The Qatar 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 Doha 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, Al Wakrah and home delivery services to improve transactions. Al Wukair) 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.