Dubai
The heat is getting intense for Qatar’s property market ... and it has nothing to do with it being summer. Each of the Gulf state’s key real estate sub-sectors is under extreme stress brought on by weak demand, quite unlike the situation in Dubai, where the office and hospitality spaces are still holding up quite well.
Blame it then on Qatar’s over-reliance on the oil and gas market to sustain its real estate interests. In the first-half of the year, residential rents have been on the slide “after years of prolonged growth”, according to the latest update from CBRE.
But “demand levels have weakened substantially amid widespread company downsizing and lower levels of recruitment in both the public and private sectors,” the consultancy reports in its latest update. “So far, declines have been most prevalent within the higher tiers of the residential market, with rental rates falling over 10 per cent in some cases.”
Across the board, the home rent decline has been around 5 per cent during the period, with those of mid-market and entry level homes remaining stable. “Deflationary wage pressures have forced some employees to seek cheaper accommodation alternatives amid an uncertain economic environment,” the report adds. “This trend is likely to pick up pace in the short term as vacancy rates rise, particularly in freehold locations such as The Pearl Qatar where there is an active secondary market.”
But even as it battles short-term demand decline, the property market continues to raise new stock. The next three years could add a further 28,000 units on top of the 145,000 homes that exists. Bulk of the new apartments are destined for Pearl Qatar, Lusail City and West Bay.
But a lot of what is happening in residential sector is a function of the troubles apparent in the commercial space. “Landlords are now facing stiffer competition to secure new tenancies amid a glut of available office supply and weakening demand fundamentals,” says the CBRE update. “Over the past six months, the number of new office requirements and overall take-up levels have declined notably ... creating deflationary rental pressures across the market as vacancy rates have started to rise.
“Ultimately, the weak performance of the hydrocarbon sector and the knock-on impact on oil and gas and government related occupiers has led to an anaemic performance across the market, with overall commercial activities declining, reflecting the subdued business environment.”
For prime offices, this has translated into a rental dip by 4 per cent on a year-on-year basis. In the last quarter alone. it fell 2 per cent from the three month period before that.
As of H1-16, total office supply was recorded at 5.3 million square metres, and expected to reach 7 million plus by end-2018. Of course, this is contingent on there being “minimal construction delays”.
“With a very significant development pipeline, we expect to see a sustained period of rental deflation for both prime and secondary office spaces, with occupancy rates likely to see significant erosion as the demand from the government and related entities weakens further in the coming quarters,” the report notes.
