Splash the cash

Orlando Crowcroft finds Qatar’s retail market is creating a lot of work for contractors, but asks whether it is sustainable?
By CW staff
Fri 16 Aug 2013 11:36 AM

With the focus on football stadiums, roads and rail, it is easy to overlook the massive development going on in other sectors in Qatar, including residential and retail, as the country looks to life post-FIFA 2022.

But the launch of the $824 million Mall of Qatar at last month’s Cityscape Qatar, however, will have done much to emphasise the importance of non-football related projects for those looking for work in the years ahead.

As many as 12 new mega-malls are under construction in Qatar in 2013, with total stock likely to grow to 22 by end of 2015. This amounts to an expected gross leasable area (GLA) of 1.3 million m2, according to estimates by Alpen Capital – translating to a massive amount of potential for contractors.

“The retail market in Qatar is rapidly maturing at a very fast pace, and these proposed new ‘mega-malls’ will change the face of Qatar retail,” said Andrew Williamson, head of retail, MENA at Jones Lang LaSalle.

“There will potentially be many new brands and entertainment options in Doha. Qataris have been travelling to Dubai, Bahrain, Abu Dhabi and other countries to shop, and now they want that experience at home.”

Indeed, the Gulf retail market has almost single-handedly kept demand for luxury goods alive during the last five years of  downturn, with the sector growing by 30% in 2011 – streets ahead of the 11% rate of growth seen globally in these tough financial times.

Qataris are the first among the GCC pack, with oil and gas revenues and a ballooning gross domestic product seeing the average national spending more than $5,000 a month on luxury products. Much of this cash, however, is spent in the shops of New York and London – as well as neighbouring Dubai – and not at home in Doha.

In light of this, new mega-malls seem like an attractive prospect and, as a result, developers are having fewer problems securing finance. The developer behind Doha Festival City – which is set to house Qatar’s first IKEA – earlier this year revealed that it had raised a $1 billion loan from a consortium of Qatari banks.

Lenders in the region a certainly feeling flush, according to data from Boston Consulting Group released in June. The firm estimated that Middle East banks saw a 6.9% increase in average revenues and an 8.1% rise in profits in 2012. Qatari banks were the biggest winners, seeing revenues grow by 12%.

Meanwhile, UrbaCon Trading and Contracting’s (UCC) announcement that the Mall of Qatar – due to add 162,000m2 of GLA to Qatar’s retail stock – was on schedule for completion before 2015, came with bullish pronouncements on the future of Qatari retail from its deputy managing director, Shem Kray.

“We are launching the Mall of Qatar at a time when there is clearly enormous untapped demand for quality integrated shopping, dining and entertainment facilities in the country,” he said. “Our research has shown there is a significant amount of capacity that has to be met in the retail area and our mall will be a major step in fulfilling demand.”

But just how sustainable will Qatar’s retail sector remain as such huge projects enter the market? In a recent report, property consultancy DTZ concurs that demand at present is healthy. Qatar’s Villaggio Mall has expanded regularly since opening in 2006 and benefits from a footfall of some 1.3 million people, a figure that has risen every year. Meanwhile, Ezdan Mall, which opened in April 2013, is 95% fully leased even though a large percentage of the shops are yet to open. Rents too are healthy.

Article continued on next page...

But, as so often with Qatar’s pre-FIFA 2022 development, the shadow of oversupply looms large. Qatar Pearl will bring a further 143,000 m2 to Qatar’s retail market, but large sections of phase one of the project are still available for lease. Potential tenants, it seems, have been put off by the design of the project, with much of the outlets outdoors.

Issues such as this, said Mark Proudley, associate director of consultancy and research at DTZ in Doha, demonstrates that retailers already have high-quality stock available and, as a result, are unlikely to settle for second-rate offerings. The one-million square metres of retail space planned for Lusail before 2020 will only add to the oversupply issue – on the outskirts of Doha, the area is hardly an easy sell, given Qatar’s ongoing transport and infrastructure challenges.

As in all other sectors of the Qatari economy, to sustainability in Qatar’s retail sector will be population growth; DTZ estimates that it will need to grow by seven to eight per cent a year in order to provide enough demand. The country saw this growth in 2011 and 2012, rising from 1.7 million to 1.84 million at the end of last year. It remains to be seen whether such rates can be achieved again.

But regardless, it could be the delays that remain so indicative of mega-projects in the Gulf that work to Qatar’s advantage. If Qatar’s Hamad International Airport is demonstrative of anything, it is that projects are rarely delivered on time.

“Our caveat on our supply forecasts is always that everything here tends to be delayed,” said Proudley.

“Yes there is a lot of supply coming on stream, but will it all come online when they are predicting it will? Probably not. So in theory some of your supply pipeline may be spread out over a longer time period.”

Logistical challenges could also be an issue during the construction process, with Doha’s new deep-water port still some three years from completion. A report from EC Harris earlier this month suggested that construction inflation could rise by as much as 18% a year ahead of the World Cup – supply chain issues, compounded by the lack of infrastructure – could compound this, hitting retail projects.

There is even a chance, DTZ claims in its latest report, that some of the planned retail projects could be shelved “if they become unfeasible”.

But unlike other real estate segments which confronted from global turmoil, says Alpen Capital, rental rates in malls have been constantly appreciating ever since 2006, with rental growth in prime malls is as high as 90% over the past six years.

More generally, the size of trade, restaurants, and hotels sector at current prices expanded 10.4% year-on-year to $9.8 billion in 2011. After witnessing volatile but largely positive growth during the financial crisis, the industry has settled to a growth of around 8-10% in the last two years, Alpen Capital estimates.

It is also notable that 77% of Qatar’s overall retail market remains scattered shops and souks rather than malls. The success of the mall model suggests that a lot of this stock will find its way into Qatar’s new mega-projects, keeping rental growth high.

Jones Lang Le Salle’s Williamson, for his part, is confident that developers on the ground in Doha know what they are doing.

“Developers see what is happening in the market and make long term investment decisions based on their local knowledge,” he said.

At the same time, the builders of mega-malls in Qatar have a wealthy patron behind them. Qatar remains the wealthiest country in the world, with huge natural gas reserves allowing the country to pick up much of the tab for 2022 without looking at private investment.

“Qatar has ambitious goals and the desire to create a hub in the region and it has the ability to invest in its infrastructure to continue the growth,” he said.

There is clearly the feeling in Qatar that tourism will play a role in boosting the retail market and creating demand, just as it has in Dubai. Dubai expects passenger traffic at its international airport to top 50 million this year, with its ruler, Sheikh Mohammed, targeting 90 million in the next six years.

Qatar will be hoping that it too can persuade some of the Western and Asian travellers that spend money in Dubai’s malls to instead come to Doha, especially after the opening of the country’s brand new Hamad International Airport, due to begin operations later this year after three years of delays.

Officials in Doha say that numbers are already up, with Saeed al-Hajri, chairman of the tourism committee of the Qatar Chamber of Commerce and Industry, telling Arab News in June that arrivals are growing by 20% every year. As the preparations for the World Cup increase, these numbers are expected to grow even further.

Some analysts are sceptical that Doha has the same draw for tourists as Dubai, a well-established, heavyweight hub in the region, but others are optimistic.

“Dubai has created a unique brand in the world. Qatar is not trying to copy Dubai, but is creating its own interpretation of what constitutes a global tourist destination,” Williamson said.

Subscribe to our Newsletter

Subscribe to Arabian Business' newsletter to receive the latest breaking news and business stories in Dubai,the UAE and the GCC straight to your inbox.