In his opening address to the summit of the Arab League held in Doha on 30 March 2009, HRH Hamad Bin Khalifah Al Thani, the Emir of Qatar, received the dignitaries saying:
“I welcome you to an Arab homeland that is striving to be an open forum for a free and unconditional dialogue which could be right or wrong, which is the responsibility of the participants, and this is characteristic of freedom.”
In addition to witnessing a common gesture of warm Arabian hospitality, the world looked on as this tiny monarchy in the Arabian Gulf was increasingly becoming a major player in regional and international affairs. Indeed, Qatar is striving to be an open forum for free and unconditional dialogue.
Thanks to the efforts of the ruling class, the country has been successful in hosting conferences dealing with regional political conflicts, the turbulent economy, as well as various cultural events.
These, complemented by Qatar’s extensive gas wealth, have led to a thriving corporate and meetings segment and a relatively mature hotel market. Hotels have been achieving the highest average rates in the region, thus arousing interest from investors and operators to invest in new tourism-related projects. Visitation numbers have been soaring and a new airport is under construction to deal with the increasing numbers. Additionally, despite the relatively non-existent leisure market, efforts are under way to attract this segment.
Therefore, this article sets forth an insight into economic developments, tourism investments and the characteristics of the hotel market in Doha. Although 2009 looked set to outperform 2008, itself a record year, Qatar began feeling the effects of the economic recession, specifically in the second quarter of 2009. However, since the government maintained a sober level of caution throughout the most optimistic years, it is believed that the country will be able to withstand the slowdown better than most economies in the region and the world.
Owing to Qatar’s good ties with the international community and modest relations with its neighbours, over the years the country gradually became a diplomatic beacon. This is particularly owing to the emir’s historic strides in making Doha a venue for economic and political dialogue. Recent examples include, among others, brokering peace between Lebanese factions, helping establish diplomatic ties between Syria and Lebanon, and hosting the Arab League summit in support of a ceasefire between Israel and Hamas.
Efforts to enhance the country’s global profile were also assisted by Qatar’s joining of the UN Security Council in 2006. Furthermore, the monarchy’s international relations continue to be shaped largely by its ties with the USA; the two nations have become close allies. After the 2003 invasion of Iraq, Qatar replaced Saudi Arabia as the logistical hub for US military activity in the Gulf.
Despite the birth of a new constitution in June 2005, Qatar’s main internal activities remain largely economic. The discovery of oil in the 1940’s shifted the country’s economic focus from fishing and pearling to primarily gas exploration.
Qatar is the largest exporter of gas in the world and is believed to have the world’s third largest gas reserves. There are currently projects to expand its facilities to maintain competition with world players.
Therefore, economic policy remains predominantly focused on the development of Qatar’s vast non-associated reserves of natural gas, although greater efforts are being made to attract foreign investment into the country’s non-energy sectors. Fiscal policy remains somewhat cautious, and it is expected that the fiscal account will record substantial surpluses over the next few years. As such, economic indicators for 2008 showed record growth. According to the Economist Intelligence Unit (EIU), real GDP grew by more than 13%, with one of the highest forecasts in the world for 2010 and 2011.
Developments and Initiatives
As in other cities in the region, such as Dubai and Abu Dhabi, developments in Doha have attracted the attention of the world, albeit on a smaller scale. In recent years, significant investment has been made in the city’s infrastructure, commerce and tourism.
The government has impressive plans to further improve the economic wealth of the country, and is putting much effort into diversifying the economy.
Table 1 (right) sets out the country’s three mega developments that are currently under way.
In addition to other developments that include, among others, Barwa City, Education City, Sports City, City Centre Expansion Project and the New Doha International Airport, the above mega developments comprise mixed-use components and other characteristics that are worth mentioning.
The Pearl is an ambitious land-reclamation project, the three square kilometre island lies immediately to the east of West Bay, in an area known as West Bay Lagoon, approximately 20 km north of Doha’s central business district. Facilities will include villas and multi-family residential units, six luxury and boutique hotels, retail areas and restaurants, entertainment and recreational facilities, schools, mosques, community centres, parks and four marinas. There will be opportunities for foreigners to invest in or acquire freehold properties on the island;
Lusail is a US$5.5 billion project that will create a new waterfront city close to the Pearl over an area of 32 km² and is intended to be the biggest domestic real estate development in the country. It is expected to provide accommodation for more than 200,000 people, a workforce of 160,000 and up to 60,000 visitors a year. It will include 3,000 lifestyle villas and 12,000 apartments, 22 hotels, two golf courses, 300,000 m² of shopping, six square kilometres of commercial space, and a dedicated family entertainment district that will provide attractions for residents and visitors alike. The development will also house Energy City, which will be the Gulf’s first centre for the hydrocarbon industry. Entertainment City will provide state-of-the-art facilities and pose as a stand-alone leisure demand generator;
Heart of Doha is a major development aiming towards the rejuvenation of the centre of Doha’s historic district. Developed by Dohaland, a subsidiary of Qatar Foundation, the US$5.5 billion project will be built on a 35 hectares site. The architecture will be traditional and reminiscent of the past while modern technology will be widely available in an effort to ‘bridge the past with the future’. The project will include more than 226 buildings, 122,217 m² of parks and open spaces, the Qatar National Archives, a theatre, three hotels, schools, as well as a heritage district. Owing to the narrowness of the streets, a dedicated tramway connected to the Doha Metro is currently being considered.
Visitation and the Hotel Market
The tourism industry witnessed a record year in 2008, surpassing the one million mark. This increase in visitation numbers occurred constantly over the last ten years. Table 2 looks at passenger movements at Doha International Airport from 1999 to 2007.
In 2003, Doha International Airport and the Government of the State of Qatar announced a master plan for a new US$2 billion airport to be built to the east of the current airport to assist in positioning Qatar as a leading regional aviation hub. Construction on the airport began in 2004 and once completed in 2015, the airport will have two parallel runways and the capability to handle and process nearly 50 million passengers a year. The terminal will have 24 contact gates in the first phase and will accommodate up to six A380-800 ‘Super Jumbo’ aeroplanes when fully developed. Until the new airport is opened, the existing airport is being significantly upgraded to handle the increase in passenger growth.
Hotels in Doha performed exceptionally well in 2008. Despite a three percentage point decline in market occupancy to 68%, Doha led the rest of the region with an average daily rate of $340, an 11% increase over 2007. Hence, it achieved a RevPAR of $230, second only to Abu Dhabi.
Doha’s mature hotel market is comprised of some of the world’s major brands, many that have existed since the 1990’s and the turn of the millennium. Such hotel groups include the Four Seasons, Marriott, Starwood, InterContinental and Mövenpick. Their presence in the market benefited from Qatar’s various initiatives and have thus been able to accommodate various economic, political and cultural events over the years, creating a strong, high-paying corporate and meetings segment.
The government is currently taking initiatives to expand on its almost non-existent leisure market. Projects such as the Lusail and the Pearl are expected to attract leisure tourism once their recreational components become operational.
Table 3 is a list of confirmed hotel supply in Doha, with a graph that takes into account the opening of the W and Grand Hyatt in March 2009, as well as the expected opening of Oryx Rotana (400 rooms and Swiss Belhotel (185 rooms) later this year. We understand that there are a number of hotel projects that are still in the negotiation phase and are still believed to be confidential.
Therefore, we are confident that more projects will be announced by the end of the year. These will include international brands and their estimated opening dates will be from 2012 onwards.
Furthermore, Qatar National Hotels (QNH) announced in early May that it plans to spend $1 billion on international property acquisitions as well as the development of new hotels in Doha. This is in line with the company’s vision and positioning plans.
The company currently owns five luxury hotels in Qatar and is using cash as a means of benefiting from investment opportunities in these turbulent market conditions.
Outlook, Characteristics and Observations
How then, will Qatar maintain its momentum in the face of the recession, and what characteristics of the market stand out today? In addressing hotel operators, developers and investors, we seek to point out some characteristics and necessary observations.
Analysts are forecasting a stable outlook for Qatar owing to the country’s strong economic fundamentals and upbeat state support. For instance, the most recent move is the government’s plans to buy over $4 billion worth of real estate assets from Qatari banks to stimulate the economy. And, as a precautionary measure, Qatar Airways has put into motion a three-month action plan that will introduce low-cost services to deal with the potential threat from the budget arm of the industry;
The Pearl and Lusail developments alone are expected to bring in approximately 800 and 5,000 hotel rooms, respectively, once the developments are complete. The developments are expected to create a leisure market that, to this day, remains minimal;
Hotel average rates for 2009 are expected stay at a par with 2008, with the possibility of a slight drop should occupancy continue to struggle. Companies have started moving their corporate accounts to midscale hotels in a cautious attempt to review their budgets, thus decreasing demand for the luxury hotel product. The further opening of the W and Grand Hyatt in March have brought in a greater supply of hotel rooms to the market;
With the existing and proposed supply of midscale and luxury hotels in Doha, there is believed to be a rising need for a branded budget product. This will be necessary to cater for the future, mass leisure market as well as the lower budget corporate and meetings segment;
Hotels in Doha today are believed to operate with a relatively low rooms expense percentage ranging between 9% and 12%. In addition, hotels’ food and beverage operations are run with a high profitability ratio, with some achieving more than 40%. These margins, believed to be one of the highest in the industry, are expected to witness a gradual decline owing to Qatar’s soaring inflation;
Food and beverage facilities make up an essential part of hotel operations in Doha owing to the absence of sound restaurants and bars elsewhere, also creating a local market. Branded properties across the city have a substantial number of outlets, with some exceeding ten. This, along with high revenue from meetings and conventions, has led to food and beverage revenue in some properties constituting a staggering 50% of total hotel revenue;
In addition, hotels in Doha (primarily luxury facilities) have shown the need for extensive meeting space and state-of-the-art spa operations. Hotels requiring entry into the market will see the need to include these facilities in their plans to be able to compete with the existing supply, as well as cater for significant related demand;
The branded serviced apartments market in Doha is still at an infancy stage in comparison to regional markets such as Abu Dhabi, Dubai or even Riyadh. The first branded supply only entered the market with the opening of the W and the Grand Hyatt earlier this year. However, the existing independent supply tells us that demand is mostly present for one-bedroom and two-bedroom units, as opposed to larger apartments;
Today, many hotel projects are expected to experience delays or to be put on hold owing to the economic slump. However, for investors looking to develop hotels in the market, we believe it is a good time to invest. Qatar’s economic promise makes it ideal for projects that break ground during the slowdown to be ready for business at the time of a foreseeable recovery;
Over the last few years Qatar has made various attempts to control soaring inflation which reached 15% in 2008. It is, however, believed that the slowdown may in fact help keep this inflation rate in check. Recent estimates, also by the EIU, are now forecasting negative inflationary growth (-2.8%) for 2009 as opposed to an earlier estimate of 9%.
Qatar looks set to remain an investment hub and an active player in international relations. Hence, we believe Doha is ripe for investment today.
As mentioned earlier, hotel projects that break ground today may be able to benefit from an improved economy when their doors open for business. And with a promising leisure segment, demand looks set to grow despite the current slowdown. The Qatar Tourism and Exhibitions Authority estimates a total of $17 billion to be spent on tourism infrastructure over the next five years to support the increase in hotel supply, and thus increase the current leisure segment from 5% to up to 30% of total demand.
Furthermore, house prices, which saw a 30% decline according to some estimates, are expected to remain healthy owing to continued demand that remains global. Construction activity is expected to see a growth of double figures in 2009 as funds from gas revenues are reinvested into infrastructure. With the government buying real estate shares from the country’s financial sector, Qatar has shown its genuine intentions to tackle the downturn at home. Therefore, business sentiment remains positive and the EIU is still forecasting a growth of double figures in real GDP.
Today, you may wonder where Qatar stands as the economic slump takes its toll on the region. Even though some compare present day Doha to Dubai in the late 1990’s, two things set it apart – its gas wealth, and most notably, the monarchy’s level of caution. Developments in Qatar never reached the overly ambitious plans of Dubai. And therefore, despite the increasing promise of Qatar’s resources and related projects, authorities and economic players alike have taken a step back. In short, the term that best describes the underlying economic sentiment in Doha today can modestly be coined ‘cautious optimism’.
For feasibility studies, valuations, strategic positioning, operator search and further advice please contact the authors.
About our Team
HVS has a team of experts that conducts our operations in the Middle East and North Africa. The team benefits from international and local backgrounds, diverse academic and hotel-related experience, in-depth expertise in the hotel markets in the Middle East and a broad exposure to international hotel markets. Over the last three years, the team has advised on more than 150 projects in the region for hotel owners, developers, lenders, investors and operators. HVS has advised on more than US$25 billion worth of hotel real estate in the region.
About the Authors
Elie Milky is an Associate with the HVS Dubai office, specialising in hotel valuation and consultancy. He joined the London office of HVS in 2007 after completing an MBA from IMHI (ESSEC Business School), Paris, France, three years of experience in hotel operations in Lebanon and the UAE, and a BA in Hospitality Management from Notre Dame University, Lebanon.
Since then he has conducted a number of valuations, feasibility studies and consultancy assignments across Europe, Africa and the Middle East before relocating to Dubai early 2009.
Hala Matar Choufany is the Managing Director of HVS Dubai and is responsible for the firm’s valuation and consulting work in the Middle East and North Africa. She initially joined HVS London in 2005 and moved to HVS Shanghai in September 2006 where she helped grow the Shanghai office and business in the Asia region. She relocated to Dubai in September 2007 and looks after HVS’s interests in the Middle East. Before joining HVS, Hala had four years of operational and managerial hotel industry experience.
She lectured at Notre Dame University in Lebanon on International Travel and Tourism. Hala holds an MPhil from Leeds University, UK, an MBA from IMHI (Essec- Cornell) University, Paris, France and a BA in Hospitality Management from Notre Dame University, Lebanon. Hala has worked on several mid and large scale mixed-use developments and conducted numerous valuations, feasibility studies, operator search, return on investment and market studies in Europe, the Middle East and Asia.
For further information, please contact one of the authors.
Elie Milky – Associate, Dubai
Direct Line: +961 70 440 256
Hala Matar Choufany – Managing Director, Dubai
Direct Line: +971 50 4597930
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