New supply caters to Qatar's high-end retail market

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The combination of high disposable income, a growing population and rising tourist arrivals makes Qatar an attractive market for retailers of all segments. On the back of real GDP growth of 3.7% in 2015, private consumption was expected to have expanded by 9.5% in 2015, according to BMI Research. This surge is projected to continue, with household spending forecast to increase by an average of 15.8% per annum through to 2020. Such momentum largely depends on broader growth in retail trade, hotels and restaurants, for which combined sales rose by 10.47% to reach $15.82bn in 2015, or 9.2% of GDP, according to figures from the Ministry of Development Planning and Statistics (MDPS) and the Qatar Central Bank.

With these conditions in mind, developers have been investing heavily in new outlets. As of the first quarter of 2016, the amount of new retail space in the pipeline was more than 1.3m sq metres, spread between 12 malls at various stages of design or construction, according to DTZ, a real estate services firm. If completed on current deadlines, these projects would boost supply by 220% by 2019. Yet the market is not without potential concerns. The construction pipeline has grown so large it has led to talk of oversupply in the longer term. “Rather than being developed to meet demand, these retail malls are being developed in anticipation of continued economic growth, high increases in population and a significant expansion of the tourism industry,” Johnny Archer, associate director of research at DTZ, told OBG. “While we know what the pipeline for new retail supply is, what is less certain is whether demand will be generated to the degree that some are hoping for.”

Further potential challenges exist in the need for differentiation in a highly competitive global market; maintaining quality assurance as consumer expectations increase; and the effects of disruptive technology as some areas of retail move online. Yet the sector’s strong outlook seems relatively clear. According to a 2015 report by investment bank Alpen Capital, Qatar’s retail sector has the brightest growth prospects in the region, with sales growth expected to exceed the GCC average of 7.3% to post a 9.8% per annum increase from 2013 through to 2018. “There is room for the sector to grow from existing levels,” said Archer. “Occupancy for retail space is high, all the main outlets are full and some of the new malls coming on-line are doing well in the pre-lets.”

Wealth & Demographics

Driven by gains from the oil and gas resources it has exploited since the early 1970s, Qatar’s per capita GDP exceeded $100,000 in 2015. The number of households with more than $1m in private wealth has the fourth-highest density in the world, at 116 for every 1000, below only Switzerland (135), Bahrain (123) and Luxembourg (120), according to Boston Consulting Group (BCG). This cohort grew by 3.7% in 2014, with BCG forecasting it will rise by a further 4.1% by 2019. Demographic trends are similarly favourable. Large influxes of foreigners over the last two decades – fuelled by several waves of heavy, labour-intensive construction – have seen the population more than quadruple, from just over half a million in 1995 to 2.53m in March 2016. This has greatly broadened the consumer base and boosted middle-class spending, a trend that shows no signs of slowing, with the MDPS recording 8.93% population growth in 2015. Qatar’s population is about 85% non-Qatari and 75% male, reflecting the dominance of single males among foreign workers, mostly from India, Nepal, the Philippines, Egypt and Bangladesh.

Spending Patterns 

The retail implications of this trend are highlighted in an MDPS survey on household finances, published in 2014. This report, using data on 3723 families from FY 2012/13, showed an average monthly income of QR88,217 ($24,200) for Qatari households and QR24,415 ($6700) for foreign ones, a spread partly explained by differences in average household size (8.7 and 4.3 persons, respectively). Expenditure also varied widely, with Qatari households spending QR49,663 ($13,600) per month on average, compared to QR18,084 ($4970) for non-Qataris. Of this, the two groups spent similar proportions on food (16% and 15%, respectively), but ratios diverged more sharply in categories like durable goods (9.8% and 3.3%), clothes (5.7% and 3.4%) and personal care (5.1% and 2.2%). Significantly, Qataris receive many key services for free, including utilities, health care and education, leaving more disposable income for non-essentials. Consumer prices have remained stable, with the exchange rate pegged at 3.64 riyals per US dollar and inflation forecast at 1.5% in 2016, down from 1.9% the previous year.

Another key source of retail spending is tourism. Some 3m foreign visitors came to Qatar in 2015, spending QR34.1bn ($9.4bn). By 2026, arrivals are forecast to total 6.14m, with spending to rise to QR48.6bn ($13.3bn), driven by plans to develop the country’s cultural offerings and cruise industry.

Business Climate

The environment for retail is favourable on many other fronts as well. Under its National Development Strategy 2011-16 – a six-year component of Qatar National Vision 2030 aimed at diversifying the economy away from hydrocarbons – the government has been investing billions of dollars in roads, ports, power plants and other infrastructure, all of which have facilitated growth in retail. In AT Kearney’s “2015 Global Retail Expansion Index”, analysing the factors for successful retail investment, Qatar ranked fourth out of 30 countries in 2014. The report remarked that the quantity of retail space coming on-line in the coming years is a boon to a market previously “limited by insufficient retail supply”.

Another driver is international events. Doha regularly hosts a wide range of high-profile meetings and conferences each year, drawing business tourism that feeds into retail sales. Demand is also expected to increase in the run-up to the 2022 FIFA World Cup, with tens of thousands of visitors set to arrive in Doha, which by that time should have a new metro system in place (see Transport chapter).

Snapshot 

The Qatari retail sector consists of three main sub-segments: organised retail, standalone showrooms and traditional shops – mostly at souqs, or public markets. Organised space in Qatar, dominated by malls, stood at 643,000 sq metres of gross leasable area (GLA) in early 2016, up from roughly 500,000 sq metres in 2010 and shared across 14 major shopping centres, according to DTZ’s “Property Times” report. Showroom stock stands at over 800,000 sq metres, thanks to the Salwa Road and Barwa Commercial Avenue developments. Traditional shops have a smaller but still substantial presence, especially those in central locations like the refurbished Souq Waqif in Doha, whose varied offerings are a key draw for tourists and locals.

In a separate breakdown by Al Asmakh Real Estate Development Company, unorganised retail made up 70% of available space in the country in 2014, followed by malls (18%), souqs (7%) and hypermarkets (5%), with the malls’ share set to more than triple to 65% by 2018 given the current construction pipeline. Al Asmakh calculated that Qatar had 285 sq metres of organised retail space for every 1000 people, compared to 1380 sq metres in Dubai and 1030 in the US, but forecast this would reach 900 sq metres upon completion of planned projects.

Retail rents have been rising even as supply increases. According to DTZ data, the monthly cost per sq metre of retail space jumped from QR150 ($41.2) to QR225 ($61.7) per sq metre in 2008 before inching upward over the next six years. Between January and September of 2015 it rose from QR250 ($68.60) to QR300 ($82.32). Prices effectively doubled in seven years despite a 38% rise in available space, indicating strong demand. Occupancy rates have also remained high, with most major malls fully tenanted, according to DTZ.

Main Players 

The three largest malls account for more than half of the current organised retail space. City Centre Mall, in Doha’s West Bay district, reached 140,000 sq metres after adding 10,000 sq metres in 2015, and hosts a range of outlets, from standard grocery stores to high-end luxury brands.

In Al Rayyan, Villagio Mall offers 125,000 sq metres and has a monthly footfall of over 1.5m people, drawn to its Venetian-style interior, luxury emphasis, 13-screen cinema and indoor entertainment area with gondola rides, Ferris wheel, go-kart racing, bowling, billiards and ice-skating.

Meanwhile, 160,000-sq-metre Gulf Mall had a soft opening in April 2016, with over 200 stores and a cinema. Landmark Mall, the fourth largest at 58,000 sq metres, opened in 2000 at half that size before undergoing expansions in 2005 and 2007-08. With architecture resembling a turreted Qatari castle, the single-floor building features luxury brands, a cinema and Circus Land amusement park.

The fifth-largest mall is Lagoona Mall, with some 53,000 sq metres of retail space, a European piazza square and more than 160 stores. Other shopping centres include Ezdan Mall, Hyatt Plaza, The Gate, Royal Plaza, Centrepoint and Dar Al Salam Mall.

Upcoming 

Most of the planned new retail space will come from three main mega-projects. The largest, Doha Festival City, will be Qatar’s biggest mall, with 244,000 sq metres of GLA upon completion in February 2017. It will feature an 18-screen cinema, a five-star hotel with 460 rooms and a 38,000-sq-metre entertainment area divided into four zones: a snow park, an Angry Birds theme park, a Virtuosity gaming area and Juniverse, a mock space shuttle for children. Owned by Bawabat Al Shamal Real Estate Company and being built under a QR1.65bn ($452.8m) joint venture of Gulf Contracting Company and ALEC Qatar, the project had been set to open in September 2016, but has been pushed back to February 2017. In an announcement to local press in April 2016, Kareem Shamma, CEO of Doha Festival City, cited issues with supporting infrastructure as the reason for the delay. The main tenants include hypermarket Monoprix, furniture retailer IKEA, department store Harvey Nichols and home goods vendor Ace Hardware, marking the latter two’s first foray into Qatar.

The second large-scale project is Mall of Qatar, a $406.1m mixed-use development set to open in October 2016. With 256,000 sq metres of GLA – and located near Education City – the mall will include a 19-screen cinema, five-star Hilton hotel, 16,000-sq-metre family entertainment area and a 5000-sq-metre glass-domed atrium with a stage. Qatar-based UrbaCon won the building contract in 2012. According to the general manager, Rony Mourani, construction was 75% complete as of September 2015 and space was about 90% leased, with tenants including hypermarket Carrefour and toy vendor Hamleys. In October 2015 Kuwaiti franchise operator Al Shaya secured 18,000 sq metres for 32 branded stores, ranging from clothing and cosmetics to cafes.

The third project is Place Vendôme, a $1.25bn, Parisian-style mall of 230,000 sq metres being developed in the Entertainment City district of Lusail. Scheduled to open in the fourth quarter of 2017 after tenant handover in the first quarter, the mall will benefit from major hospitality and entertainment components, flanked by almost 500 planned villas and three towers – two five-star hotels of 250 rooms each, and a serviced-apartment block. A central amphitheatre will include water and laser features for shows, alongside a 20-screen cinema, family entertainment centre and spa. Construction started in March 2014 and was 25% complete as of November 2015, with most of the groundwork done and vertical building begun, Sean Kelly, the project’s director, told OBG.

A further venue under way targets the ultra-high-end segment. Alhazm, aiming to open by the third quarter 2016 with a total area of over 100,000 sq metres, is designed after a 19th century Milanese arcade, with marble arches, a 40-metre glass-domed galleria, sculptures, water fountains, gazebos and 200-year-old olive trees from Sicily. “We’re catering to the Qataris who don’t shop in Doha, the ones who go to Paris and Milan to buy clothes and accessories,” Soufiane Ouazzani, Alhazm’s marketing manager said. The QR3bn ($823.2m) project is being developed by Qatar’s Al Emadi Enterprises.

Middle Market

Mid-market retailers are also expanding in Qatar. One supermarket chain, Al Meera, opened 10 new stores in 2015 in areas like Al Thumama, Al Wajba and Jeryan Njeima. As of April 2016 it had 47 stores in total, with plans to increase this number to 55 by end-2017. The Spar Group has signed an agreement with local distributor Qatar National Import and Export Co to operate its brand in Qatar, with the first supermarket set to open in December 2016 and plans to launch a further four stores by the end of 2017. Supermarkets and hypermarkets are relatively underdeveloped in Qatar, though sales GCCwide are expected to average 9.2% annual growth between 2013 and 2018, reaching $59.3bn.

Niches

Other retail segments also show strong performance. E-commerce, accounting for just 2% of GCC-wide retail sales, was set to reach $1.2bn in Qatar in 2015, and Qatar Duty Free has seen 2015 sales estimated at $350m-400m. Automobile sales, another key indicator, rose to almost 43,000 between January and May 2015, up 9% year-on-year.

Outlook

Retailers benefit from a favourable business climate, steady consumer spending and a broadly buoyant economy. “In terms of oil price declines and its impact on consumer spending, Qatar should be relatively insulated,” Shamma told OBG. “Qataris have one of the highest, if not the highest, spending powers in the Gulf so it ultimately shouldn’t affect retail spending in Doha. Additionally, the population is growing steadily year on year, which will continue to increase consumer spending in the Qatari market in comparison to some of its Gulf neighbours.” Over the next few years, competition for retail spending is likely to tighten in Qatar as new outlets open and options multiply. This in turn may put new emphasis on leisure and entertainment features, especially for Doha’s shopping centres.

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The Report: Qatar 2016

Retail chapter from The Report: Qatar 2016

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