Across-the-board price corrections have made Qatar market "tenant friendly" in real estate sector, whose size is slated to see expansion fundamentally, according to KPMG, a global professional service firm.

In the residential market, the initial two quarters of 2019 saw a drop of 3.6% on the rental index against 4.5% in the last two quarters of 2018, mostly led by the villa category (catering to middle and affordable segments), which experienced an 8% drop in the rental index. The apartments witnessed about 6% decline in the first half of 2019, KPMG said its latest updates on Real Estate Index.

“Over the past two quarters, we have witnessed long term initiatives from the government to induce further growth in the economy. Introducing initiatives such as 100% foreign ownership across various sectors with no capital flow restrictions and negligible taxes and expanding the coverage of foreign ownership in real estate are expected to help market stabilise and grow fundamentally,” said Anurag Gupta, director and head of Real Estate at KPMG in Qatar.

The high-end residential segment (villas and apartments combined) witnessed a 5% drop in the rental index, particularly in the second half of 2018, the report said.

Finding that over the last two quarters, vacancy levels in catchments catering to affordable segment, especially, in the south of Doha have seen an upward trend, KPMG said this is primarily due to the movement of tenants to the central parts of Doha in search of better deals.

"Developers / landlords offering incentives such as one or two months rent-free period has become a usual norm. This has reflected positively in increasing occupancy and making the residential market, especially the high-end segment more affordable," it said.

On the office market, KPMG said, the vacancy rate along the major commercial districts of Doha could increase as new supply comes online and demand continues to remain subdued.

However, the initial two quarters of 2019 witnessed a marginal drop of 2% in the rental index against 5% in the last two quarters of 2018, it said, adding this is because a significant number of landlords are not bringing down the rentals as it becomes unviable to provide quality space at lower prices.

Many tenants can be seen negotiating further on the lease terms, particularly for ‘bare shell and core’ office space. This has resulted in owners agreeing to provide fit-outs based on the tenant’s requirement, but on the key understanding that the tenant guarantees a set lock-in period. Such discussions were observed primarily for large space commitments, according to the report.

Qatar’s retail market maintained "stable" for more than a year, however mall rentals have started to feel the heat particularly in the third and fourth quarters of 2018.

Observing that the segment experienced a 2% fall in the rental index and this is reflective of the increased supply along with growing vacancy in the market, KPMG said this decline has resulted in many anchor tenants negotiating lease terms and signing better deals as the competition in this sector intensifies.

"Over the short to middle term, we foresee the mall rental index to experience a further decline. However, this can be mitigated if upcoming new malls and the existing malls are able to attract and retain the leading franchisees and attract new retail brands," it said.

Related Story