wakefield Source: Cushman & Wakefield shows that there is still reasonable demand for retail units of between 1,000 sq m and 2,000 sq m in prime retail locations. Figure 15 The supply of retail mall accommodation in Qatar is now in excess of 1.5 million sq m. The delivery of new supply has been Average retail mall occupancy (%) & average headline delayed over the past 18 months as COVID-19 has impacted on rents (QAR), Doha 2013 – Q2 2021 proposed opening dates. La Galleria at Msheireb remains the 350 120% only new development to open its doors in 2021; however, Place Vendome and Doha Mall are anticipated to open before year- 300 100% end. 250 80% Rents for ‘in-line’ retail stores in Doha’s main organised malls 200 typically range from QAR 200 to QAR 320 per sq m month. 60% 150 Lower rents are available to anchor stores and larger outlets, 40% with retailers in a strong position to negotiate favourable terms 100 for large units. 50 20% Many retailers were offered temporary discounts or rent holidays 0 0% over the past year to cushion the impact of the COVID-19 2013 2014 2015 2016 2017 2018 2019 2020 Q2 pandemic. Most of these incentives have dissipated in recent 2021 months as footfall levels recover and trading returns to ‘pre- Shopping Mall Headline Retail Rents (Prime Line Units) COVID’ levels. Average Occupancy Outside of the main malls, high street and local convenience Source: Cushman & Wakefield retail units are typically available for between QAR 90 and QAR 180 per sq m per month, depending on the size of unit and the Figure 16 level of footfall. Premiums typically apply for units with licences to sell food and beverages. Showroom accommodation on some Organised supply by retail mall Q2 2021 of Doha’s busiest traffic corridors can usually be secured for between QAR 90 and QAR 130 per sq m per month.

10% 7% City Centre

Villaggio 42% Mall of Qatar 15% Doha Festival City

Tawar Mall

Other 19% 7%

Source: Cushman & Wakefield

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EMEA Qatar - Doha UAE - Dubai John Forrester Edd Brookes Edd Brookes Chief Executive | EMEA General Manager Head of Middle East +44 (0)20 3296 2002 +974 5586 7044 +971 (0) 4 518 2629 [email protected] [email protected] [email protected]

EMEA Qatar - Doha UAE - Dubai Andrew Phipps Johnny Archer Waleed Mahmoud Head of EMEA Research & Insight Head of Consulting & Research Senior Researcher +44 (0)20 3296 4236 +974 4483 7395 +971 (0) 4 518 2628 [email protected] [email protected] [email protected]

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