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Posted On: 27 July 2009 11:58 am
Updated On: 12 November 2020 02:09 pm

Surplus office space triggers fall in rent

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The current lack of demand for office space is causing problems within the commercial real estate market in Qatar, according to officials who said that the situation should resolve itself in the future but that prices may not return to the high levels seen in the recent past. With the continued construction of numerous office block towers in the West Bay area of Doha, the supply of commercial rental space is beginning to outstrip its demand, meaning that landlords and agents are decreasing their prices in an attempt to offer the most competitive deals to potential clients. Gulf Times spoke to a number of industry officials who expressed their opinions on the current situation in Qatar, explaining that both the residential and commercial prices have seen slight drops in recent months, but that the market should recover in the near future. One agent who helps businesses during their startup period in Qatar, explained that more and more companies are choosing to come to Qatar with smaller operations to begin with, negating the need for offices taking up whole floors of office blocks. “Companies are opening offices here with only two or three people at first, and some of them even have one-man offices here in Doha,” she said, adding “they simply do not need to rent whole floors of tower blocks which is what is on offer here.” She claimed that there is now a huge number of tower blocks with available office space, and that the prices for commercial space in West Bay have decreased from around QR300 per sqm to around QR185 in some instances. Another expert who used to work for an agency that had to end its operations in Qatar because of the lack of business here, explained that there is a surplus of office space at the moment, but argued that certain “fundamentals” mean that the balance will be redressed and the market will recover in the near future. “Qatar has been a landlord’s market for many years,” he said, adding “but now office blocks need to be divided into smaller spaces – and this is already starting to happen in certain towers.” “However, the population growth in the country means that there will continue to be an undersupply which will mean that the market will once again start to grow,” he claimed, pointing to a statistic indicating that 457,000 people came to Qatar in one year as recently as two years ago. He also indicated that a number of companies who have offices in villas in the older parts of the city are simply waiting for the price of office blocks to become even more competitive before relocating to West Bay. “The market is driven by oil and gas,” he claimed, adding “as long as this continues, and major infrastructure projects continue, then there will be more people coming here in the future and the market will grow again,” he argued, adding “but the prices will not get back to where they were, as they were getting ridiculous.” Ron Hinchey, of renowned international real estate company Cluttons, explained that his company are currently in the process of expanding into Qatar, but that “uncertainty caused by the credit crunch and its effect on prices,” means that this is something which will not happen at this moment in time. Hinchey explained that he felt that Qatar’s residential prices were slightly overpriced, especially for an emerging market. “Usually, emerging markets keep prices lower to start with so investors can buy properties and then flip them for a profit,” he explained, adding “this brings the speculators into the market – and speculators drive emerging markets.” “However, in Qatar the original prices were too high and putting investors off,” he argued, adding that the current situation should mean that overall prices should drop slightly in the future, encouraging more people to repatriate to Qatar. Hinchey said that government efforts to support the Gulf economies will stand them in good stead for the future, and argued that the recent crunch and checking of house prices may actually be a blessing in disguise, as further increases in prices would have resulted in larger losses in the eventuality of the market correcting itself. “If the market had continued to grow until around 2012 as predicted, then any correction could have resulted in a catastrophe,” he argued, claiming that the mid-cycle correction has actually helped many people in the region in the long run. Hinchey indicated that the market in Dubai is starting to show signs of recovery, with prices increasing once more, but said that he hoped that prices throughout the region would not increase too much as this will produce fewer end-users, “and properties without end-users are essentially worthless.” According to the experts, the market in Qatar is currently experiencing something of a hiccup, but they seem confident that if the landlords pay more attention to the specific market requirements, and the number of people and companies moving to Qatar continues to grow, then the real estate sector will certainly recover in the future - but hopefully with less inflated and more affordable prices.