Build it and they will come: Tourism development plans are creating opportunities for retail, hotel and infrastructure contractors

Tourism has been a centrepiece of Qatar’s economic diversification plans for the past few years. The sector has come far, but it still accounted for no more than 1% the country’s GDP in 2013, in part because of its small size compared to larger sectors like energy and real estate. Still, the Qatar Tourism Authority (QTA), the state agency responsible for guiding the sector’s development, is working toward tripling tourism’s share of GDP to 3%, its chairman, Issa bin Mohammed Al Mohannadi, told journalists in October 2013. As part of these expansion plans, the QTA has been working with partners in the private sector to build up attractions around the capital. Major hotel and retail construction is set to be complemented by a forthcoming cruise terminal.

Gulf Hospitality

Hotel construction had been gaining momentum previously, but with the state’s successful bid for the 2022 FIFA World Cup, groundbreaking ceremonies are becoming increasingly common. Leading up to the event, Qatar has plans for 21 new hotels to meet its FIFA target of 50,000-60,000 rooms, although part of this total will likely be met by other means, such as floating hotels. In 2012 alone, three major international hotel companies – St Regis, InterContinental and Hilton – opened their doors in Doha, while other brands such as Shangri-La, Kempinski and Waldorf Astoria are set to follow suit before 2016 (see Tourism chapter).

While industry estimates predicted a fall in revenues due to increasing supply, indicators have been positive. Revenue per available room rose 4.41% year-on-year (y-o-y) in the third quarter of 2013, according to the QTA. The country’s four- and five-star hotels (which make up over 80% of the market) led the way. Their revenues likely benefitted from higher room prices, which rose 8.82% compared to the same period in 2012. Revenues increased as well, rising 13.8% y-o-y to QR703.1m ($192.6m). While the steady stream of new supply is making it more difficult to keep rooms filled, occupancy rates actually grew from 50% to 57% during the third quarter, up 5% on the same period in 2012. These gains were made despite the release of 600 new rooms.

Shopping Spree

Retail construction has been growing in step with that of hotels. The country’s retail trade grew an average of 14% per year to just over QR39bn ($10.7bn) between 2008 and 2013, supported by Qatar’s growing population and high GDP per capita, DTZ Qatar wrote in its second-quarter 2013 property report. While Qatar is already home to several large-scale shopping malls, including Villaggio, City Centre and Landmark, new projects on the way are set to raise standards. The largest of these is Doha Festival City (DFC), which will include 260,000 sq metres of gross leasable area and over 500 retail units. The project lead is Bawabat Al Shamal Real Estate Company (BASREC), a joint venture between UAE-based Al Futtaim Group, Qatar-based Aqar Real Estate and Qatar Islamic Bank. Sitting just north of the city centre on Al Shamal road, DFC is home to the country’s first IKEA, an $82.4m branch of the Swedish home-goods store that opened in March 2013.

A team including EC Harris, Al Futtaim Group and Mace completed the store’s construction in 12 months, on schedule and within budget.

As for the rest of DFC’s construction, the project’s second phase began in April 2013, a month after IKEA’s grand opening. Planners say the mall should be ready by 2016. So far, demand indicators are positive. As of May 2013, 180 of around 500 units were leased, Kareem M Shamma, the CEO of BASREC’s and DFC, said at a press conference. There has also been positive news on the DFC’s financial front. In June 2013 BASREC concluded a 10-year, dual-tranche financing agreement worth QR3.7bn ($1bn). The facility, which consists of conventional and Islamic components, is Qatar’s largest private sector syndicated transaction to date. Not far from DFC, construction on the North Gate Mall is also under way. The project, with an estimated total cost of QR1.5bn ($410.9m), is set to have just under 100,000 sq metres of commercial space and 64,000 sq metres of office space, according to US-based Callison, the project’s designer. Habtoor Leighton Group, based in Dubai, won the $288m contract for the development’s first phase. Construction started in 2011 and is set for completion in 2014, according to the contractor.

The Mall of Qatar has also broken ground. Expected to open in 2015, the complex is set to host 400 shops occupying 162,000 sq metres of gross leasable area, as well as a five-star hotel. Project costs are estimated at QR3bn ($821.7m). In October 2013 Qatar-based UrbaCon Trading and Contracting, which is managing construction, said it was 30% complete. The following December the mall awarded Dubai-based Drake & Scull’s Qatar subsidiary a QR400m ($109.6m) contract for mechanical, electrical and plumbing work. DFC, North Gate and Mall of Qatar are just three of the retail projects on the way. With others like the Tawar Mall, Al Gharafa Mall, Markhiya Mall and Marina Mall also in the pipeline, retail construction activity is gearing up.

New Port Of Call

While hotel and retail projects could expand the state’s leisure and shopping tourism offerings, these new hotels and malls will need to draw on a larger pool of customers. To that end, tourism infrastructure is set to be critical, increasing Qatar’s ability to welcome more visitors to its shores. At the December 2013 Seatrade Middle East Cruise Forum in Abu Dhabi, the QTA announced that the Doha Port would be repurposed as a passenger terminal for cruise ships. Although the QTA gave no timeline for the project, which has an estimated price tag of $7.5m, the transformation is likely to take place only after the New Port Project, 30 km south of Doha, is complete. At that point, the Doha Port could cease commercial operations and be repurposed for cruise ships.

The QTA sees high growth potential in cruise tourism, since the Gulf region as a whole captures only about 1% of the global cruise market. “The presence of a home port for cruise lines would enhance not only Qatar but also the Gulf’s position as a tourist destination and promote economic diversity,” Al Mohannadi said at the conference. “We are aware of the importance of the cruise industry and are working towards making significant investments in infrastructure to meet the opportunity and drive demand in the region.” The QTA chairman also pointed to more cooperation among the UAE, Oman and other Gulf countries as a way to build up the region’s cruise offering. Dubai’s cruise port has been gaining momentum, and the authorities in Oman have indicated their interest in ramping up cooperation to promote cruise tourism.

The government’s tourism ambitions have translated into dozens of major projects in rapid succession. Retail space and hotel construction have been high priorities, since the authorities aim to increase shopping and leisure tourism. Infrastructure such as a new cruise terminal could help bring in more tourists to use these shops and hotels. For contractors, the government’s tourism ambitions are translating into more opportunities for contracts, sub-contracts and other work involved with these projects. In the run-up to the 2022 FIFA World Cup, the trick will be juggling so much construction at once and delivering projects on time. To that end, coordination between the government, the logistics sector and contractors is set to be key.