Qatar Real Estate Report Q1 2013

The Qatar Real Estate Report examines the commercial office, retail, industrial and construction segmentsthroughout the country in the context of a robust economy and an optimistic outlook for the constructionindustry, which support the expansion potential of the commercial real estate market.

With a focus on the principal cities of Doha, Al-Khor and Al-Wakra, the report covers the rental marketperformance in terms of rates and yields over the past 18 months and examines how best to maximisereturns in the commercial real estate market, while minimising investment risk and exploring the impactof the government fed construction boom on a market which is moving its way up the regional ranks.

The 2022 World Cup presents an obvious bonanza for the sector, although it stands to reason that muchgrowth will be organic Qatari demand, as flows of retail-minded tourists are more likely to be directed tothe UAE (primarily Dubai). Despite our in-country sources having limited information on vacancy rates,it is clear that the current effect of hosting the 2022 World Cup is an increase in demand and animproving construction pipeline.

Key Points

Qatar's short-term political risk profile remains among the most stable in the region. Despiteenjoying little in the way of democratic freedom, Qataris benefit from massive hydrocarbonwealth, which is spread generously across the country's native population, and enjoy the highestper capita GDP in the world. A small population - and one without much inclination to protestagainst the government - will keep the country insulated from large-scale public unrest in theimmediate term.

Despite disappointing data for 2011, we remain positive toward Qatar's long-term constructionsector potential. Qatar's US$150bn infrastructure programme and its development plans for the2022 World Cup and beyond continue to offer opportunities to the global construction sector.However, we note that owing to long lead times, the majority of the projects have yet to take off,meaning the impact will not be notable on construction sector growth until into 2013, and onlymake a considerable impact beyond 2016. Furthermore, we note the potential risk of decreasingmargins owing to continuously rising construction costs in anticipation of a surge ininfrastructure investment.

Following the release of revised construction industry statistics by Qatar's Central Bank, wehave revised down our forecast for growth in the country's residential and non-residentialconstruction industry. The revision comes as two costly non-residential projects - Lusail Cityand Doha Festival City - reach significant milestones in their development, and we thus notethat we see our downgrading as more reflective of a lag in construction timeframes than of adampening of conditions. We therefore believe that fundamentals for growth in the sub-sectorremain strong, but as we have previously highlighted, development will likely be slower thanpreviously expected.