How did the global economic crisis change the construction industry in Qatar and the wider region?
HUMPHREY: Over the last two or three years, the economic crisis has impacted the construction industry. The biggest difference that we’ve seen in Qatar is that more people have come into the market and more have expressed an interest in getting involved in the market. In terms of the wider region, we see more competition in terms of prices. The prices have fallen, there is less work, and contractors and consultants are all chasing after the little work available. This has sharpened the interest and it has also sharpened the pricing. It’s a little more competitive even though the real economic impact and fundamentals of the country have not changed. People have felt that there is less work so everyone wants a piece of the action.
What impact has the economic downturn had on the price of cost management services?
HUMPHREY: The demand for construction services across this part of the world has remained fairly constant. There is still a large stream of projects coming along in which people want to actively participate and get involved. There is a demand; however, many people are chasing after a finite amount of work. The competition has driven down prices. The benefit for people who have been established in this region for a very long time is that they have preference because people want a safe pair of hands. But overall, prices are being driven down by external competition which the market has not seen for a long time.
How well equipped is the local construction sector to handle the large influx of work that is coming, for both the 2022 World Cup and as part of the wider infrastructure development associated with the National Vision 2030?
HUMPHREY: Qatar’s construction market is well set up to cope with the future demand in the sense that it is driven around how the products are going to be released. If everything is going to be released at once, then no economy, no matter how well organized, can cope. With the way things are organized at the moment, products will be released in phases. This means there is a gradual progression. With the rundown elsewhere in the region, there is new supply to come into the market, which will allow them to respond to the demand. The market is well structured. Whether it can cope with all of the work being done at one time, in terms of the physical logistics, the people, and so much construction work being done at the same time, is a question. That is always going to be driven around how projects are going to be released. If everything happens at once, then it will inevitably generate chaotic scenes in that every road is dug up at the same time, there are multiple construction projects and there is a finite amount of material. If projects are released progressively in a sequential manner, the market should be able to cope without major inflation or a major escalation in prices.
What are the key challenges that the construction sector will face?
HUMPHREY: The biggest challenges that the construction sector as a whole faces is being able to attract the right quality of people to the market. From a shared logistics point of view, to be able to bring the construction materials and be able to plant experienced people into the market to be able to cope with all of the projects that are coming. Qatar still has difficulty in being able to attract the right type of professional staff. With other economies in Asia booming, the ability to attract the best is still a challenge. There are limitations on schools, so Western expats still struggle to get spaces for their children. Of course, Qatar is a very family oriented place. You want to get senior expatriates, who have their families, to make this a lifestyle and a personal change commitment rather than someone who comes for two years and then disappears. This is a 15 to 20 year vision and strategy and you want to be able to have the people on the ground who will see this all the way through. They will have to move with their families and make this a lifestyle choice. This means that you have to have the schools and good accommodation. The work is here but attracting the right people is the biggest challenge.
What are the major differences between public sector projects and private sector projects?
HUMPHREY: The public sector and the private sector projects differ primarily because the public sector projects are government backed or quasi government backed, they are underwritten and the budget is clearly allocated. There are major policy national projects in terms of museums, airports, railways, and ports. There are major projects and major commitments, so we know there’s money and we know they are going to go forward. The private sector is always driven by market demand and perceptions of the future market demand. Decision making is more risky in the private sector. Sometime, they embark on projects that seem like a good idea at the time, but due to the gestation period and the time it takes to develop a project, the market has slightly changed. Therefore, they have to react. The public sector is able to commit to a particular thing in its strategy, while the private sector is more market driven to make commercial returns. Therefore it jumps and changes its mind halfway through the process. This can result in delays, cost overruns, and is more risky from a consultant’s or contractor’s point of view.
How would you describe the current amount of residential and commercial property relative to demand?
HUMPHREY: The current state of the supply in the residential market is that there is more residential property available than the market can actually sustain. This has forced rent downwards. Having said that, with all of the projects proposed and planned and the amount of construction activity in the coming years, people will come here and there will be an increase in demand. Whether that will warrant further residential construction is still a question mark. I think the first priority is to fill what they already have. As you can see as you drive around town, there are empty villa compounds and there are still more villa compounds being built. There are residential apartments being built. For the next two to three years, the residential balance is about right. In the case of commercial offices, the biggest issue at the moment is getting good quality office space. There is a lot of office space there, but high quality office space, Grade A office space, is more limited. There are two categories of occupiers: those who are big government clients who want to take whole buildings and there are the international companies who are coming in and want to set up a representative office and expand depending on their success. A tower that can be partitioned into more segmented spaces is more popular. Some towers are geared to that and some towers aren't. Having the right product to meet the market is the biggest challenge. While there is a lot of commercial office space vacant at the moment, this doesn’t mean that it is the right type of commercial office space. There will be demand for the right type of office space over the next 12-18 months.
To what extent have green building practices penetrated the market?
HUMPHREY: The whole sustainable construction aspect of the market has certainly come into the forefront over the last two years. This is primarily driven by the big government clients: Qatar Foundation, Qatar Petroleum, Msheireb Properties. They have all pushed forward the concept of sustainability. Energy efficiency has always been an issue due to the climatic conditions to make things more responsive to the local environment. The certification process and the green awareness has certainly risen over the last two or three years. I think that in three to five years, we will see a real boom in that every project will start taking some element of sustainability into the design process and into the construction process. Whilst there may not be any financial benefit to the developers, there will certainly be a social consciousness to make sure this is met in all future developments.
Having the right product to meet the market is the biggest challenge. While there is a lot of commercial office space vacant at the moment, this doesn’t mean that it is the right type of commercial office space. There will be demand for the right type of office space over the next 12-18 months.
Is there a social or consumer demand for developers to incorporate sustainable building techniques into their buildings or projects?
HUMPHREY: There is not so much social demand as there is peer pressure as more people are get involved. The youth of today are pushing for the sustainable practices and it is certainly part of the National Vision. Sustainability is one of the core foundations of the future for Qatar. Being a hydrocarbon producer, they need to address sustainability. The development of infrastructure provides a good opportunity to reinforce the sustainability message. The government is putting in policies and procedures which are driving developers, consultants, and contractors to implement sustainable practices. These are something that everyone is aware of and if you are not implementing them, you are becoming the odd person out.
What can be done to improve sustainability in the sector?
HUMPHREY: The only way you can really enhance the speed in which sustainability is being introduced into the market is through legislation. There are some government initiatives that are forcing the use of QSAS (Qatar Sustainability Assessment System) and forcing the use of LEED on certain projects. You've got clients pushing that forward and this has been adopted. To actually have a specific legislation saying one must do this is probably not the right way to go about it. There are certain projects that demand it and certain projects that don’t. I think as more people become aware, get involved, and see the benefit of it, they will understand that it actually doesn't cost more, and is better for the environment and the social fabric of the country. These practices will then be implemented. I don’t think you need to do anything formal. The normal process, an evolution of sustainability, is so fast here in comparison to other parts of the world that it will have a natural momentum to spread across the market in due course.
How does the Qatari market compare with other GCC markets?
HUMPHREY: The Qatar market in comparison to other GCC markets is unique. Qatar is a very small country. The sponsorship rules and the whole fabric of the economic structure are different. Being able to come in and set up is more restrained here than it would be in say the UAE or in Bahrain. In Qatar, growth is controlled. One has to make a genuine commitment to this country. In other countries in the GCC you can come in, set up a project, and then disappear. Here, the whole system is set up so that you make a long term commitment and then you get second, third, and fourth projects. This also means that it becomes a tighter market if there is a huge volume of work introduced as with the World Cup 2022. It means that companies cannot expand and react quickly to things and we end up with inflation as you saw with the Asian Games. But again, if it is phased, and more and more people have joint ventures to be able to break into the market, it will be able to expand. The expansion will not be like the UAE during its boom or in other markets where people come in and say that we are really going to flood this market to get this opportunity and when we’ve exhausted this, we are going to move somewhere else. It needs to be people who come, make a commitment and are here for five, 10, or 20 years.