BMI View: Buoyed by a strong economy, the outlook for Qatar's real estate sector is bright. The prospects for the retail sector in particular are positive, with rising incomes, affluence and spending supporting retailer demand for new space. New malls that are opening should provide retailers with high quality space and provide consumers with a more enjoyable and convenient shopping experience. The office sector too is likely to see further growth in the medium term and new buildings under construction should provide occupiers with Grade A space and command higher rents. Overall, we expect Infrastructure and construction projects in the run up to the FIFA World Cup in 2022 to benefit all three real estate sectors.
Qatar's economy is set to see strong growth in the medium term. An affluent population, rising private consumption, major infrastructure investment, growth in non-oil sectors and an expanding construction sector will all contribute to the economic performance over the next several years, with GDP forecast to increase by 5.8% per annum on average over the period 2015-19.
The real estate sector will be a beneficiary of this growth. The ongoing infrastructure developments in preparation for the World Cup and the vision 2030 project should result in growth in the commercial real estate sector especially in Doha and we believe this will provide a positive backdrop for the office sector in the medium to long term, resulting in higher occupier demand. Significant construction is taking place, which will improve the quality of space on the market and could result in new benchmark rents being established. Around 2mn sq m of office space is in the development pipeline and scheduled to be completed by 2019. Although this will bring forth modern space, there is also a risk that the market may become over-supplied, particularly if economic growth turns out not to be as robust as it is currently anticipated.
Of the three real estate sectors, retail is perhaps the one where the future is most promising. Growing demand for space from international retailers has already led to significant expansion in the mall segment, with a number of new malls opening this year and more in the pipeline over the next two years. Around 1mn sq m of retail space is currently at various stages of design or construction and may be opened by 2019. The success of new malls to achieve pre-lets before completion is a testimony to much needed modern space. But this will also create polarisation in the market, where the new malls benefit from high occupancy rates and rental growth, while older malls see the opposite unless they refurbish, restructure and reposition their offering.
The industrial real estate market in Qatar currently lags the other two sectors and is dominated by owner-occupation rather than leasehold. We believe that prospects for the sector are positive in light of significant transport infrastructure improvements that are happening to boost the rail, road, air and port capacity. The external sector is expected to recover from its weak position this year and with trade and freight both increasing over the medium term, we believe the need for warehouse facilities in proximity to transport hubs will grow.
Investment yields are expected to remain stable over the next five years. This combined with rental growth should encourage greater interest in the real estate sector investment. Investment demand is likely to continue to be dominated by domestic and regional investors in the short to medium term, but there is potential for greater international interest, provided political stability returns to the region as a whole and the real estate sector in Qatar continues to mature and develop over time.