Market surge: Locals can expect more choices than ever before

Thriving on the back of an expanding economy and surging population growth, Qatar’s retail sector is now set for further expansion. With a string of giant malls inching towards completion and existing stores undergoing refitting and refurbishing, the country looks set to establish itself as a major regional retail centre. At the same time, the year ahead in 2014 may also see Qatar make more of an entrance internationally, particularly at the luxury end of the sector.

Demographic Base

Driving much of the sector’s growth is Qatar’s population base, which is coinciding with a new wave of major projects getting under way. These new developments are taking place in the lead up to the 2022 FIFA World Cup and as part of Qatar’s broader National Development Strategy 2011-16 and Qatar National Vision 2030, both of which aim to boost diversification of the state’s economy away from its dependence on oil and gas. The service sector is thus seen as a long-term pillar of Qatar’s economic development and receives government encouragement, with retail forming a significant part of the services mix.

The local population has been significantly boosted by a major influx of expatriate employees who have arrived to work on these major projects. At the same time, the Qatari national population has been growing as well. Data from the Qatar Statistics Authority (QSA) and Qatar National Bank (QNB) show that between January 2009 and June 2013, the country’s total population grew 11.3%, rising from 1.6m at the start of that period and breaking the 2mmark during 2013. Of this total, QNB estimates that approximately 273,000 are Qatari nationals, with the rest – around 87% – being expatriates. QNB predicts a population of 2.2m by the end of 2014, and the average annual population growth rate for the next two years is expected to be around 10%.

Most foreign residents are young males, frequently engaged in the construction sector – which accounted for around 37% of all jobs in 2012. This skews the overall population to 75.7% male, 24.3% female. The QSA/QNB data also show that males between the ages of 20 and 39 accounted for 46.2% of the population, whereas females of the same age range made up 11.2% of the population. Approximately 71% of Qatar’s residents live in the Doha area, according to a census conducted in 2010.

Consumer Base

The majority of these expatriates are low- or semi-skilled and send their surplus disposable income home. Bader Abdullah Al Darwish, chairman and managing director at Darwish Holding, told OBG, “One of the factors that must be considered regardless of population growth is that the majority of growth is in the lower-earning segment, which do not spend their wages in the country.”

Yet there also exists a sizeable population of middle- and high-income, skilled and highly skilled expatriate employees who help fuel the sector. Indeed, Qatar was ranked as the wealthiest nation in the world per capita in 2012. At purchasing power parity (PPP) rates, Qataris had a per capita income of around $102,000 that year. There is also limited tax liability for many expatriates and Qataris, further increasing disposable income.

The sentiment among the expatriate community is good, with a 2013 HSBC survey showing 63% of expatriates in the country believed Qatar was improving, as opposed to a global average of 32%. Indeed, Qatar ranked 6th in the world in terms of expat satisfaction. An expanding, wealthy and confident population thus underpins a remarkable economic growth story. Real GDP grew 6.2% in 2012, with QNB forecasting 6.5% in 2013 and 6.8% in 2014, which bodes well for the retail sector.

This is especially so because compared to its peers, Qatar remains below par on its total available organised retail space. Global real estate advisor DTZ’s Property Times report in 2013 showed a total of 300 sq metres of organised retail accommodation per 1000 people in Qatar in the third quarter of 2012, compared to 1000 sq metres per 1000 people in Dubai. The European average, meanwhile, was 200 sq metres per 1000 people.

Consequently, according to DTZ, retail trade has averaged 14% annual growth over the last five years, reaching a value of some QR39.4bn ($10.8bn) in 2012. A 2012 Alpen Capital report was similarly optimistic, predicting that retail sales would expand by an average 6.7% per annum through 2016. Qatar would therefore maintain around 11% of the total GCC retail market, ranking it third among this cohort.

March Of The Malls

There are three main types of retail spaces in Qatar: malls, high street stores and local markets, known as souqs. Most recently, it is the first group that has prospered the most, for a number of reasons. First, the layout of a mall is much more familiar to the international customer base of an expatriate-dominated population. Next, there is the issue of the local climate – with outdoor temperatures sometimes in the 40°C-plus range, air-conditioned malls become all the more attractive over high street shopping and open-air souqs. Finally, as Doha expands, new road works and other infrastructure projects often block access to high street shopping, again rendering malls more convenient.

The souq layout, meanwhile, has had some revival as traditional markets have been upgraded, like Souq Waqif, which caters to tourists and locals. However, this provides more of an entertainment and dining hub than a day-to-day market for many residents.

For Lease

As such, with regard to mall and retail space on offer, DTZ estimates that the total gross leasable area (GLA) in Qatar for organised retail malls was around 510,000 sq metres at the end of 2012. This figure had risen to 550,000 sq metres by the end of the third quarter of 2013.

Two malls – City Centre and Villaggio – alone accounted for some 46% of this total. The former, opened in 2001, is one of Doha’s best established shopping centres and is owned by Qatar’s Aamal Company. With four retail floors, it has some 120,000 sq metres of GLA. Since 2004, Germany’s retail property management firm ECE has managed the centre, and the firm is currently moving forward with a major revamp of the property. The centre hopes to capitalise on its downtown location in West Bay.

Meanwhile, the next major mall, Villaggio, has a Venetian theme, including gondolas and a canal, and is located in the Aspire Zone, the sports city in the Al Waab district of the capital. The mall has bounced back from a tragic fire in May 2012, an event that gave impetus for much stricter safety codes in all of Qatar’s retail outlets. Opened in 2006, it is a single-level retail space, with an adjoining hotel, the Gondolania theme park and the Hyatt Plaza mall. Villaggio has a mall area of 125,000 sq metres, providing some 50,000 sq metres of shopping, including 15,000 sq metres of luxury brands, and 3300 parking spots.

Headline rental rates at both malls, according to DTZ, range between QR225 ($61.63) and QR275 ($75.32) per sq meter per month for a standard unit.

Other Retail Spaces

Another important mall is The Pearl, the high-end, mixed-use complex built on artificial islands off the Doha coast. This was also the first project where foreigners could own apartments, making it a destination for expatriates of higher incomes. Thus, the retail space there is oriented towards the luxury end of the market.

Elsewhere, the Lagoona Mall in the West Bay Lagoon residential development – a Darwish Holding project – adds to Doha’s retail sector some 160 stores, many of which are also high-end. Another well-known mall is The Gate, owned by Salam International, which added second and third floors throughout 2013, with a total of 43 luxury brands now established on its ground and first floors. Other key malls include Landmark Mall, located in Al Gharafa; The Mall on D Ring Road; Emporium on C Ring Road; the Royal Plaza on Al Sadd Street; the Salam Plaza on Maysaloun Street; and Centrepoint on Jawan Street.

On The Rise

These established players have now been joined by a number of other rivals, however, with still more malls in the pipeline. According to DTZ, as of the third quarter of 2013 there were nine more malls under construction, set to add a total of 1m sq metres of extra GLA by 2016.

In April 2013 the Ezdan Mall opened in Al Gharafa, and the Markhiya and Gulf malls were also scheduled to open their doors in 2013, but unveilings have been since pushed to 2014. These developments should boost the total GLA in Qatar to some 685,000 sq metres once complete. In the pipeline too are Doha Festival City and the Barwa Commercial Avenue, an 8.5-km stretch of mixed-use, retail, residential and office space that also promises to add 640 new retail blocks to the city’s stock. The Avenue will also expand showroom space in Doha by around 250,000 sq metres, according to DTZ, with more than 60% of this already having been committed to by retailers in the third quarter or 2013.

Doha Festival City, meanwhile, is located 15 km north of downtown and promises 260,000 sq metres of GLA on completion. Being owned and developed by Bawabat Al Shamal Real Estate, this in turn has shareholders that include the UAE’s Al Futtaim Real Estate Services, Qatar Islamic Bank and several other Qatari outfits. The entire complex is scheduled for completion by the fourth quarter of 2014.

Another major project, The Mall of Qatar, is set to open in late 2015. Located in Al Rayyan, close to the Al Rayyan FIFA World Cup stadium, the new mall will include 195,000 sq metres of leasable space. Further down the road, retail is set for more major expansion outside Doha with the construction of Lusail City. This vast new conurbation, being developed by Qatari Diar, is to be home to some 200,000 people. It will also contain at least two major new malls. One of these, Marina Mall, is to have 57,605 sq metres of GLA on three levels, with an additional basement hypermarket.

At the same time, there are plans to add smaller, neighbourhood malls to many districts of the expanding city. Key here is the Qatari retailer Al Meera Consumer Goods, which in November 2013 announced plans to build seven new shopping centres of this type. Three of these will be built by Al Muftah Trading and Contracting in Rawdat Ekdeem, Al Azizia, and Zakhira, while the remaining four will be built by Al Alia Trading and Contracting at Al Wajba, Muaither, Al Wakra and Al Thumama.

Hypermarkets

Anchoring Doha Festival City is a giant IKEA store, a move that both continues the usual pattern of Qatari malls – which are held by one big anchor – yet moves away from the usual practice of that being a hypermarket. Carrefour often provides this base, as the French chain has long had a presence in Qatar, as has its rival, Giant. Compared to its peers, however, the hypermarket segment is relatively undeveloped. There is a strong local player in this segment, however, in the form of Al Meera, and the good fundamentals of the market have attracted regional players like the UAE’s LuLu.

According to a 2012 Alpen Capital report, non-food items are the biggest contributors to sales by value in the hypermarkets. Given that the local manufacturing and food processing sector is small, imports also account for the vast majority of products on offer. This makes for a major network of suppliers, fanning out from the super- and hypermarket segment. In the fast-moving consumer goods (FMCG) segment, companies such as GIE, Al Jassim, and the Ali Bin Ali Group supply a range of leading brands, while Doha Drug Store is known in the pharmaceutical retail distribution segment. The arrival of more international giants has also introduced a new level of quality and competition in the FMCG sector.

Taken together, Alpen predicts that the Qatari super/hypermarket segment should see its retail sales grow 9.4% on average between 2011 and 2016 – again, giving it the third-fastest growth in the GCC, after Saudi Arabia and Kuwait.

Luxury

With such high-income levels, Qatar is in many ways an obvious market for luxury goods. However, ironically, world-beating per capita incomes can be both a blessing and a curse for the local high-end retail sector. Very high-net-worth individuals may not shop locally, as many Qataris in this income bracket travel to other global capitals to buy high-end brands and items.

Indeed, those serving the high-end retail segment are aware that there is a status to buying items in Europe and bringing them back to Qatar. Nevertheless, nearly every luxury brand has a presence in Qatar, with The Pearl a focus for many, such as Hermès, Emporio Armani and Yves Saint Laurent.

In 2013, Qatar Luxury Group launched the luxury fashion brand, QELA, with the first store opening at The Pearl and a further retail store expected for Paris in 2014, with plans to offer luxury couture from Qatar in the centre of the global fashion industry. The company has hired some exceptional talent for this endeavour, manufacturing its goods in high-quality workshops in Europe and recently taking a controlling interest in French tanners, Le Tanneur et Cie. Many in the luxury trade will be following its progress closely, as the fashion house leads an important effort in expanding Qatar as a brand, as well as in developing its own business.

Airport

Another area likely to see major growth in the year ahead is airport retail. Set to open in 2014, the new Hamad International Airport (HIA) will have an initial passenger capacity of 29m, eventually expanding to 50m. HIA will also add some 40,000 sq metres of retail space and passenger lounges to Doha’s GLA total in its initial configuration, with this set to expand as HIA develops. Duty-free retail has seen significant growth in Qatar recently, particularly at Doha International Airport (DIA), which saw 21.16m passengers in 2012 and an estimated 23.13m in 2013. According to Alpen Capital, DIA saw 20% growth in retail sales in 2011, year-on-year. Qatar Duty Free (QDF), a subsidiary of Qatar Airways, has 2500 sq metres of retail space and is currently undergoing a $2m refurbishment.

Going forward, the effect on retail of the new airport will have an impact beyond merely GLA and sales. A much enhanced passenger capacity for Qatar dovetails with plans to expand the hospitality sector, bringing in more tourists, notwithstanding the expected wave of international sports fans in 2022. Indeed, this could provide a significant extra customer base for Qatar’s retailers.

Challenges

While Qatar’s economic and financial fundamentals are clearly robust – and they seem likely to remain strong for some time to come – matching retail growth with population and consumer habits always poses challenges. For example, there are some questions being raised over whether or not Qatar may see an oversupply of retail space in the short to medium term.

Another challenge is the logistics of supplying an ever-increasing number of retail outlets from a sometimes bottlenecked port, a result of the surge in demand for all manner of imported goods, particularly from the construction sector. However, a $7.4bn new port is currently under construction, which aims for operational readiness by 2016. Even before this upgrade, HIA is set to significantly increase the country’s air cargo capacity when it opens in 2014. Many companies have also addressed local logistical issues by warehousing over the border in Saudi Arabia, trucking stock in overland.

Some segments have also found difficulty attracting sufficient numbers of skilled workers. For example, Jassim Mohammed Ali Al Kuwari, managing director of AMWAJ Catering, told OBG, “One of our challenges operating in the service industry is to find qualified staff. It is a field where it is hard to find Qataris, particularly in the food service industry.”

Regarding questions of over-supply, the debate certainly continues. One indicator worth inspecting is headline rental rates, which at Landmark, Villaggio and City Centre all climbed from 2006 through 2011, albeit with a pause during the global financial crisis in 2008-10. In 2012-13, however, rental rates have once again flat-lined, according to DTZ.

Other analysts point to the number of international retail chains that held back from expansion during and after the global downturn, but who now may be looking to move in as global business confidence picks up – particularly into a market with such strong fundamentals as Qatar.

Outlook

All these developments make for a much more competitive retail sector in the years ahead. Malls are likely to apply a wide range of expansion and development strategies to hold onto existing customers and win new ones. In particular, opportunities are being explored for a range of ancillary trades – entertainment and the arts being especially favoured – as shopping centres try to provide a raft of non-retail attractions to boost walk-throughs.

At the same time, location will be, as ever, a major factor in competition, with transport links such as the new metro likely to favour sites close to stations. Over the longer term, however, continuing economic and population growth will lead to greater stability in the sector, with any surplus likely being filled.