Lower rents likely to benefit tenants looking for better properties

Muscat: Residential tenants looking to move to better accommodation at a cheaper rate are advised to do so now, owing to reduced rents because of a surplus of homes and a decrease in the number of expatriates, who would normally occupy such properties, a new report has said.
The 2020 Oman Property Report, which is published by real estate management firm Savills, notes that lower oil prices and the impacts of the COVID-19 pandemic are likely to continue to challenge Oman’s economy and real estate sector.
“Current evidence suggests that a net exodus of highly qualified expatriates started in 2016 due to economic conditions and increasing restrictions on expatriate employment,” said Savills. “The number of highly qualified expatriates dropped by 17.6 per cent between 2016 and the first quarter of 2020, while the total number of expatriate employees dropped by 6.8 per cent during the same period. Savills expects that the reduction in the expatriate population will be accelerated by recent events.
“While better quality residential units are likely to show a more stable performance, the expected drop in the number of expatriates in Muscat over the coming months will place the residential market under increased downward pressure in terms of both reduced demand and achievable rental values,” the company added. “Savills does, however, foresee potential interest from existing tenants to look to upgrade from their existing rental property at more affordable values.”
According to data published by Savills, the residential rental market in Muscat has also seen a notable increase in supply over recent years.
Commenting on this, Ihsan Kharouf, head of Savills Oman, said, “Expatriates play a significant role in influencing demand for real estate. Market conditions in both the residential and office space rental sectors in Muscat were already in slowdown/recession before the COVID-19 pandemic as a result of slow economic growth and negligible net population growth.
“The ongoing pandemic has further deteriorated the economic landscape,” he added. “While the longer-term impacts of the pandemic on the sector are currently unclear, it is evident that there will be increasing challenges over the coming months.”
The residential rental market in Muscat is driven by expatriates and the drop in expatriate numbers since 2017 has resulted in shrinking market size for residential rental properties. As a result, realistically achievable rental values for better quality apartments were generally around 30 to 40 per cent lower at the end of 2019, in comparison to 2014. In comparison, rental values for villas and townhouses in the prime locations of Shatti Al Qurum, Muscat Hills and Al Mouj saw greater resilience.
Savills notes that the longer-term impacts of the COVID-19 pandemic and lower oil prices on the office rental market in Muscat will only become clear over the coming months but the sector is highly likely to experience downward pressure in terms of both demand and achievable rental values in the short term.
With rental values at low levels, however, Savills considers that landlords are increasingly likely to agree to incentives such as extended initial rent-free periods and/or assistance with office fit-outs for shell and core space rather than notable further drops in rental values. Good car parking and property management will remain key features in attracting and retaining tenants.
Market conditions in both the residential and office space rental sectors in Muscat were already facing challenges before the COVID-19 pandemic, and the impact of the coronavirus could place both the residential and office space rental sectors in Muscat under further scrutiny over the coming months.