The second quarter 2018 review issued by leading regional consulting firm ValuStrat reports increased affordability across all sectors in Qatar. The second quarter ValuStrat Price Index (VPI) declined by 4.5% since first quarter of 2018 and was down 10.9% from the same period last year. Whilst apartment values declined only marginally, the VPI was mostly dragged down by falling villa values during the period. However, this decrease in values may have triggered increases in transactional volumes across the board. Residential rents have become more competitive and office rents experienced modest quarterly falls. Increasing supply in the retail sector encouraged landlords to reduce service charges to remain competitive. Falling ADRs led to improved occupancy rates for hotel apartments and 1-3-star hotels.
Pawel Banach MRICS – ValuStrat Qatar General Manager commented “…Affordability has become pervasive across all real estate sectors in Qatar. Falling commercial rents are favouring tenants who are budget oriented and prefer smaller units. On the residential front, developers are offering high-quality apartments at competitive rents to try and secure deals. This increased affordability has improved competitiveness in the real estate market and may partially explain a rise in transaction volumes, amounting to more than QAR 5 billion this quarter. We are expecting these market corrections to continue in the medium term…”
Qatar’s VPI-Residential with a 100-point base set from Q1 2016, now stands at 77.7 points. House prices fell in Q2 2018 as falling population figures, subdued economic growth and a rise in interest rates impacted the market. Countrywide residential capital values have declined by 19.3% compared to the same quarter 2016, 10.9% down as compared to Q2 2017 and 4.5% less then Q1 2018.
The weighted average value per sq m of residential space stood at QAR 8,650. More specifically, apartments were QAR 12,571 and villas QAR 6,698 per sq m. Values for freehold apartments have been stabilising as prices declined only marginally by 1% on a quarterly basis, while values of villas fell by 5.2% since the previous 3 months. Villas in certain clusters of Al Wakrah/Wukair, West Bay Lagoon, Al Khor and Old Airport/Najma experienced declines up to 12.5% quarterly. As of Q2 2018, gross yields averaged 4.9% for all residential unit types.
Citywide residential asking rents declined 12.4% over the past 12 months and 2.5% since the first quarter of 2018. Rents for apartments declined by 3% on a quarterly basis driven by rent reductions in Al Mansoura, Fereej Bin Mahmoud and Al Sadd. While rentals rates for villas declined by 2% quarterly, villas located in peripheral areas of the City Centre experiencing the highest quarterly declines of up to 8%.
“This quarter, rental values fared better than capital values. As a result, yields on villas and apartments improved as compared to the same quarter in 2017. Freehold apartments are performing better compared to villas, as their rental rates and capital values are falling at a slower rate compared to villas. Albeit there are villa locations which have experienced improvement in yields by more than 3% such as Ain Khaled/Abu Hamour, Muaither/New Al Rayyan, Al Thumama, Old Airport/Najma and Al Wakrah/Al Wukair. It will be interesting to see how yields evolve, with a downward trend projected to continue over the second half of 2018…” says Anum Hasan, Market Research Analyst at ValuStrat.
Supply in the residential sector amounted to 288,100 units, with 775 residential properties added during the second quarter. Due to delayed deliveries, projected residential completions for 2018 have been adjusted downwards to 12,800 units (of which 1,975 units were released in first half of 2018).
Notable commercial property completions this period included two office buildings in C Ring Road, one in B Ring Road and one each in Al Mansoura and Old Salata, collectively adding 47,500 sq m GLA (Gross Leasable Area) to the market. This is lower than the levels of completions expected this quarter, with some developers likely delaying project deliveries in the face of tougher market conditions which remain in favour of tenants. With office supply outpacing demand, there has been a citywide fall in rents. Office asking rents fell 16.4% compared to last year and were 1% lower than the first quarter of 2018.
Stock in the hospitality sector ended Q2 with 26,670 hotel rooms, with the addition of Ezdan Palace (5-Star), Vichy Celestin Spa Resort (5-Star) and Al Mansour Residence. Following a trend since Q3 2017, visitor arrivals reduced annually by 39% during the first five months of 2018. Despite drops in tourist numbers, occupancy rates for hotel apartments and 3-star hotels improved by 12.3% and 7.7% respectively. YTD May 2018 ADRs for hotels reduced by 14.8%, with RevPAR declining by 22% annually.
Supply in the retail sector continued to increase during Q2 2018 with the completion of Katara Plaza (38,600 sq m) and with another 376,000 sq m GLA still in the pipeline for the second half of the year. Even though retail markets globally have contracted, rents and occupancy of organised retail have been relatively stable in super regional malls of Qatar. On the other hand, landlords of newer malls are introducing incentives such as absorbing operational expenses or charging lower service charges in a push to maintain healthy occupancies. Median monthly rents for medium line shops (between 100 sq m and 250 sq m) in organised retail were rated at QAR 340 per sq m.
Improvement in local production, cargo traffic and e-commerce has boosted demand for warehousing space, with demand expected to increase annually at an average rate of 15% during 2018-2019. However, growth in supply is currently outpacing demand and is resulting in a downward trend in rents which have reduced 4.6% quarterly and 13.8% annually. Owing to an influx of supply in Al Wakra industrial area, rents have gone down by as much as 10% this quarter. Average asking rents for cold storage space leased on a per unit basis stood at QAR 10,000 to QAR 18,000 for sizes of 50-80 sq m.
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About ValuStrat
ValuStrat Qatar is part of a leading consulting firm providing Advisory, Valuation, Research, Due Diligence, and Divestment services across a diverse range of industry sectors since 1977. With an office network providing services to over 800 corporate clients including financial institutions, local corporates, multinationals, governments, SMEs, family businesses and start-ups. Some of the key sectors serviced by ValuStrat’s consulting team include real estate, hospitality, healthcare, education, manufacturing, retail, entertainment, transport, and FMCG.
About the ValuStrat Price Index
The ValuStrat Price Index for Qatar’s residential sector is constructed to represent the quarterly price change experienced by typical residential units within Qatar. The VPI uses a weighted sample representing influential locations across the city and is built by our expert RICS Registered Valuers.
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