Real estate prices in Qatar have retreated by 40 per cent to 70 per cent from their levels before the outbreak of the financial crisis in September 2008, said a recent survey.

A state of stagnation and anticipation prevails, the survey showed.

The survey, conducted by Aswaq.net of Al Arabiya television using price data supplied by a number of real estate brokers, said the price of land allocated for construction of villas in Doha went down by some 50 per cent while prices of villa land outside the capital dropped by 65 per cent to 70 per cent. Villa prices are down by almost 35 per cent. A villa of 400 sqm inside Doha is now sold for QR2 million (Dh2.01m) from QR3m.

Brokers told Aswaq.net Qatar's real estate market is witnessing an unprecedented state of stagnation, eight months after the outbreak of the global financial crisis.

Last week a Colliers report on the GCC said current average yields in Qatar is in the range of seven to eight per cent.

The office market in Doha can be split into three distinct categories; namely the primary market, which is the new high-rise developments in West Bay, the secondary market, which is the ribbon of developments along C Ring Road and Grand Hamad Street and finally the tertiary market which includes areas such as the A, B and D Ring Road.

In the West Bay area, supply has continued to grow with the completion of new developments, but absorption rates have been low. The reasons for this are varied. In the first instance, landlords do not want to lease space to government departments because of the low rentals they offer (the Qatar Government generally leases space rather than develop their own properties, so they are a very large and important tenant in the Doha market). Typically the rentals paid by the government will fall into a band ranging between $530 (Dh1,946) and $590 per sqm whilst the asking rentals for Grade A office space is between $720 and $820 per sqm.

Tenants are reluctant to commit to new lease contracts in a falling rental market. Rental rates for Grade A space have softened by between 10 per cent and 15 per cent over the past quarter and the general expectation is that rentals will decline further. The trend has developed for tenants to renew leases for no longer than 12 months so that they will have the mobility to take up new office space without being locked into an existing lease for a long period. This "wait and see" tendency is further supported by the strong demand for short-term office accommodation such as serviced office space. Sources have indicated that this industry is experiencing strong growth in Doha as was evidenced by services office providers, Regus, recently having opened up a second suite of offices in West Bay.

The slowdown in absorption of vacant space is further evident from the fact that where West Bay landlords previously refused to lease less than an entire floor to one tenant, and preferred to lease the whole building to one tenant, they are now prepared to subdivide floors and lease as little as 200 sqm to one tenant.

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