Strong economic growth, especially in the financial sector, is putting pressure on Doha’s limited business space. “There is currently a massive imbalance in the demand and supply of prime office space,” says Edd Brookes, Qatar associate director of international real estate advisory firm DTZ.

Vacancy rates are low, at only 5 per cent, which mainly accounts for the natural transition period when offices are fitted out or refurbished between tenants. With occupancy rates hovering at 95 per cent, rents are being pushed up. Leasing costs for prime office space are now pushing QR300 ($82.40) a square metre, up from QR230 a sq m in January.

But some relief is on the horizon. “More than 400,000 sq m of office space is set to come on line in the next nine months,” says Brookes.

Much of this new supply is in the West Bay area of Doha, which remains the country’s main business district and is where space is most sought after. More than 25 per cent of the property here is inhabited by government entities. In the private sector, financial organisations dominate the market.

By the end of 2010, West Bay will have added 823,000 sq m to its existing net leasable area of 254,000 sq m, according to real estate adviser Colliers International. But West Bay is not the only part of Doha that is growing.

Within the Qatari Diar-backed Lusail development north of Doha, Energy City is expected to bring 720,000 sq m of additional space, creating a new business district. This will generate competition that could impact on rents.

“Further on, say in five years’ time, we should see occupancy rates start to fall from the current 95 per cent level to 91 per cent,” says Brookes. “This is still high when you consider cities in Europe, where rates are around 73 per cent.”

Congestion measures

Given the speed at which new office space is becoming available, Doha Municipality is concerned about the availability of parking for commuters. To ensure congestion does not worsen, the planning department has insisted that buildings have one car parking space for every 50 sq m of leasable area. While many recent buildings have failed to meet the guidelines, others, such as Energy City, are said to be achieving rates of one parking space for every 25 sq m of office space.

In the retail sector, supply is set to meet demand in the medium term. More than 450,000 sq m of leasable area is available, and this is expected to more than double to 1.13 trillion sq m by 2012, according to Colliers.

In the residential market, occupancy rates remain high at, 99 per cent. Rental inflation of almost 30 per cent in the final quarter of 2007 forced Qatar’s government to freeze any rent increases on all contracts signed after 1 January 2005. But Colliers predicts the residential undersupply will continue for two years.

Reflecting the undersupply of housing, sale prices continue to soar. DTZ reports average purchase prices rose to QR19,000-22,000 in September, from QR12,500 in January. This is set to rise even further as the first properties available to expatriates and non-GCC nationals become available on the offshore Pearl island in January 2009.

Only three areas have been allocated for such development, including Pearl island. The others are West Bay lagoons and the Al-Khor resorts. These areas are some way off completion - Al-Khor is not expected to be completed until mid-2012.

Currently, buyers can borrow up to 90 per cent of a property’s value, but it is expected that the central bank will bring this down to 70 per cent or even 50 per cent in a bid to further temper inflation. Preventing selling on within six months of buying or imposing a tax on profit made would make more sense, says Brookes, but to date the central bank remains unconvinced.