With hotel supply in 2013 growing at 13 per cent, but demand trailing with 11 per cent growth, Qatar’s hotel market is experiencing oversupply issues that depress room rates.

The drive to build accommodation as the country gears up for the World Cup in 2022 will only exacerbate the situation. The commitment to have up to 100,000 rooms available by 2022, much higher than Fifa’s required 60,000, is unlikely to be met. However, even reaching 60,000 would result in a significant oversupply before and after the month-long tournament.

Since hosting the Asian Games in 2006, Qatar has relied on attracting corporate, political and sporting events to drive demand. The majority of visitors have always been from the business sector, and this is unlikely to change before 2030.

The country still lacks major leisure attractions that would make it a tourist destination. To stimulate growth in visitor numbers the country needs to push ahead with major schemes including numerous malls, the Lusail development, New Doha Zoo and the restoration of Downtown Doha.

“If leisure developments such as Doha Zoo are successfully completed, we will see very good growth in key performance indicators leading up to the World Cup, and 2022 will be a fantastic year,” says Filippo Sona, head of hotels for the Middle East and North Africa at UK real estate consultancy Colliers International. “Post-World Cup we will see a drop, as in any market with this type of event. Qatar will be left with its current hospitality segmentation, dominated by the corporate market.”

World Cup

In its 2010 World Cup bid, Qatar promised to develop 55,000 rooms by 2022. This represents a massive jump in hotel availability from the 17,000 rooms available in 2013, according to Colliers. Qatar Tourism Authority (QTA) calculates that the optimal number of hotel rooms for Qatar in 2022, outside the period of the World Cup itself, is between 27,600 and 30,500, suggesting the promised rate of development would lead to an oversupply problem after the event.

The challenge is trying to balance the asset categories. Doha is very heavy on five-star properties

Filippo Sona, head of hotels Mena, Colliers

However, given Doha’s mid-2014 pipeline of 10,777 rooms, across 41 properties to be completed between 2015 and 2019, according to Dubai-based Viability Management Consultants, Qatar risks falling short of Fifa’s 60,000 minimum. US consultancy Deloitte estimates the current growth rate at 11 per cent a year, which would imply about 40,000 rooms being finished by 2022. However, 16 per cent growth is needed to meet Qatar’s target.

There are various strategies under consideration to make up the numbers and also to mitigate an oversupply problem. These range from floating hotels to refurbished student and worker accommodation, and temporary conversion of residential apartments. The most likely solution will be a combination of all these measures to cater for different budgets and locations, and the hospitality industry is positive it can provide enough capacity.

“The challenge is trying to balance the asset categories. Doha is very heavy on five-star properties and a little heavy on the four-star, but three-star developments are almost non-existent,” says Sona. “It also lacks serviced apartments, so the current pipeline of around 2,600 needs to double. They are more suitable for this type of event, as they offer flexibility for families.”

The risk of oversupply

Demand for hotels in Doha dipped following the 2008 financial crisis. As significant new offerings entered the market in the following years, especially in 2012, it never fully caught up with supply. The response from the hotel market has been to lower average daily rates (ADRs), stabilising occupancy rates and stimulating an increase in revenue per available room (RevPAR).

“The room rates have come down over the past few years but occupancy is stronger,” says Omer Kaddouri, CEO of the UAE’s Rotana Hotel Management. “When there’s a big influx of hotel inventory all at one time it takes a while for that inventory to be absorbed, and you start to see price wars, probably over the next two to three years.”

This strategy paid off in the first half of 2014, signalling that Doha is able to absorb the big increase in supply. Occupancy rates rose 17.4 per cent to 75.2 per cent, pulling RevPAR up 15.6 per cent to $130, according to STR Global. The trend was sustained even with lower commodity prices in late 2014. In December, occupancy was up 15.3 per cent year-on-year and RevPar shot up 23.5 per cent to $145, although it was still not on a par with 2008 levels, due to lower ADRs.

Oversupply is most apparent in the luxury market, which made up 71 per cent of the offering in 2013, according to Colliers. Standard five-star properties will suffer most from the competition, while super-luxury hotels are expected to retain their exclusivity.

“Doha has stolen the march on Dubai in terms of trendy boutique hotels,” says Guy Wilkinson, managing partner of Viability. “The small hotels already present in Souq Waqif, an urban regeneration development that provides an attractive setting, have set a precedent and attracted brands like Morgans and Capella.”

Mid-scale and budget markets remain undersupplied in Qatar, with only 7 per cent of the pipeline as of mid-2014, according to Deloitte. A varied independent and locally owned offering will be supplemented by a few midscale brands, including Premier Inn with two properties under development, and a Rotana Centra brand to open in late 2015.

As the market matures over the next decade, the balance should improve. High construction costs in Doha do not prevent the budget business model from being applied, but the Qatari market is still most attractive to luxury and upscale branded hotel chains, which make up 67 per cent of the pipeline, according to Deloitte.

“The country is developing in an aggressive way, building strong tourist infrastructure and expanding airports. There’s so much potential there for Rotana,” says Kaddouri. “The World Cup is a magnet for more hotels but it’s not the only reason; we’re also looking to the QTA 2030 Vision. By 2018 we will have 2,000 rooms in Doha.”

Business

The core Qatari hospitality market is corporate, as business travellers make up more than 70 per cent of visitors to the country. Short-stay visitors are concentrated in upscale West Doha hotels where banks and companies are based, or midscale properties near the airport. Those working on projects for several months at a time create demand for serviced apartments. The massive investment in infrastructure and leisure facilities as Qatar prepares to host the World Cup ensures that corporate demand will grow steadily.

“It’s easy to get distracted and think everything is being done in preparation for the World Cup,” says Wilkinson. “But the government has taken it as a catalyst to invest in infrastructure, so the economy is growing strongly and driving corporate demand, which keeps occupancy rates up.”

Qatar’s successful record in attracting meetings, incentives, conferences and exhibitions (MICE) events at the Qatar National Convention Centre (QNCC) in Education City has also boosted visitor numbers.

Between December 2011 and May 2013, the QNCC hosted 347 events, welcoming 197,212 delegates and visitors and generating $93m for the Qatari economy. Hotels are also keen to provide facilities for Mice and attract local, regional and global meetings, with consistent demand.

“Qatar needs to focus on these MICE events,” says Sona. “Creating and developing a much wider calendar of events at the conference and exhibition centres is key to the long-term sustainability of these West Doha hotels.”

The completion of the 90,000 square-metre Doha Exhibition and Convention Centre, expected in the first half of 2015, will boost this industry. The attached Rotana Hotel will benefit most, but demand should strengthen across the city as it attracts thousands more international visitors.

Leisure

With few existing tourist attractions and a non-existent domestic tourism market due to the small size of the country, Qatar has never developed a strong leisure hospitality market. It is here that the QTA has the most ambitious plans.

More than 80 per cent of visitors to Qatar between mid-2012 and mid-2013 came from other GCC countries, with Saudi Arabia the largest market by far, according to QTA figures. While the QTA plans to draw more visitors from outside the region by 2025, the conservative character of Qatar’s tourist markets is reflected in the offering.

Qatar is avoiding mass tourism and looking to upscale markets, but to reach the QTA’s goal of 7 million visitors in 2030, demand drivers need to be put in place. The current rate of hotel development can only be sustainable if Qatar manages to complete attractions such as New Doha Zoo.

“Qatar is focusing on niche tourism – sports, education, conferences – and is quite successful in getting regional and global events,” says Wilkinson. “Doha is building shopping centres like crazy, and targeting regional tourists with the Islamic museum on the Corniche, the Qatar National Museum still under development, and other family attractions.”

The Aspire Zone sports city and New Doha Zoo are expected to create a new leisure hub east of Doha, to compete with the sports and entertainment facilities at Qatari Diar’s massive Lusail development.

Coherent strategy

But the international tourist market is highly competitive, and the industry has doubts about whether the QTA is doing enough to promote Qatar as a destination. Qatar needs an aggressive promotion strategy to challenge established destinations with a more varied tourism offering.

“The QTA has been less proactive outbound [in overseas markets] compared with UAE bodies,” says Sona. “Beyond the World Cup, they need to target the inbound market abroad. And from a brand equity point of view, what does Qatar tourism stand for?”

The biggest concern is a steep drop in numbers after the World Cup. Investment and marketing are needed before the event to have demand drivers in place by 2022. This needs to be combined with a coherent development strategy that matches markets, tourist infrastructure and attractions. Lower prices for oil and gas since late 2014, and the resulting cancellation of projects, have brought a new trend for owners and investors, even if they remain cash-rich.

“The problem of lower oil and gas prices is actually an opportunity for the authorities and developers,” says Sona. “Over the next six months, they will become more strategic, do more thorough feasibility studies and look at every aspect to minimise cost and increase added value, and therefore returns.”