Major mall openings in Qatar significantly expand the retail sector

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Qatar’s organised retail sector benefits from the country’s high levels of wealth and is currently going through a period of rapid expansion, with gross leasable area (GLA) expected to nearly double in 2017 alone thanks to a strong pipeline of mall openings. In April 2017 two of the largest of these, Mall of Qatar and Doha Festival City, opened their doors.

However, the openings come at a time of lower oil and gas prices and regional disruption due to the ongoing economic blockade, imposed in June 2017 by Saudi Arabia and several other Arab nations, along with a population that has seen a levelling out in terms of growth. This should generate greater competition for shoppers, potentially giving rise to a clearer demarcation between premium and second-tier facilities in the coming years as more retail area comes online.

Strong Market

Qatar had a GDP per capita of $59,330 in 2016, the highest in the GCC region and the sixth-highest in the world, according to World Bank data, despite the figure having fallen from $66,346 the previous year due to the decline in international hydrocarbons prices. Such high levels of national wealth have helped to underpin the development of a strong retail market, and the country registered total retail sales of $12.4bn in 2015, according to AT Kearney, which ranked the country as the fourth-most-attractive retail market in the world in its 2015 Global Retail Development Index, the latest edition in which Qatar was included.

Investment bank Alpen Capital reported that Qatar’s wholesale and retail trade grew at a compound annual growth rate (CAGR) of 11.7% between 2012 and 2016 to reach $15.3bn, or 10% of GDP. Between 2016 and 2021 Qatar’s retail sector is expected to see a CAGR of 4.4%, the third-fastest in the GCC, behind Bahrain and Saudi Arabia, which are expected to see CAGRs of 5.5% and 5%, respectively. Such trends are also expected to weather the current blockade in the long term. “We have confidence that the retail market will rise again once the situation in the region improves,” Adel Ali Bin Ali, chairman and president of retail and distribution firm Ali Bin Ali Group, told OBG. “The current status quo affects not just the movement of goods and services, but also that of tourists and foreign businessmen. As a positive, stable outlook returns, so too will retail sales.”

Organised Retail Space

Available retail gross leasable area (GLA) stood at 838,000 sq metres in 2016, up from 643,000 sq metres in 2015, according to figures supplied by DTZ Qatar, the Qatari branch of the international real estate firm. Supply has more than doubled over the past decade or so, from 405,000 sq metres in 2007. Prior to 2016 the country’s largest organised retail space was City Centre Mall, located in the West Bay area of Doha. The development increased its GLA by 10,000 sq metres in 2015 to a total of 140,000 sq metres. The Lagoona Mall, which includes the department store Fifty One East, also boasted more than 100,000 sq metres of GLA, at 128,000 sq metres, as did the Villagio Mall in Al Rayyan, with 125,000 sq metres.

Latest Additions

Both 2015 and 2016 saw major openings in the organised retail segment, starting with the soft opening of the 160,000-sq-metre Gulf Mall in April 2015. The Al Gharafa-based facility has more than 200 shops as well as a cinema, and was the largest mall in the country at the time of opening.

However, it was overtaken in December 2016 with the soft opening of Mall of Qatar. The facility, which had originally been due to open in September 2015, is 500,000 sq metres in area and spread across three levels, with a total GLA of 256,000 sq metres – 99% of which had been leased prior to its opening – and was built at a cost of $1.2bn. It features 500 retail stores and kiosks, the 201-bed five-star Curio Collection Hilton hotel and a 19-screen cinema. The mall also boasts 115 food and beverage outlets. Its backers estimate that it will receive an annual footfall of around 20m customers. The mall is located west of Doha in the Al Rayyan area, 29 km by car from the city centre and adjacent to the site of Al Rayyan football stadium being built for the 2022 FIFA World Cup. It will have its own stop on the Doha Metro, the first phase of which is due to STRONG PIPELINE: While organised retail space had grown steadily in previous years, total GLA is due to shoot up far more rapidly in 2017, according to DTZ, to 1.6m sq metres by the end of the year, representing a near doubling in the space of 12 months. The increase is a result of the opening of four new malls in the country this year, Al Hazm mall in Markhiya, Al Mirqab Mall on Al Mirqab Street, Tawar Mall in Duhail, Doha Festival City in Umm Salal and North Gate Mall in north Doha. Three more are set to open in early 2018, Doha Mall in Abu Hammour, the open-air (but air-conditioned) Katara Plaza in Al Qassar and North Gate Mall in north Doha.

The 433,000-sq-metre facility will have a GLA of 240,000 sq metres when fully opened, and is located north of Doha. It will host around 400 retail units, including the largest Monoprix hypermarket in the world, four entertainment parks including a ski park, an 18-screen cinema, and outdoor running and mountain-biking tracks. An Ikea opened on the same site in 2013, and an Intercontinental hotel due in 2019, according to local media reports, is also planned as part of the site’s third phase of development.

Key Players

Total organised retail GLA in Qatar will rise again during 2018, to 1.8m sq metres, thanks in large part to the scheduled opening of mixed-use development Place Vendôme in September of that year. The entire development will be 1m sq metres in size and will have 230,000 sq metres of GLA, shared by around 500 shops. The mall, which will eventually be connected to the forthcoming Doha Metro, will also be home to four hotels, two of which – a serviced apartment hotel and a five-star facility – will be operated by Meridien Starwood. The three-level project, which is being built at a cost of $1.3bn by United Developers, will be located in Lusail City, a new master-planned city situated north of Doha that is planned to eventually accommodate around 450,000 people. As of December 2016, 70% of the project’s retail space had been leased. Another facility, the 60,000-sq-metre Marina Mall, is currently scheduled to open in Lusail City, at the end of 2019.

Oversupply Risk

The rapid increase in organised retail GLA comes at a time when Qatar’s previously rapid population growth is levelling out – the population grew from 1.6m in 2010 to an estimated 2.7m in 2016, according to IMF figures, but is forecast by the fund to remain more or less stable over the next five years, as lower oil prices have led to a number of job cuts and reductions in benefits for expatriates living there. “The very rapid increase in GLA is not in line with the departure of certain sectors of the population, which will represent a substantial challenge for malls and retailers,” Joerg Harengerd, director of City Center Doha, told OBG. “New arrivals have also tended to come from other sectors, so the expatriate profile is changing towards one with slightly lower purchasing power, and many people are coming here with the intention of saving rather than spending money.”

Despite this, Mark Proudley, director of DTZ Qatar, told OBG that there was some justification for the sector’s rapid expansion. “There has historically been an undersupply of retail space in the Qatari market compared to other countries in the region,” he said. Indeed, according to a 2015 report from Alpen Capital, Qatar had a little over 200 sq metres of modern retail space per 1000 people, compared to 1380 sq metres for Dubai (the highest level in the world). “The market in Dubai is supported by high levels of tourism, which Qatar doesn’t have, but despite this fact the Qatari market has historically been undersupplied.”

However, rising GLA would create a gulf in prospects between premium and second-tier malls. “From a real estate perspective, the retail market hasn’t really matured as much as other market sectors, and there is a substantial variance in rents and occupancy levels between higher quality malls with better parking, retail mixes, leisure facilities and so on, and the secondary market,” Proudley told OBG. “While the premium-tier establishments will continue to demonstrate strong performance, we will likely see rents start to fall in the second-tier market in the coming years.”

Sean Kelly, project director at Place Vendôme, a mixed-use luxury development in Lusail City, echoed this prediction. “The value chain will be rebalanced because new malls coming on-line keep raising the bar in terms of their offering, diversification and customer service. It is likely that a hierarchy of malls will develop across the market,” Kelly told OBG, citing a similar dynamic that has already occurred in Dubai.

Harengerd told OBG that some existing malls could even face closure as a result of the oversupply – or turn into outlet malls, of which he said there was a shortage in the country, in order to survive – and argued that location, and in particular the population density in malls’ respective catchment areas, would play a particularly determinant role in which facilities prosper and which struggle as competition intensifies. “Malls located in areas with current or projected large populations, such as West Bay and Lusail City, will have a significant advantage, as people living in Qatar like convenience and will go to the nearest mall that they are satisfied with,” Harengerd told OBG. He said that facilities with strong food and drink concepts would also be more likely to flourish. “Food always works well if you have a good concept, as people like to spend money eating out here, and this will be what makes the difference for some malls. Most tend to be fairly similar in terms of fashion stores and groceries for example, so dining facilities are often the deciding factor as to where customers choose to go,” Harengerd said.

Proudley added that the effects of the anticipated oversupply were likely to be felt in the market towards the end of 2018 or 2019. “Quite a lot of new malls are due to be completed soon, but many are already a year or two behind schedule. Furthermore, most retailers have long-term commitments so can’t just shut down overnight, so pressure on rents will not be felt immediately,” he told OBG. While tourism levels are set to rise, boosted by factors such as the World Cup, industry figures say this appears unlikely to be enough to counteract the increased pressure expected in the sector. “There is a high level of investment going into tourism infrastructure and new hotels,” Proudley told OBG. “However, the regional market is very competitive and Dubai is already well advanced.” Proudley said that the Qatari tourism market is likely to grow in coming years but not to an extent that will drive major growth in the retail sector. “Tourism is growing, but people are not coming here primarily to go to the beach and spend large amounts in shopping malls,” Harengerd said.

E-Commerce

Online retail remains underdeveloped in the country. “E-commerce is not very prevalent yet,” Proudley told OBG. He noted that the small size of the country meant that there was limited need for delivery services. “Local customers are looking for a high-end customer service experience, which the internet cannot provide,” said Kelly by way of further explanation for the sector’s failure so far to thrive. The authorities are, however, taking a number of measures aimed at boosting the development of the segment, including a national e-commerce strategy launched in 2015, and some observers expect online shopping to begin to develop more rapidly soon.

Nevertheless, while the online retail segment is set to develop, local retailers believe that this will not threaten the pre-eminence of malls. “E-commerce is continuing to grow in importance, but this will not impact the mall culture. Customers in the Gulf are looking for high-end customer service, and this is especially true in Qatar,” Kelly told OBG. “The internet cannot compete in this sense. The main challenge for retailers is to ensure that they are able to recruit and train quality human resources personnel.” The idea that e-commerce will not overtake traditional shopping malls in Qatar is echoed by other stakeholders. “The traditional distribution channels for retailers will remain shopping centres and malls, despite a constant increase in online shopping,” Kareem Shamma, CEO at Doha Festival City, told OBG.

Outlook

Retail supply is set to increase dramatically in the coming years, leading to a risk of oversupply and putting pressure on smaller and less prestigious second-tier malls in particular. Events in the country such as the 2022 FIFA World Cup and the construction of new neighbourhoods in Doha, notably Lusail City, will, however, provide new opportunities for the sector to grow. “The coming years will show that the well-established, customer-centric retailers who focus on acquiring the right location, size and tenant mix, along with robust management, are the ones who will stay ahead of the game,” Daniel Lattouf, mall manager of Lagoona Mall, told OBG.

Retail will remain tied to hydrocarbons prices to a large extent, and while the rapid capacity expansion set to take place over 2017 seems unlikely to repeat itself for the foreseeable future, high levels of wealth will nonetheless help to support the continued existence of a successful retail sector in the coming years.

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The Report: Qatar 2017

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