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Nov 02 2010

Regulating Doha's office sector

Rakesh Kunhiraman.
Rakesh Kunhiraman.

Oxford Business Group investigates the Qatari real estate sector

Dubai, 2 November 2010: Qatar's government should consider steps to ease an oversupply of office space in the capital causing rent levels to fall and vacancy rates to climb, as it could potentially impact confidence in the real estate sector, says the Dubai-based Consultancy Division of Oxford Business Group.

Monthly rents in Doha's prime central business district (CBD), the Diplomatic Area of West Bay, have fallen to around QR165 ($45) per sq metre this year after reaching highs of QR300 ($82) in mid-2008. The fall in rents has been attributed to rampant construction over the past five years that turned a shortage of office space into a surplus.

Grade-A office space in the city has more than doubled over the past two years, with 1.4m sq metres gross leasable area (GLA) available at end of 2009 compared to 550,000 sq metres in 2007. Some 650,000 sq metres of new GLA is anticipated to reach the market in 2010, the majority of which (70%) will be located in the West Bay.

The excess of office space has led to flexible deals being offered to firms seeking large units or long-term contracts, while concessions such as rent-free periods and rent caps have become commonplace. The price decline is also apparent in secondary areas of the city, where space is available for as little as QR100 ($27) per sq metre per month.

Doha's office sector had traditionally been spread along primary and secondary locations such as the A, B and C Ring Roads and Grand Hamad Street. This changed when a number of key government departments were relocated to the West Bay, contributing to the rising rents there over much of 2007 and 2008.

The public sector is a significant player in Doha's office market, occupying around 30% of existing Grade-A space. However, while most government institutions have established offices in the West Bay, new supply is currently experiencing limited demand.

A directive was issued in April prohibiting companies from converting villas and other non-commercial space into offices, and this is expected to only improve occupancy in the market for the short term. However, supply is still exceeding demand and as of Q3 2010 almost 200,000 sq metres of space remained vacant, with overall occupancy at 80%.

To compound matters, company registrations dropped 38% in 2009 compared to 2008. Some companies have made budget cuts and put expansion plans on hold, reducing the absorption of new space. While in the past 1000 to 2000 sq metre (whole floor) offices were the norm, in recent months, demand has shifted towards smaller unit sizes in the 100 to 500 sq metre range.

Delays in the delivery of some projects, with five developments offering a total of 500,000 sq metres GLA to be delayed by two years, are creating supply interruptions and a temporary respite. However, the interval is not long enough considering demand growth is estimated at just 200,000 sq metres per annum for the next five years.

Based on office developments under construction, more than 2m sq metres of additional Grade-A office stock is expected to be delivered between 2011 and 2015. Actual delivery remains uncertain as construction bottlenecks and problems securing development finance have resulted in widespread delays. Though supply interruptions are becoming common for a variety of reasons, the government may also be required to reduce speculative build, which is a bane of the region.

"A moratorium on construction activity in the office sector until current stock achieves at least 90% occupancy could ensure that Doha does not experience the problems evident in neighbouring Dubai," said Rakesh Kunhiraman, director of Oxford Business Group's Dubai-based Consultancy Division. "Ideally, a market should be left to its own devices. However, with a severe oversupply looming on the horizon, it is up to the government to step in to avoid crisis in the office sector, which could easily affect other real estate segments and broader confidence in the economy," he added.

-Ends-

About Oxford Business Group
Oxford Business Group (OBG) is a global publishing, research and consultancy firm, which publishes economic and political intelligence on the markets of the Middle East, Africa, Asia, Eastern Europe and the Caribbean. Through its range of print and online products, OBG offers comprehensive and accurate analysis of political, macroeconomic and sectoral developments, including banking, capital markets, insurance, energy, transport, industry and telecoms.

OBG's consulting practice specialises in high value research for corporate, NGO and governmental clients, handling a wide variety of assignments ranging from economic research to market studies, risk surveys and financial analysis. OBG's consulting projects are staffed internally, using consultants with substantial regional and industry experience. The company's extensive in-house library and database resources allow the team immediate access to a host of demographic, economic and industry information on the markets that OBG covers.

For more information please contact:
Oxford Business Group, Dubai, PO Box 502 659,
Dubai,
UAE
Kate Taylor, PR Manager
Phone: +971 44 264 642
E-mail: ktaylor@oxfordbusinessgroup.com
Action UAE, PO Box 20970,
Dubai,
United Arab Emirates
Tel: +9714 390 2960;
Fax: +9714 390 8161

Albert Alba,
Mob: +971 50 1367265
Email: albert.a@actionprgroup.com

Melissa Green,
Mob: +971 56 6905133
Email: melissa.g@actionprgroup.com

© Press Release 2010


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