Muscat: A “subdued” rental market in Oman will be buoyed by the hospitality industry as new hotels and projects will drive growth in the Sultanate, according to a leading real estate company.
With continued stagnation across Oman’s residential and office market during the third quarter, rapid expansion in the hospitality sector is set to be a beacon of growth in the market heading into 2017, according to new research by international real estate consultancy, Cluttons.
The Cluttons Winter 2016/17 Property Market Outlook report for Muscat reveals that significant growth in the Omani tourism sector is feeding a period of exponential development in the four and five-star hotel market. Over the next two years, hotels currently under construction will deliver a 50% increase in room supply to the premium segment of the market.
Philip Paul, Head of Cluttons, Oman said: “While the local residential and office markets are feeling the burden of economic challenges, Muscat remains a highly attractive tourist destination within the Gulf and investors have taken note. The significant increase in supply we're anticipating will result in a more competitive market from an operator perspective but will also provide an increase in choice for customers. We expect this will help to drive the continued growth in the tourism and hospitality sector, with other operators drawn in by the allure of a rapidly emerging market.
“Although we see significant opportunities within the hospitality sector, the outlook is less positive for the residential and office markets with a number of factors impacting performance. The volatility caused by low oil prices has had a knock on effect on the number of professionals working in the Sultanate; but redundancies have now spread well beyond the oil sector. This in turn has heavily impacted the demand for real estate.”
In the residential market, average rental rates fell by a further 2.3% during Q3, bringing total decline for 2016 to 8.1%. On an annual basis, the weakest performing residential submarket was Shatti Al Qurum, where rents fell 21.1%, followed by Sur Al Hadid (-20.8%) and Qurum (-17.9%). On a more positive note, during the third quarter rents remained unchanged in two submarkets, Bausher and Sur Al Hadid.
Al Mouj remains a residential stronghold with rents down just 5.9% over the last 12 months, standing at an average of OMR 800 per month. This market remains unique in Muscat and the ever expanding retail and hospitality offering in this Integrated Tourism Complex has translated into a near steady stream of requirements from both buyers and tenants. Similarly, Cluttons expects the new 615 unit Taminat residential scheme in Bausher, by the Public Authority for Social Insurance, which will be delivered to market in early 2017, to also command strong interest due to its mixed use offering and central location near three of Muscat's largest shopping malls.
For the rest of the residential market, Cluttons still predicts further corrections.
Faisal Durrani, Head of Research at Cluttons, notes, “The prospects for an immediate turn around in the residential market remain unlikely and, given the country’s heavy reliance on the oil and gas sector, outlook for the residential market remains weak. During spring we forecast residential rents to end the year 10% to 15% down overall and it appears we are on track to achieve that, reflecting the average decline in tenants’ budgets of 10% to 20% that we have recorded this year.
"More positively, the government is clearly working hard behind the scenes to drive more efficient spending, while at the same time undertaking sentiment boosting mega projects such as the recent tendering for the first phase of Oman Rail and the progression of works related to the USD 1.3 billion redevelopment of Mina Sultan Qaboos. Projects such as these bode well for future demand for residential property, but for now, the outlook remains subdued."
Cluttons reports no quarterly change in office rents across the six submarkets monitored during Q3. On an annual basis, Qurum and Shatti Al Qurum stand out as relatively stable markets with no change in rents over the last 12 months. These two submarkets appear to be the most desirable due to a high concentration of Grade A office stock, which remains in finite supply.
Durrani added, “Having previously forecast minimal rent declines in the office market for 2016, due to record lows and rates that are lower than other comparable Gulf markets, Cluttons’ view remains unchanged, with any downward corrections over the next 6-12 months expected to be contained to OMR 0.50 psm.”