17 May 2016
Muscat - Fuelled by increased vacancy levels in stocks and wide ranging redundancy programmes in key sectors, residential rentals have started falling significantly.
According to a research by Cluttons, average residential rents registered a fall of 5.9 per cent during the first quarter of the current year, leaving them 12.7 per cent below the same period last year.
At the same time, the real estate consultancy says that opportunities do exist for landlords to secure income by offering prospective tenants additional incentives.
"We continue to see increased vacancy levels in stock that is perceived to be secondary, presenting landlords with a significant opportunity to take a long term view and refurbish during these emerging void period. With average rents slipping across Muscat, tenants are now benefitting from choice", said Philip Paul, Cluttons' Head of Country, Oman.
He said that good quality property correctly priced is still being snapped up quickly. Tenants are focused on good quality accommodation, with well managed facilities and amenities.
With that in mind, upgrading stock is certainly advantageous for landlords at this time.
The decline in the rent was led by the villa market, leaving average monthly villa rents at just over RO 1,004, which is 14.1 per cent lower than first quarter of 2015.
"If the expected bottoming out of the market does not in fact materialise, then demand for rental accommodation will continue to decline over the next six to twelve months, putting further downward pressure on rents, particularly as core sectors such as oil and gas, continue to show signs of shrinking", says Faisal Durrani, Head of Research at Cluttons.
With this in mind, it is our expectation that rents during 2016 are likely to fall by a further 5 per cent to 10 per cent, on average, across Muscat. However, it is worth highlighting that better quality properties priced at the lower end of the budget spectrum, at between RO 250 per month and RO 500 per month, are likely to remain stable, Durrani added.
"In the sales market, we have recorded price declines across the board, with buyers now watching for affordable options as the market comes in line with the new market reality", Paul said.
According to the National Centre for Statistics and Information (NCSI), during the first quarter of 2016, transactional volumes across the Sultanate were slightly lower than the same period in 2015.
The traded value of property in this period decreased from RO 1.322 billion in the first quarter of 2015 to RO 0.922 billion in the same period in 2016.
"This decline reflects the squeeze on disposable household incomes across the region as the era of low oil prices beds in. Going forward, we expect this trend to persist, particularly as oil prices appear unlikely to stage a comeback in the near term. With the region's governments rushing to diversify income streams through the introduction of new fees and taxes and the dismantling of energy subsidies, household incomes in the GCC are expected to come under further pressure, with disposable incomes also likely to fall and Oman has not been immune to this," Paul said.
In the commercial market, rents across most of Muscat's main office markets have remained steady for the ninth consecutive quarter despite strong headwinds to economic growth.
The only submarket that has shown movement in rents in the past 12 months is Shatti Al Qurum, where office rents have risen by 6 per cent to RO 8.50 psm.
"We are aware of instances where landlords have used the recent increase in the lease registration fee from 3 per cent to 5 per cent as a way to support asking rents in the first year of tenancies", Durrani said.
However, he said that going forward it is expected to see significant concessions made in order to attract and more importantly, retain existing tenants. With this in mind, it is our view that average monthly rents, which roughly hover between RO 4 and RO 9 psm per month, are likely to decline by RO 1 psm to RO 2 psm across the board over the course of the year as the market adjusts to the challenging economic environment.
"Well managed buildings may buck the trend, with rents likely to remain stable in popular schemes and we must of course remember that rents are already at a historic low and exceptionally competitive compared to other locations in the Gulf, so the declines will be likely very minimal", he added.
The report also highlights that in the retail market, after limited growth between 2005 and 2012, recent years have seen the introduction of a significant amount of new retail mall space in Muscat which has increased the supply of leasable space by approximately 75 per cent over the last three years alone.
The most notable malls introduced in this period are Muscat Grand Mall, Avenues Mall and Panorama Mall which are all located in Bausher. Despite the marked increase in retail mall space, occupancy levels have remained relatively stable at around 85 to 90 per cent.
Muscat - Fuelled by increased vacancy levels in stocks and wide ranging redundancy programmes in key sectors, residential rentals have started falling significantly.
According to a research by Cluttons, average residential rents registered a fall of 5.9 per cent during the first quarter of the current year, leaving them 12.7 per cent below the same period last year.
At the same time, the real estate consultancy says that opportunities do exist for landlords to secure income by offering prospective tenants additional incentives.
"We continue to see increased vacancy levels in stock that is perceived to be secondary, presenting landlords with a significant opportunity to take a long term view and refurbish during these emerging void period. With average rents slipping across Muscat, tenants are now benefitting from choice", said Philip Paul, Cluttons' Head of Country, Oman.
He said that good quality property correctly priced is still being snapped up quickly. Tenants are focused on good quality accommodation, with well managed facilities and amenities.
With that in mind, upgrading stock is certainly advantageous for landlords at this time.
The decline in the rent was led by the villa market, leaving average monthly villa rents at just over RO 1,004, which is 14.1 per cent lower than first quarter of 2015.
"If the expected bottoming out of the market does not in fact materialise, then demand for rental accommodation will continue to decline over the next six to twelve months, putting further downward pressure on rents, particularly as core sectors such as oil and gas, continue to show signs of shrinking", says Faisal Durrani, Head of Research at Cluttons.
With this in mind, it is our expectation that rents during 2016 are likely to fall by a further 5 per cent to 10 per cent, on average, across Muscat. However, it is worth highlighting that better quality properties priced at the lower end of the budget spectrum, at between RO 250 per month and RO 500 per month, are likely to remain stable, Durrani added.
"In the sales market, we have recorded price declines across the board, with buyers now watching for affordable options as the market comes in line with the new market reality", Paul said.
According to the National Centre for Statistics and Information (NCSI), during the first quarter of 2016, transactional volumes across the Sultanate were slightly lower than the same period in 2015.
The traded value of property in this period decreased from RO 1.322 billion in the first quarter of 2015 to RO 0.922 billion in the same period in 2016.
"This decline reflects the squeeze on disposable household incomes across the region as the era of low oil prices beds in. Going forward, we expect this trend to persist, particularly as oil prices appear unlikely to stage a comeback in the near term. With the region's governments rushing to diversify income streams through the introduction of new fees and taxes and the dismantling of energy subsidies, household incomes in the GCC are expected to come under further pressure, with disposable incomes also likely to fall and Oman has not been immune to this," Paul said.
In the commercial market, rents across most of Muscat's main office markets have remained steady for the ninth consecutive quarter despite strong headwinds to economic growth.
The only submarket that has shown movement in rents in the past 12 months is Shatti Al Qurum, where office rents have risen by 6 per cent to RO 8.50 psm.
"We are aware of instances where landlords have used the recent increase in the lease registration fee from 3 per cent to 5 per cent as a way to support asking rents in the first year of tenancies", Durrani said.
However, he said that going forward it is expected to see significant concessions made in order to attract and more importantly, retain existing tenants. With this in mind, it is our view that average monthly rents, which roughly hover between RO 4 and RO 9 psm per month, are likely to decline by RO 1 psm to RO 2 psm across the board over the course of the year as the market adjusts to the challenging economic environment.
"Well managed buildings may buck the trend, with rents likely to remain stable in popular schemes and we must of course remember that rents are already at a historic low and exceptionally competitive compared to other locations in the Gulf, so the declines will be likely very minimal", he added.
The report also highlights that in the retail market, after limited growth between 2005 and 2012, recent years have seen the introduction of a significant amount of new retail mall space in Muscat which has increased the supply of leasable space by approximately 75 per cent over the last three years alone.
The most notable malls introduced in this period are Muscat Grand Mall, Avenues Mall and Panorama Mall which are all located in Bausher. Despite the marked increase in retail mall space, occupancy levels have remained relatively stable at around 85 to 90 per cent.
© Oman Daily Observer 2016
