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Qatar’s property market on correction course

web-so-blatter-1030By Mohammad Shoeb

DOHA: Qatar’s property market is heading towards a ‘correction mode’. Reduced demand, combined with completion of new buildings, are increasingly widening the demand-supply gap in all segments of the markets, including residential, office, retail and hospitality sector.

Weak demand with new residential stock arriving on the market has increased vacancy rates in many developments increasing between 5 percent and 10 percent, where previously tenant waiting lists were often evident, leading real estate services business firm DTZ Qatar noted in its “Qatar Q2 2016” report.

The significant reduction in the rents of office spaces in prime locations such as West Bay, is driving many private companies to relocate their offices within the country. The development is being seen by many as an opportunity to reducing costs, the report said.

There is a reduction in Grade A office rents of between 10 percent and 15 percent since the start of the year with the majority of enquiries being for space of less than 250 square metre (sqm), according to Q2, 2016 report on Qatar’s real estate market released yesterday by DTZ Qatar.

The demand for office accommodation during Q2 was almost exclusively drawn from the private sector, with many companies looking to relocate within Doha to take advantage of falling rents.  Office supply in West Bay, Qatar’s financial and central business district currently stands at almost 1.7 million sqm, with approximately 250,000 sqm currently available to lease. “The current rental softening reflects market driven supply and demand and provides some relief to occupiers from rents which have been rising year-on-year since 2010. The long-term trajectory for Qatar remains good with the government’s significant infrastructure investment, valued at QR261bn, providing welcome and fundamental support to the wider real estate economy,” said Mark Proudley, Director, Consultancy and Research, DTZ.

Vacancy rates of Grade A office accommodation in West Bay have increased by approximately 5 percent over the last six months, resulting in opportunities for tenants with lease events to negotiate advantageous terms. While the population of Qatar increased by some 9 percent over the past 12 months, the vast majority of new arrivals have been made up of construction workers. While this has kept the tertiary sector buoyant, demand for prime and mid-range residential accommodation has fallen due to a significant exodus of white collar workers following recent redundancy programmes in the government and hydrocarbon sectors.

Prime residential apartment rents have also witnessed a decline. They have typically fallen by up to 10 percent over the past one year. Rentals for mid-range units did not experience the same discounts, however it is anticipated that rents may soften in Q3 as new supply comes to the market in areas such as Bin Mahmoud and Al Mansoura. Prime residential apartment supply is also expected to increase significantly over the coming year, with more than 3,000 new units nearing completion in West Bay, and The Pearl-Qatar. It is likely that new supply will see rents continue to soften, reversing the trend of high increases experienced between 2011 and 2015.

There has been a continued fall in demand for corporate residential lettings for apartment blocks and compounds with more companies now preferring to provide rental allowances rather than paying for employee accommodation.

In the hospitality sector, almost 5,000 hotel keys have been added to Qatar’s stock over the past 18 months. This additional supply started to impact on performance measures in Q2. Occupancy levels in April 2016 reduced to 64 percent compared to 72 percent in the same month in 2015.

The Peninsula