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An update on Qatar’s real estate sector

Version: KRE0117

Q2 and Q3 2017

Real insightsQatar

kpmg.com/qa/realestate

December 2017

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

I am pleased to share the latest issue of Real insights Qatar, a summary of the real estate sector’s performance in Qatar over the last two quarters, Q2 and Q3 2017.

It is well known that Qatar has put many measures in place to sustain its economic success. As the country continues preparations to host the FIFA World Cup 2022 and strives towards achieving the Qatar National Vision 2030, strategies such as increasing focus on tourism, taking decisive actions to reduce supply-chain bottleneck, and promoting industrial development, are no doubt helping to secure the country’s economic vibrancy.

Whilst the diplomatic dispute with neighboring nations has had a short-term impact on the overall economy, most businesses are viewing it as an opportunity for growth and there has certainly been no notable impact on the real estate sector.

Specifically in the real estate and infrastructure space, all major planned projects are being delivered with little disruption. Qatar’s strategic reserves and advanced planning have protected ongoing infrastructure development and real estate projects from potential disruptions in the supply of construction materials.

ForewordAccording to the Ministry of Justice (MoJ), the combined value of real estate deals in Qatar rose to QAR 9.6 billion in Q2, generated from around 850 deals, a significant increase when compared to QAR 4.3 billion for the same quarter last year.

However, Q3 witnessed the overall value of transacted deals fall by almost 49 percent to QAR 4.8 Bilion with the month of August recording maximum transactions of QAR 2.4 Billion.

Over the last two quarters, office and residential real estate sectors have shown marginal improvement in overall leasing activity. However, due to a surge in supply, rentals continue to remain under pressure of both these asset classes.

In addition to this, there has been an increased supply in the retail sector since the beginning of 2017. Approximately 160,000 sqm of organized retail space entered the market in the last two quarters, largely new malls which have managed to achieve high occupancy levels, together with firm rental rates.

On the hospitality front, we have witnessed increased activity, especially in areas such as Lusail and West Bay, where many major developments can be seen taking shape.

Venkatesh Krishnaswamy

Partner – Deal AdvisoryKPMG in Qatar

Hotel Mondrian recently opened its doors to the public in Lusail and Centara Grand in West Bay is almost ready. Overall, Qatar, is expected to receive around 1,000 keys in the 5-star category by Q4 2017.

In the last two quarters, occupancy levels of some hotels have fallen – mainly those that relied on guests from the blockade nations. Overall occupancy for the YTD Q3 2017 is estimated to be at 57 percent, against 64 percent for the same period during 2016.

In the past few months, Qatar has taken significant measures that will positively impact the tourism and hospitality sector. It introduced the visa waiver program for approximately 80 nationalities and launched an online visa application service for visitors of all nationalities. Qatar Tourism Authority (QTA) also launched its new tourism strategy ‘The Next Chapter’ revealing its growth targets 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

market performance statistics based on our research and also relied on insights published by ValuStrat on Qatar’s real estate performance over the last two quarters. We believe that the compiled information would be a valuable and informative read.

We welcome your feedback and the opportunity to discuss the contents of this edition, along with any other enquiries you may have about the industry, the market and our real estate advisory and valuation services.

Finally, I’m proud to announce that KPMG’s Real Estate team was recently named the ‘Best Overall Real Estate Advisor in Qatar’ by Euromoney Real Estate Awards 2017. Being acknowledged in this way reflects our commitment to the sector and our success at delivering high-quality services, which adhere to global standards for our local clients.

The positive attitude, forward-looking approach of both local and international real estate developers and investors in Qatar is strongly contributing to the country’s ability to overcome challenges and grasp opportunities.

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• What is the most pertinent question in developing the tourism market in Qatar?

• REITs in Qatar – an opportunity awaits

6

8

Real estate highlights 11

• Office

• Residential

• Retail

• Hospitality

• Land

13

16

19

22

25

Qatar in figures 27

KPMG Real Estate Advisory profile

ContentsKPMG viewpoint

Sectoral overview

29

KPMG in the news 32


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KPMG viewpoint


6

What is the most pertinent question in developing the tourism market in Qatar?

By Anurag Gupta

Head of Real Estate Advisory and Valuations

Tourism sector introspection

Globally, from a travel and tourism perspective, Qatar is recognized as a key business destination of the Middle East, with few people travelling to the country for leisure, other than those visiting family and friends.. National tourism and travel data also tells the same story. According to the country’s Ministry of Development and Planning Statistics (MDPS), Qatar received 2.89 million tourist arrivals annually (on an average over the last 3 years), of which 1.73 million arrivals (60 percent) were through land and sea routes.

Analysis of air travel data revealed that Qatar is emerging as a transit hub, with total air passenger movement reaching 37.2 million in 2016, of which 36 percent were transfer passengers. This provides tremendous scope for conversion of this group into tourist arrivals. Given that Qatar’s capital investment on tourism is approximately QAR5.6 billion annually, the growth in tourist arrivals over the past 3 years has remained relatively flat.

Yes, FIFA World Cup, but what after that?

Today the key question that echoes across Qatar, be it business or public circles, is –‘What will happen to business growth across all sectors when the football extravaganza is over in 2022’ Most of the businesses, specifically the hospitality sector, has budgeted a steep decline for at-least two consecutive years post-2022. The population projections are also getting flattened if we rely on data from the International Monetary Fund (IMF).

If we look back in history, the same question was asked in the run-up to the Asian Games, held in Qatar in 2006. The answer is no secret. Despite the global financial crisis in 2008, economic activity in Qatar after the Asian Games remained robust (after a brief initial slow-down). Once the FIFA World Cup 2022 was secure by the end of 2010, development activity and growth on the whole surged and has remained steady ever since, even through the recent turbulence in 2013-14

due to the decline in global oil prices.

Several growth opportunities in the tourism space lie ahead of us, but to ensure history repeats itself and Qatar continues to grow even after the World Cup, a well-coordinated and planned effort is required.

In the tourism and hospitality sectors particularly, we have seen for some time that policymakers are taking a consolidated view of the situation and creating an ecosystem to support growth. Regulators, airlines, travel agents, hotels, suppliers, concept developers, hospitality trainers/ educators etc. are being encouraged to come together to identify gaps (which should be filled) and synergies (that can be integrated for a better and more powerful offering), thereby creating a clear roadmap. Additionally, overlaying this collaborative effort, the QTA is investing heavily in new initiatives to support the sector’s growth.

KPMG viewpoint

What changes are required to further enhance the leisure and tourism sector in Qatar?


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Think different, do different

Tourism is not about creating some eye-catching fancy assets. These are only a stepping stone to deliver a great tourism offering. It is the service aspect of tourism where the value lies, and, as such, offerings that integrate the human touch in their service design make a difference. A good example of this in practice is Iceland, where the government partnered with citizens and businesses to create a vibrant tourism ecosystem. Notable efforts included creation of a single body to promote tourism –‘Promote Iceland’ – which introduced an initiative to encourage positive story writing by Icelandic people around the world etc. By promoting and encouraging some behavioral changes of how Qatar should conduct its tourism business, we are bound to see great improvements.

So what can Qatar do?

There are a number of non-asset related tourism initiatives which Qatar could explore to enhance its service offerings and entice more visitors.

Differentiated products: Qatar already has many resorts and hotels for varying budgets and creating more of these may not add value. There are also many similar offerings elsewhere in the region, further adding to the competition. Radical thinking should be applied to tourism product development to create differentiated products, such as. immersive and experiential

KPMG viewpoint

retail offerings, uniquely themed experience centers etc

Compete with self: While it is useful to benchmark with other geographies, it is important to customize offerings to a countries unique positioning. Tourism strategies must be developed according to their specific needs, available opportunities, strengths and requirements. Comparison should be limited to some key metrics; however, tourism development should be based on local design thinking.

Local touch: Involvement of locals in the tourism sector could add significant value, particularly to those travelers visiting Qatar who want to receive an authentic experience. Currently, tourists have limited opportunities to interact with the Qatari community - as all tourist touch-points are managed by expats.

Concentrate on core: Qatar is witnessing massive construction across the length and breadth of the country and given the upcoming deadlines for the FIFA World Cup 2022, this is expected to be the status quo in the country over the next 5 years. The country has seen huge investment in infrastructure development, creating many public assets. It is important to develop ways to maximize on these assets, ultimately creating large magnets (developments) for tourism which possess the ability to convert transfer passengers into tourist arrivals and, at the same time, promote destination tourism.

Once tourists are drawn in by the country’s attractions, they will use the various services directly, such as hotels, resorts, car rentals, public transport etc., or indirectly, such as cleaning and maintenance, energy providers, catering and food production etc., contributing to the economy in many ways.

Strong intent, but proof of the pudding lies in smart implementation

Qatar’s government has been spending generously in the travel and tourism sector. We have witnessed a 10 percent compounded annual growth in spend over the past 5 years, and it is hoped that, based on the new tourism strategy, this will continue to increase.

Investment that is likely to have a significant impact on the tourism sector includes the redevelopment of Doha Port into a sea cruise hub (The Falcon of Doha), Qetaifan Island North Aqua Park and Hospitality Development, various beach resorts, Qatar National Museum, new retail developments and complementing the existing development of Katara Cultural Village etc.

Given the size and scale of these planned developments, there is the potential for cost overrun and often the payback period for this can be quite long. With this in mind, it is important to strike the right balance between the cost and return profile for tourism development and to ensure that any new developments or products are able to attract international tourists in large numbers and retain them for at least 2-3 days.

Today, in the tourism development space, Qatar should keep on asking this question to itself – again and again – as to why an international tourist would choose to visit Qatar over any other destination?

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8

REITs in Qatar –

An untapped opportunityBy Sayantan Pande

Manager, Deal Advisory

Real Estate Investment Trusts (REITs) have been increasing in popularity in developed and mature economies, such as the UK, the US, Europe and Singapore, for quite some time now, primarily as tax efficient liquid real estate investment vehicles. However, the introduction of REITs in the Middle East has had less of an impact with tax efficiency being less relevant to the region. Nevertheless, the regional scenario seems to be have shifted in recent years with a rise in the number and use of REITs, primarily due to the liquidity and flexibility benefits.

REITs have existed in the US for more than five decades now. In 1969, the Netherlands passed the first European REIT legislation, after which REITs rapidly spread across Europe and around the world.

Over the last decade, globally, REITs have developed into a mature market force, providing easy access to high-quality assets along with stable returns on investments.

Currently, there are over 500 REITs operating across 37

countries, with a total market capitalization of more than US$2 trillion.

What are REITs?

‘REITs’ are investment vehicles that own and operate real estate assets and allow individual investors to earn income through partial/equity-level ownership of real estate, without actually having to buy those assets.

Fundamentally, REITs are designed after mutual funds and provide investors with all types of income streams, as well as long-term capital appreciation. REITs also trade on major stock exchanges and provides investors with a highly liquid stake in real estate assets typically offering high yields.

REITs essentially take the shape of an enterprise that owns or finances income-generating real estate assets, typically paying out all or the vast portion of taxable income as dividends to shareholders. In turn, shareholders pay the income taxes on those dividends.

Major characteristics of REITs

• Convenient entry and exit:As REITs are listed on the stock exchange market, investors can make short-term bets on the property markets and, to an extent, transform investments in properties as liquid.

• Low ticket-size investments:REITs allow even small investors to invest in real estate assets. REITs are particularly beneficial for individual investors who prefer to have exposure to the real estate sector in their investment portfolios.

KPMG viewpoint

Throwing light on the untapped potential of the real estate investment trust (REIT) market in Qatar

Fundamentally, REITs are designed after mutual funds and provide investors with all types of income streams, as well as the benefits of long-term capital appreciation.

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9

REIT

Key sponsor(seed investor)

REIT manager

Supervisor Manager

Investors through IPOs

Income generating

assets (with high yields)

Returns

Dividends

Reinvestment

Investment

Trustee

• Transparency: Many countries have a regulating body which has a strict framework and legislation for the operation of REITs, which can add appeal for investors.

• Steady income and capital gains: REITs are required to distribute a significant portion of their net income to avoid taxes. In addition to regular income, REITs investors also benefit from appreciation in the value of the underlying assets.

• Australia: The first REIT in Australia was a listed property trust initiated in 1971. A-REITs are the largest REIT market in the Asia Pacific region, with a total market capitalization of almost US$85.9 billion, accounting for 9.36 percent of the global REIT market capitalization.

• Singapore: The first Singapore REIT was launched in 2002, and has since become one of the biggest success stories of the Singapore Stock Exchange (SGX). Singapore REITs has rapidly grown into a US$53 billion market. Currently, the total ‘REIT stock’ available in Singapore’s central business district is approximately 2.687 million sqm.

REITs in the Middle East

The first REITs were introduced in 2006 in Saudi Arabia and the United Arab Emirates.

Since then, the UAE has played a pioneering role in establishing REITs across the region, and both Dubai and Abu Dhabi have separate listed and non-listed REIT entities.

In Dubai, Emirates REIT and Emirates NBD REIT lead the way, and are listed entities on Nasdaq Dubai. In Abu Dhabi, the private (non-listed) entities are The Residential REIT and The Logistics REIT, both registered in the financial free zone of the Abu Dhabi Global Market.

Though Saudi Arabia introduced REITs in 2006, it opened its market to REITs only last year. In Saudi Arabia, the rise of the REIT is more recognized as an increased diversification from the Kingdom’s reliance on oil. Some of the prominent funds Tadawul now hosts are Al Jazira Mawten REIT Fund, the Riyad REIT Fund and the Jadwa REIT Al Haramain Fund.

A look at REITs globally

• USA: US-REIT was introduced in 1960 to make large-scale, income-generating real estate investments accessible to smaller investors. Since then, US-REIT has dominated the global market, and has a market capitalization of US$1 trillion, as recorded in 2016.

KPMG viewpoint


10

Bahrain announced regulations for REITs in November 2016, and in January 2017, the country’s first REIT was launched as the Eskan Bank Realty Income Trust. Though, Kuwait introduced REITs in 2007, it is yet to establish any regulations for the trading of REITs on the stock exchange market. This is also the case for Qatar.

Whilst Saudi Arabia and the UAE, have created clear opportunities for listing REITs, the legal restrictions on foreign ownership of real estate properties and shares on local exchanges create challenges. For instance, Dubai restricts foreign ownership of REITs to only 49 percent, while in many developed markets, 100 percent foreign ownership is the usual norm. Similarly, Saudi Arabia’s stringent criteria for Qualified Foreign Investors (QFIs) mean that REITs will mostly be owned by locals.

As the REIT market continues to evolve across the Middle East, we anticipate continued diversification. There are no restrictions as to asset classes in which REITs can invest. Apart from investing in commercial assets, such as office and retail, some of the popular asset classes across the region are investments in accommodation for students and staff, the warehousing and industrial sector, the hotel sector (a burgeoning sector in Saudi Arabia) and, recently, the UAE has also started to foray into the residential sector. Typically, any asset class that is income producing can be used for investment within a REIT vehicle. Ultimately, those investing in REITs are only looking for strong, stable and sustainable returns.

Islamic REIT

Islamic REIT is a collective investment scheme in real estate wherein the tenants operate permissible activities according to the Sharia law. The first Shariah compliant REIT was launched in Malaysia in 2006 and has since gained popularity in Malaysia and Singapore. However, the total number of (listed) Islamic REITs has not been able to spread across other geographies including the Middle East. The number is still low in relation to demand from investors. Despite high returns of between 6-8 percent annually, investors focusing on short-term investment might shy away owing to the lower liquidity of Islamic REITs, as compared to the conventional REIT market. However, for long-term investors, Islamic REITs are indeed an outstanding option to create income flows and preserve Islamic values at the same time.

REITs in Qatar

Qatar introduced REITs legislation very recently, which will help provide attractive opportunities to diversify investments in a sector thought to be one of the more robust in the country.

The Qatar Financial Markets Authority (QFMA) allows only listed joint stock companies to act as REITs, following approval, which is granted if applicants are able to meet several pre-set criteria which are in-line with international REITs regulations, which primarily includes: • The capital of the company

must not be less than QAR40,000,000.

• The public must be allowed to invest at least 25 percent of the IPO amount.

However, unlike other nations where the majority of REIT income is distributed among the investors, in Qatar, as per the guidelines set by QFMA, the fund does not require the majority of REIT income to be distributed among the investors. The impact of this is too early to measure, as REITs have been introduced only very recently in Qatar. It will take some time to analyze the effectiveness of establishing REITs and the interests of investors and third parties, though these guidelines are only the first step towards the widespread introduction of REITs in Qatar. However, the legislation issued by QFMA mainly focuses on transparency and prevention of conflict of interest, and is expected to drive investors’ interest in exploring this new investment vehicle.

Benefits of REITs to the Qatar economy

REITs will: • Allow Qatari investors

(individuals and institutions) to access high yielding liquid investment opportunity, through dividends and capital appreciation.

• Provide much-needed liquidity to the market.

• Become a catalyst for improvement and further development of the real estate sector in Qatar.

• Provide diversification opportunities.

• Create an environment to develop investment grade projects for developers.

• Improve market maturity levels.

• Encourage government to regulate market activities by strengthening its legal system and real estate policies.

KPMG viewpoint


11

Real estate highlights

Commercial office

• 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, 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.


Q2 – Q3 2017

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.


13

Office sector overviewOffice sector overview


14

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

Primary business districts

The prime commercial district, West Bay, continues to experience a surge in the supply of Grade A office spaces, as new towers reach completion. Currently, approximately 1.64 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 demand for office space in West Bay has resulted in an overall decline in office rentals by approximately 8 percent over Q2 and Q3 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 oversupplied and additional supply is expected in the coming 2 to 3 years.

Qatar is set to witness around 2 million sqm of new office supply over the next decade, with the majority of developments planned in Lusail. Recent building completions in Lusail 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 rates averaging at between 65 and 70 percent.

Estimated current stock and future supply (2015 – 2018)

Total Leasable

Office Stock

~4.25 mn sqm.

Estimated future supply

by 2026

Commercial office sector fact sheet (Q3 2017)

~2.0 mn sqm.

Last year Last 6 months Last quarter

Office sector rental trends (Q3 2017)

-15% -7% -2%

Office sector overview

2015 2016 2017 (E) 2018 (E)

4.50

4.86

4.00

3.40

GLA

(sqm

in

milli

ons)

Source: KPMG Market Research and Assessment



*(E) - Estimated

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


15

8%

36%56%

Al Dafna Diplomatic Area Onaiza 63

Major announcement

Qatar Industrial Manufacturing Company (QIMC) announced an additional 120,000 sqm of mixed-use project in West Bay, Abraj Al Tahwiliya, with a dedicated 24-storey office tower.

Leasing activity

Though Q1 2017 started on a sluggish note, 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 relocated to Lusail.

Other major leasing activities were the North Oilfield Company leasing the QIIB Tower, on Majlis Al Taawon Street in West Bay, and a few international occupiers leasing office 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 2017 experienced a surge in overall supply with the completion of office space in North Gate Mall adding approximately 44,000 sqmgross leasable area (GLA) and an additional 28,000 sqm of office space in Mirqab Mall, taking the overall purpose-built office supply in Qatar to excess of 4 million sqm.

Interestingly, the majority of recent office leasing transactions reflect monthly rentals of between QAR110 and QAR160 per sqm, with most tenants favoring office spaces in the secondary business districts.

Occupancy levels in secondary business districts such as Old Salata, Al Sadd, C and D Ring Roads and Salwa Road continue to be healthy, as these locations offer quality office spaces at relatively lower rentals than the prime locations. However, due to the increase in new supply and reduced economic activity, rentals in these areas have witnessed a decline of around 5 percent over the last two quarters.

Average office rentals in Doha Q3 2017 (QAR/month)

140 - 210

100 - 150

90 - 150

100 - 120

90 - 110

85 - 110

West Bay

Old Salata

C Ring Road/AlSadd

Airport Road

D Ring Road

Salwa Road

QAR/Month

West Bay office market (fact sheet Q3 2017)

Total future supply by 2019: ~0.30 mn sqm

Office sector overview

Current stock

~1.64 mn sqm

Average occupancy range

60-65%

Average rentals (QAR/month)

140-210




Residential sector overview


17

Population growth trend

By the end of Q2, the overall population reached 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 surpassed the 2.63 million mark, showing an increase of 3 percent quarter-on-quarter (QoQ). Though the population increased marginally, this represents a slowdown in annual population growth which, historically, averaged in excess of 7 percent.

Recent fiscal consolidation, reduction in white collared workers and the impact of the blockade from neighboring countries has resulted in growing vacancy levels across Doha. Moreover, increased supply of new buildings has resulted in declining rentals across Doha.

Rental trends

Average rental levels in the prime residential 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 supply was introduced in the market.

Prominent developments in areas primarily catering to low to mid-income housing segments such as Al Wakrah, Muaither, Al Aziziya and Fereej Bin Mahmoud continue to experience stable rental levels while new 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 the general decline in white-collared worker population and reduced economic activity.

Residential supply

There has been a considerable increase in the number of new residential buildings especially in areas such as Al Sadd, Al Mirqab, Umm Ghuwailina and Bin Mahmoud.

Areas such as Al Khor, Al Soudan, Duhail, Al Wajba and Umm Salal added about 750 new villas with the completion of several villa compound projects.


2015 2016 2017 (E) 2018 (E)

No.

of u

nits

in ‘0

00

275

280

288

297

Qatar residential market (current stock and future supply*) 2015 – 2018

Total no. of estimated residential

units

284,000

Estimated supply by the end of 2017

Residential fact sheet (Q3 2017)


Residential rental trends (Q3 2017)

-15% -8% -4%

4,000






18

Most of these developments have been released to the market at the prevailing rental levels even though they offer higher quality apartments and superior amenities.

Recent launches

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

Barwa Real Estate, recently inaugurated Phase 2 of Madinat Al Mawateer; a mixed-use development, which houses 176 residential units.

In Q3 2017, the first phase of the Ezdan Oasis project was inaugurated. The project spreads over an area of 1 million sqm, with a total development plan of over 9,000 residential units. Currently, leases are open for approximately 1,875 fully furnished housing units of 1, 2 and 3 bedrooms. This development also houses 183 commercial outlets and other essential amenities such as a school, which is already operational.

Al Mirqab Real Estate recently announced the launch of one of its largest residential projects ‘Fox Homes’ in Lusail, which is comprised of 429 residential units ranging from one to three bedroom apartments, as well as duplex units and comes equipped with top-tier amenities.

Emerging trends

Due to the increase in the supply of premium residential housing and mounting vacancy levels over the last few quarters, we have noticed a change in trend, wherein landlords have largely become more willing to accept rent-free periods or drop rental prices for properties that have 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 attract tenants.

Due to rent corrections in premium areas, there is an increase in corporate leasing activity as well. As per our assessment, residential precincts that stand to gain from corporate leasing activity are primarily The Pearl, Lusail, Al-Baaya, Al-Duhail, Al-Waab and Abu Hamour. We believe that, if this trends continues, occupancy levels in premium locations would improve, resulting in stabilized residential rents over the near-term.


000 5,000 10,000 15,000 20,000

B i n O m r a n

A l -M u n t a z a h

O l d A i r p o r t

B i n -M a h m o u d

A l -M a n s o u r a

A l - S a d d

L u s a i l

W e s t B a y

T h e P e a r l

QAR/Month

3 Bedroom 2 Bedroom 1 Bedroom Studio

Average rentals for apartments in Doha

0 10,000 20,000 30,000 40,000

Al Wakrah

Al Gharrafa

Al Hilal

Abu Hamour

Ain Khaled

Al Waab

West BayLagoon

QAR/Month

5 Bedroom 4 Bedroom 3 Bedroom

Average rentals for villas in Doha




Retail sector overview


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Qatar’s retail market continues to outperform all other asset classes. One of the primary 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, representing the highest level of disposable income per capita in the world. However, the oil price corrections in late 2015 (which resulted in a prolonged economic slowdown) and the recent geo-political issue has reduced the overall retail spending by 10-15 percent since 2015. KPMG believes that, despite the slowdown, retailers are hopeful about Qatar’s retail performance over the short to medium-term.

Retail space per capita

Currently, the overall organized retail space stands at approximately 1.63 million sqm. Over the years, retail malls in Qatar have performed well, with high occupancy, increasing rental 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 630 sqm per 1,000 capita when compared to the GCC average of 550 sqm per 1,000 capita 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

North Gate Mall, a mixed-use development, with a GLA of 92,000 sqm retail space, has started handing over spaces for fit-out and is expected to have a soft opening in the first quarter of 2018. United Development Company (UDC) launched ’04’ Mall in La Plage, South District in The Pearl, and is expected to add 40,000 sqm of GLA once completed by the end 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 spans over approximately 250,000 sqm of GLA and has overtaken the Mall of Qatar as the country’s largest shopping destination.

Total organized retail supply

Leas

able

are

a in

milli

on s

qm

2015 2016 2017 (E) 2018 (E)

Total estimated

Retail Stock

~1.63 million sqm

Total Estimated

Supply by the end of 2017

Retail sector fact sheet (Q3 2017)

~1.72 million

sqm

1.72

2.35

1.01

0.86

Retail space per capita (2016-2019)







21

Future supply of retail malls

Project LocationExpected

completion

Tawar Mall Al Duhail 2018

Northgate Mall Umm Salal 2018

Doha Mall Abu Hamour 2018

Place Vendome Lusail 2018

Doha Oasis Fereej Abdel Azeez 2018

Katara Plaza West bay Lagoon 2018

Al Waab Mall Al Waab 2019

Average rental trends QAR per sqm. per month of leasable area



Q2 also noticed the soft opening of Al Hazm Mall. Built at a budget of QAR3 billion, Al Hazm Mall will add 36,000 sqm of leasable area that will primarily feature luxury brands along with food and beverage outlets and is expected to have a grand opening towards the end of the year.

These newly-opened malls offer a wide range of shopping, dining and entertainment experiences. They have been successful in attracting healthy footfalls, with Doha Festival City and Mall of Qatar welcoming more than 3 million combined visitors per quarter, despite the slower months of summer, Ramadan and the impact of travel embargoes from neighboring nations. Initiatives by many retailers including promotional festivals, such as the Summer Festival and Garangao during the Eid break, have been positively reflected in the number of people visiting malls, as well as in increased retail sales.

Currently, there are around nine new malls under various stages of construction, out of which four 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 take the overall organized retail space in excess of 2 million sqm. While this has allowed a host of new international retailers to enter the market, it has also led to fears of oversupply. In the medium-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 area.

Retail rentals

Typically, the average monthly rentals malls command are in the range of QAR260-QAR290 per sqm per month for the standard line units, while the larger stores can secure rents of between QAR150-QAR 210 per sqm per month.

Interestingly, new retail malls have been able to secure a number of international brands at premium rents; however, increasing competition for tenants has resulted in more flexibility being shown for ‘non-prime’ retail spaces.

220245 255

280 270 270

150 150165 155 145 145

0

50

100

150

200

250

300

2012 2013 2014 2015 2016 2017

Shopping Mall Rental RatesShowroom Rental Rates

43%

4%

3%

34%

16%

Al Rayyan Al Wakra Al Khor Doha Umm Salal

Distribution of retail space across Municipalities




Hospitality sector overview


23


Tourism and hospitality sector

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 were provided to Qatar Airways stopover passengers, which resulted in an increase of 40,000 visitors compared to Q4 2016, as per QTA statistics.

During Q2 2017, the total number of visitor arrivals reached nearly 1.37 million, a 7 percent year-on-year (YoY) rise. However, this growth in 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.

In June 2017, Saudi Arabia, the United Arab Emirates, Bahrain and Egypt, severed diplomatic 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’ system, with visa waiver programs to 80 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 approximately 51 percent YoY due to the travel embargoes and quieter summer months, coupled with Ramadan. However, despite the significant fall in number of visitors from neighboring countries, Qatar experienced positive growth in tourist arrivals from Europe and America.

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 all hotel establishments.

Total no. of hotel keys 24,100

Projected no. of hotel keys

by 2018

Hotel sector fact sheet (Q3 2017)

Overall average room rate trends (Q3 2017)

Distribution of hotel keys in Qatar (Q3 2017)

5 star 4 star 3 star 1&2 star

289N

o. o

f Key

s


-5% -2% -1%

Source: MDPS, QTA, KPMG Market Research and Assessment



11,930

9,254

2,627

28,200

Market Intelligence Source: KPMG Market Research and Assessment, Qatar Tourism Authority, Ministry of Development and Planning Statistics, ValuStrat (Q2 & Q3 Real Estate Research Report)


24

Supply scenario

Our analysis estimates that there are approximately 24,100 hotel rooms and hotel apartments in Qatar, across 138 properties. This includes the recent opening of The Mondrian Doha (Falcon Tower) which added 270 rooms, Al Mansour Plaza (113 keys), Premier Inn Education City (217 keys) and Holiday Inn Business Park (307 keys), along with three more hotels, namely, Green Garden Hotel, Al Mansour Suites and La Villa Suites, which opened in Q3.

In Q3 2017, Manateq announced a QAR488.5 million investment for a number of hospitality projects in the Ras Bu Fontas Economic Zone along the waterfront area. Upon completion, this will add at least 670 keys by 2019.

Cheval Residences and Msheireb Properties announced the launch of luxury serviced apartments in West Bay and Zulal Wellness Resort in Al Shamal respectively, to be completed by 2020. Paramount Residences and Damac Properties also launched luxury serviced apartments in The Pearl and Lusail, respectively. Both of these will add around 400 hotel apartments by 2020.

Occupancy

The average occupancy rate across all hotels was 57 percent in Q2, with the 4-star segment performing the best at 58 percent and 1 and 2-star segment, with the lowest recorded occupancy at 48 percent.

As per our research, occupancy levels of hotels which had high exposure to guests from the blockading nations fell to 20 to 30 percent during Q3; however, the overall occupancy YTD Q3 2017 is estimated to be at 57 percent.

Average room rate (ARR)

At an overall level, Q2 witnessed the ARRs grow by 1.7 percent QoQ from QAR458 in Q1 to QAR466 in Q2. However, corporate demand continues to be a driver and, given the increase in room supply, hotel price competition has intensified.

Q3 experienced a marginal dip in average room rates by 1 percent, reaching QAR462 due to reduced tourism activity.



Overall average room rates of hotels in Doha (2017)

Overall occupancy of hotels in Doha


0

100

200

300

400

500

600

700

Q1 Q2 Q3

QA

R

All Hotels 5-Star 4-Star

3-Star 1 & 2 Star

40%

45%

50%

55%

60%

65%

70%

All Hotels 5-Star 4-Star 3-Star 1 & 2 Star

Occ

up

ancy

Rat

e

Q1 Q2 Q3

-500

500

1,500

2,500

3,500

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Total Supply Year on Year supply

Projected supply of 5-star hotels in Doha


Market Intelligence Source: KPMG Market Research and Assessment, Qatar Tourism Authority, Ministry of Development and Planning Statistics, ValuStrat (Q2 & Q3 Real Estate Research Report)

Land sector overview


26

Land sector overview

After a period of uncertainty and hitting a record low in 2016, real estate prices in Qatar showed a 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 quarters of 2017 reached QAR21.5 billion, with land transactions contributing QAR8.4 billion, totalling39 percent of the total transacted real estate deals in YTD Q3 2017.

The combined value of real estate deals in Q2 and Q3 reached QAR14.5 billion, with a total of about 1,562 deals implemented during the last two quarters, and land transactions contributing QAR7.08 billion (49 percent of the overall value of transacted deals).

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 recorded QAR9.6 billion.

The maximum transaction volume occurred in June, reaching QAR4.3 billion, whereas the average monthly transaction volume in Q2 and Q3 was QAR2.4 billion.

Land transactions in Qatar (Q2 –Q3 2017)

Source: Ministry of Justice, KPMG Market Research and Assessment

Al Daayen25%

Al Rayyan19%

Doha18%

Al Wakra12%

Al-Khor & Al-

Thakhira10%

Umm Salal9%

Al Shamal7%

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)

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

30%

23%

39%

0%

10%

20%

30%

40%

50%

-

10.0

20.0

30.0

40.0

50.0

60.0

2015 2016 *YTD Q3 2017

% o

f La

nd

Tra

nsa

ctio

ns

to R

E

In B

illio

ns

QA

Rs

Total Value of RE Transactions Total Value of Land Transactions % of Land Transactions to RE

Market Intelligence Source: KPMG Market Research and Assessment, Ministry of Justice, Ministry of Development and Planning Statistics


27

Qatar in figures


28

12.5 14.1 14.5 17.4 18.9 20.4

1415.8

22.226.6

2931.2

4.75.3

6.6

7.98.2

9.1

0

10

20

30

40

50

60

70

2012 2013 2014 2015 2016 2017F

QA

R B

n

Direct Indirect Induced

4.6 4.8

5.75.1

6.16.9

2.60% 2.55% 2.50%2.25%

2.40%2.60%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

0

2

4

6

8

10

2012 2013 2014 2015 2016 2017F

% o

f GD

PQA

R B

n

QAR Bn % of GDP

1.9

2.7

2.2

3.5

0

1

2

3

4

2015 2016 2017 2018 E

CPI Inflation

3.7

2.6

3.43.8 3.9

-0.5 -0.5

0.8

2

0.8

8.2

5.2

66.7 6.7

-1

0

1

2

3

4

5

6

7

8

9

2015 2016 2017 E 2018 E 2019 F

Real GDP Hydrocarbon GDP Non-Hydrocarbon GDP

4.7%

4.4% 4.0%

3.70%

2.60%

3.40%3.80%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

600

650

700

750

800

2012 2013 2014 2015 2016 2017(E )

2018(E )

GDP Growth (%)

158

198.5

-48.5

170.1

202.5

-28.4

-100

-50

0

50

100

150

200

250

Revenue Expenditure Defecit2016 2017

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

Qatar in figures

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

Inflation (2015-2018)Revenue – expenditure – deficit

(2016 vs. 2017) in Billions

Total contribution of travel and tourism to GDP

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


29

KPMG Real Estate Advisory

and Valuations profile


30

Our strong local presence

In Qatar, KPMG has a dedicated and specialized Real Estate Advisory and Valuation team, consisting of qualified architects, master planners, urban designers and transaction advisors with over a decade of experience.

The team has undertaken more than 300 projects in Qatar, covering the breadth of real estate asset classes. Our knowledgeable real estate professionals focus on providing informed perspectives and clear solutions, drawing experience from a variety of backgrounds including accounting, tax, advisory, banking, regulation and corporate finance and valuations.

Our team is involved in every stage of the asset and investment lifecycle, and offers experience in working with all levels of stakeholders throughout the real estate industry.

Our client focus, our commitment to excellence, our global mindset and consistent delivery has built trusted relationships that are at the core of our business and reputation.

A member of Global KPMG Building, Construction & Real Estate (BC&RE) NetworkThe global KPMG BC&RE Network is made up of nearly 350 partners and 5,000 practitioners, and provides a broad range of professional services. The Global BC&RE Network was set-up within KPMG to assist the specific needs of clients active in the real estate business.

Whether your focus is local, national, regional or global, we can provide you with the right mix of experience to support and enhance your needs and ambitions.


31

Our real estate advisory services

Highest and best use option studies

Policies and procedure manuals

Financial modeling development/ financial model review

Property valuation

Business performance reviews and operation plan

Market research/opportunity analysis studies

Detailed market and financial feasibility studies

Corporate real estate strategy development and business plan

Understand the viability of the proposed development /business from a financial and market perspective.

Defining vision, mission, and creating complete business plan and creating corporate strategy.

Assisting clients in making appropriate real estate product mix decisions to attain best value.

Assisting clients in making market knowledge-based decisions for infrastructure and real estate related projects.

Creating/validating financial models and scenarios for possible business venture,

funding etc.

Property valuation for various real estates enabling management to

make informed decisions for both, transactions and IFRS purposes.

Development of operational policies, and procedures for real estate

property and facilities management.

Developing and reviewing business performance and recommending on changes required.

Hospitality and entertainment

Social sectors: Education and healthcare

Retail

Industrial

Residential

Commercial office

Multi-storied apartment developmentsIntegrated villa and compound developmentsIntegrated townshipsSocial housing

Exclusive commercial officesIntegrated commercial developments (including retail and/or residential components)

ResortsLeisure and business hotelsServiced apartmentsClubs and recreation centersSpas and wellness centersExhibition and convention centersAmusement and theme parks, including Indoor and outdoor family entertainment centers (FEC)

Organized retail mallsHigh street retail

Traditional retail and souqs

Industrial developments (individual developments and

industrial areas)Logistics and warehousing

Economic zone developments

Kindergartens K+12 Schools

Higher education and universities

Hospitals, health centers and polyclinics

Our diverse sector experience

Real Estate asset

classes

Real Estate

Advisory Services


32

KPMG in the news

Thomson Reuters12th October 2017Link: https://mena.projects.thomsonreuters.com/newsDetails.html?newsId=ZAWYA20171012083908#/

Gulf News24th May 2017Link: 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 GuptaDirector and head of Real Estate Advisory, KPMG Qatar.

“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.

https://mena.projects.thomsonreuters.com/newsDetails.html?newsId=ZAWYA20171012083908#/

http://gulfnews.com/business/property/qatar-realty-sustains-measured-recovery-1.2031647

©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.

kpmg.com/socialmedia kpmg.com/app

Venkatesh KrishnaswamyPartner – Deal AdvisoryKPMG in QatarTel: + 974 4457 6541Email: [email protected]

Anurag GuptaHead – Real Estate Advisory and ValuationsDirector, KPMG in QatarTel: + 974 4457 6444Email: [email protected]

Contacts

KPMG named ‘Best Overall Real Estate Advisor in Qatar’ by Euromoney in 2017.

Siddhant VernekarResearch analyst, Deal AdvisoryKPMG in QatarTel: + 974 4457 6417Email: [email protected]

Author

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