Landlord innovation necessary as tenants take the driving seat in Oman
MUSCAT PROPERTY MARKET OUTLOOK
Challenging market conditions have led to flexible, innovative and revised approaches from landlords across the capital in an effort to entice prospective tenants, according to the Muscat Spring 2017 Property Market Outlook
The report has identified an increasing flexibility of finance terms, along with a deliberate focus on best-in-class property management services, as landlords work to ensure high occupancy rates at a time of weaker demand across the real estate market. Subdued economic activity across the Sultanate has also led to increased opportunity for tenants in the office market, as declining rental rates has led to office consolidation and migration to more affordable stock, the report noted.
The report shows that during 2016, average rents across Muscat receded by 10.1%, in line with the forecasts of previous Cluttons reports. During the final quarter of last year, rents declined by 4.2%, leaving average monthly rents just shy of OMR 700. 2017 has begun on a more stable start, with rents during the three months to the end of March declining, on average, by a marginal 0.6%. The limited movement has improved the year on year change to -7.0%; the best annual performance in 18 months, suggesting some locations may be starting to show signs of bottoming out.
Philip Paul, head of Cluttons Oman, commented: “Increasingly, the work Cluttons’ team in Oman is focused on is the stabilisation, or boosting of revenue potential for landlords through professional management and active management of tenants, as landlords are increasingly recognising the need to be flexible. At the same time, tenants are aware of the opportunities for more value in the market, so those landlords that are taking a more proactive approach to the conditions are the ones best placed.”
“There are several properties that have retained high occupancy levels with little compromise on rental values. Al Assalah Towers, Hatat Complex, The Greens and Meydan Al Azabia uphold 80% to 100% occupancy, due in no small part to the provision of facilities suited to market requirements. The most attractive residential developments tend to focus on inclusive, high quality complexes, with a property management approach dedicated to swiftly taking care of all tenant needs.”
The Muscat property market outlook report highlights the importance being placed on high quality accommodation by the market by citing the example of the newly launched Taminat Complex by the Public Authority for Social Insurance, where 15% of the units were leased within three weeks of coming to market.
Faisal Durrani, head of research at Cluttons noted: “With GDP growth forecast to slow to 0.4% this year, from 1.5% last year, the prospects for a sudden surge in job creation rates and subsequent increase in the level of requirements for rented accommodation remain low. That said, the slowing rate of rental declines in the first quarter suggests we may at last be starting to see the first signs of the market gradually bottoming out. It is perhaps too early to call the current conditions entirely stable as the weak signs of stability may be quickly upset by any shocks to the global economy, or indeed the local economy. For now, our baseline view is for rents to dip back by between 5% to 7% during 2017, which assumes little change in rents over the next three quarters. This is arguably the most stable outlook for Muscat’s residential market in almost two years.”
Weaker market conditions have continued to undermine office rents across Muscat, the report shows. The Central Business District (CBD) (-18.8%), Ghubrah (-17.9%) and Azaiba (-17.9%) emerged as the weakest performers in 2016, with the CBD now having to offer some of the most competitive office rents in Muscat to try and attract tenants, with average rates standing at OMR 3.25 psm. Rents across the markets monitored continued to recede during the first three months of 2017, with lease rates in Al Khuwair (OMR 5 psm), declining by 4.8%, positioning it as the worst performer.
Philip Paul elaborated, “Across the board, rents currently sit at fresh historic lows and are roughly 60% down on the market peak of 2008. In a similar vein to the residential market, this has resulted in significant increases in engagement with our professional services team as occupiers seek to consolidate operations, or simply downsize to what is perceived to be more affordable stock, while others take advantage of falling rates and upgrade to space they may not have been able to access previously.”
By way of a forecast, Paul added, “The short-term prospects for the office market are certainly weak, with rent corrections on average of 10% or 15% likely this year. With added complications forecasted through the introduction of the GCC-wide 5% Value-Added-Tax (VAT), demand for office space could be further dampened due to increased operating costs, however this is still too early to assess, but something we are monitoring.”
The report highlights the continued success of the Omani hospitality sector, as a defiant beacon of success during struggling market conditions across the GCC. From a real estate perspective, the sector is going from strength to strength as a high-performing asset class in Oman’s real estate landscape for the next few years.
Durrani commented, “The outlook is for the direct contribution of travel and tourism to grow by 6.1% per annum over the next 10 years to OMR 1.344 billion by 2026. As our report highlights, this increase, combined with the completion of the landmark USD 1.8 billion airport in the Omani capital is expected to spur development activity on the airport fringes, whilst also lifting overall economic sentiment. Sentiment plays a paramount role in markets such as Oman, which is often underestimated. The new airport sends out a strong message about Muscat being open to tourists and with rejuvenated and enhanced facilities, a rise in tourists visiting the Sultanate is welcomed. The government’s goal for tourism and hospitality to contribute 3% of GDP in the next five years appears strongly on track and we look forward to the subsequent boost to the economy”.
The overall projections indicate that the outlook for the tourism sector in Oman is very positive. It is our view that this will help to drive the continued development of the hospitality sector across the Sultanate, particularly for facilities with a strong leisure tourism focus.”