Low vacancy drives mall investments in Qatar

A series of retail developments are under way in Qatar as rising consumer demand convinces developers to commit to building new sites. Published in MEED, 8 May 2013

With one of the highest per capita incomes in the world and a fast-growing, free-spending population, Qatar represents an enticing opportunity for retailers.

According to the Washington-based IMF, the country had an average per capita income of $99,731 in 2011, second only to Luxembourg in global terms and far ahead of the nearest regional competitor, the UAE with $64,840. The number of consumers to sell to in the country is steadily expanding. Official statistics put the population at 1.9 million and Qatar National Bank (QNB) says that it expects the figure to grow by 3.1 per cent this year and 2.8 per cent in 2014.

Perhaps surprisingly, however, retailers have not been able to target the Qatari consumer market particularly forcefully to date. The best evidence of that is the shortage of retail space in the country and the high demand for what is there.

High occupancy

“Vacancy rates are extremely low in the established malls and prime locations are in high demand,” says Terry Tommason, head of property in the Middle East for UK-based consultant EC Harris. “Qatar is compelling for retailers fundamentally due to the wealth per capita, both currently and what is projected for the future.”

The local Al-Asmakh Real Estate Development says that there are waiting lists for retailers wanting to open outlets in malls such as Landmark, City Centre and Villagio. The lack of space means that rental rates in most malls have been climbing consistently since 2006, jumping by as much as 90 per cent over that period for the most popular sites. The most expensive sites, which include Villaggio and City Centre, command prices of at least QR275 ($75) a square metre a month, up from around QR150 a sq m in 2006.

The demand for more retail outlets is now convincing developers to commit to building new sites. According to real estate consultant Asteco Qatar, there is currently 580,000 square metres of gross leasable area in the capital’s malls, equivalent to 0.32 sq m per capita, but that figure is due to increase to a total of 1.3 million sq m by the end of 2015, equivalent to 0.72 sq m per capita.

“The under-provision of retail space in Doha is slowly being addressed as a number of new malls are opening or under construction,” says Adrian Camps, head of research, valuation and consultancy at Asteco Qatar.

Among the recent developments to open is Darwish Holding’s Lagoona Mall, in the West Bay area of the capital. It covers a total area of 128,000 sq m and has 160 shops and 18 restaurants. Far bigger still is Doha Festival City, which is still under development. Once completed, it will cover a total land area of 433,847 sq m with 260,000 sq m of gross leasable space.

In March, the first Qatari branch of Swedish furniture chain Ikea opened at the Doha Festival City site, with the remainder of the project due to open in late 2014 or early 2015. The mall is being developed by Bawabat al-Shamal Real Estate Company, a joint venture involving Al-Futtaim Real Estate Services, Qatar Islamic Bank and Aqar Real Estate Investment Company.

Other schemes due to open this year include the 52,575-sq-m-Medina Centrale, backed by the local United Development Company, on The Pearl-Qatar, and the much larger Barwa Commercial Avenue, a mixed residential and commercial project by the local Barwa Group, which will have a total leasable retail area of some 236,000 sq m.

New entrants

Other firms have been making their first moves into the retail sector. Ezdan Mall in the Al-Gharafa district is the first such development by the local Ezdan Real Estate Company. The second phase of the mall is currently under development.

Retailers are also getting involved in developing sites. Among the most active is local supermarket chain Al-Meera Holding, which operates Geant hypermarkets, as well as stores under its own brand. Within the next five years, it is planning to open at least seven new outlets, including at Ain Khalid Mall, Al-Sailia Mall, Al-Khor Mall and Al-Khessa Mall.

In all, Al-Asmakh Real Estate says Qatar will add 10 new malls in and around Doha between now and the end of 2015, taking the total to 22.

These malls could start to change the nature of retail in the country. Currently, some 77 per cent of the market is accounted for by scattered shops and traditional souqs, according to Al-Asmakh Real Estate, with 18 per cent malls and a further 5 per cent comprising standalone supermarkets and hypermarkets. The balance will start to shift with the new generation of shopping centres, which are also likely to benefit the kind of international retailers that congregate in malls, particularly luxury brands.

“As well as the prosperous local population, Doha is positioning itself as a destination for tourists and business people, whom luxury retailers will be keen to target as well,” says Tommason. “High-end brand representation in Qatar is currently low relative to other countries in the region. Luxury lifestyle is very much on the agenda, with new high-quality residential and hotel development. Luxury retail goes hand in hand with this, so it is a natural opportunity for retailers to consider.”

Consumer spending

Whether the growth in malls is simply meeting existing pent-up demand among locals, expatriate residents and visitors, or whether the emergence of new shopping destinations will entice consumers to spend more than they might otherwise want to, is an open question.

The Washington-based World Bank estimates consumer spending in Qatar rose from $4.2bn in 2003 to $16.2bn in 2009, the most recent figure available. Given the continued growth in gross domestic product (GDP) and GDP per capita in the years since then, it is all but certain that consumer spending will have continued to climb too. But Qatar is hardly alone among GCC countries in experiencing consistently strong growth in retail sales.

Dubai-based Alpen Capital predicts that between 2011 and 2016 retail sales across the six GCC countries will grow by an average rate of 7.7 per cent a year to reach $270.3bn by the end of that period. Food sales will drive that growth, with an average increase of 8.8 per cent a year, compared with 6.6 per cent for non-food sales.

According to Sameena Ahmad, managing director of Alpen Capital, the regional retail industry is thriving because of a combination of increasing purchasing power, a growing expatriate population and an expanding tourism and hospitality sector.

The investment bank expects Qatar to account for around 11 per cent of the total spend by 2016, only slightly less than its market share at the moment and still some way behind the two largest markets of the UAE and Saudi Arabia. Growth in retail sales in Qatar will also be slightly behind the regional average, at 6.7 per cent over that five-year period, says Alpen Capital, behind Kuwait at 7.1 per cent and Saudi Arabia at 9.5 per cent.

Taken together, the planned growth in retail outlets mixed with the anticipated rise in consumer spending means there should be opportunities for retailers already in the country, but also new entrants.

UK-based consultant EC Harris ranks Qatar 11th out of 40 countries around the world in terms of its attractiveness as a retail market. Compared with its regional peers that puts Qatar behind Saudi Arabia, which in 8th place, but ahead of the UAE in 15th, Morocco in 25th and Egypt in 30th.

In its Retail International Programme Expansion index, released in September last year, EC Harris identified those three GCC states as places where “quick wins” could be made. It noted that Qatar’s World Cup in 2022 also represents a chance to showcase brands to a large global audience.

Rental pressure

However, all this growth may yet prompt some problems. The surge of new developments means that retail rents in older malls may start to decline.

“Throughout Doha there are a number of new malls under construction of differing sizes and the completion of all these shopping facilities may have a depressing effect on retail rents,” says Camps of Asteco Qatar. “But we feel this will mainly affect developments that are perceived as secondary due to size, tenant mix and location.”

The government will also need to keep an eye on consumer price inflation. The IMF predicts this will remain under control in the near term, rising from 1.9 per cent this year to 5 per cent by 2018 – still far below the recent peak of 13.8 per cent in 2007. However, if consumer spending rises to meet the challenge of all these new shops, the figures may yet be revised upwards.