MarketView

Muscat, Oman
2010
CB RICHARD ELLIS
www.cbre.ae/research
2010
OVERVIEW
Like its regional neighbours, real estate
in Oman is experiencing a correctional
phase, particularly across the office
and residential sectors. Lease and
occupancy rates have declined sharply
/
development and sale of properties, an
activity earlier restricted to wholly
owned Omani/GCC companies.
Certainly the demographic of the
Lease Rates
Q4 Q3
Change from
Quick Stats
p y p y
over the past two years as result of
weak demand fundamentals brought
on by stuttering economic growth.
Despite the downward trend in key
performance indicators, the Muscat
market has actually outperformed
many of its GCC neighbours. This is
d l l h id d b
country lends itself to further
development opportunities, with a
specific focus on the growing young
population. With nearly 40% of the
total populace below 19 years of age,
there is significant potential to expand.
RESIDENTIAL SECTOR
Lease Rates
Q4
09
Q3
10
Office

Residential

Hot Topics
Public and closed joint
stock companies with
an Omani
shareholding of at
least 30% can now
own and develop
land.
due largely to the support provided by
indigenous demand and more
restricted supply.
Since the opening of the property
sector to foreign investment in the
Integrated Tourism Complexs (ITCs),
the Government has introduced a
number of important measures to help
Activity in the Muscat residential sector
remained subdued during 2010
despite the Sultanates economic
growth during the period. A reduction
in the expatriate population was
largely to blame for this trend amidst
the backdrop of reduced employment.
L i h i l b
land.
Average apartment
lease rates across
Muscat have dropped
by 13% annually since
2009.
The office market is
tl d i
number of important measures to help
raise the countrys international profile
and to improve its regulatory
environment in order to attract new
foreign direct investment.
The recent relaxation of the foreign
shareholding ruling pertaining to land
investment is one such measure which
Lease rates in the capital grew by
around 25% during the period 2006 to
2008. However, since Q1 2009 they
have cooled off considerably,
recording average negative growth of
13% per annum. 2011 is likely to see
a return to more positive territory as
more bullish economic expansion takes
l currently undergoing a
downward phase as
the city heads towards
significant oversupply.
Excess supply will likely
result in landlord
incentives in the form
of rent-free periods
could prove to be a catalyst for further
development of the real estate sector in
the coming years. Public and closed
joint stock companies with Omani
shareholding of 30% can now own
land and be involved in the
Average Apartment Lease Rates (2007 to 2010)
place.
Residential supply has grown at a
notable rate over the past three years
despite a contraction in development
activity since the onset of the financial
crisis.
of rent free periods
and more relaxed
payment terms.
Average Apartment Lease Rates (2007 to 2010)
200
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500
600
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100
1BR 2BR 3BR 1BR 2BR 3BR 1BR 2BR 3BR 1BR 2BR 3BR
2007 2008 2009 2010
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Areas such Al Khuwair, Azaiba, Al Ghubra, Al Khoud and Bowsher have all witnessed a significant
expansion of property stock during this period.
The development boom has led to the emergence of multiple new projects, all offering superior facilities and
amenities, including covered parking, controlled security access, gymnasiums and swimming pools. The
availability of new product offerings at attractive rates has resulted in some migration of tenants from older
areas of the city and from apartments which lack adequate facilities.
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areas of the city and from apartments which lack adequate facilities.
Traffic issues and extensive movement of the commercial office sector towards new development areas have
also been influential in driving occupier movement in the residential sector.
Lease rates for apartments and villas have dropped in all areas of the city, although the worst affected are
typically individual villa developments towards the northern edge of the city. Occupancy rates for
apartments have generally fared better than villas and townhouses due to affordability factors related to the
larger product types. Widespread availability of similar units within the ITCs offering competitive rates but
ith b tt lit f iliti d it h l t d t i hibit t ithi i di id l ill with better quality facilities and security, have also acted to inhibit occupancy rates within individual villa
projects.
Rental rates for villas typically vary from around RO800 up to RO2,000 per month with variations typically
dependant on the quality and location of the unit. In light of increasing construction activity, the villa and
townhouse market could face the prospect of further falls in both lease and occupancy levels during 2011.
OFFICE MARKET
Th M t ffi t h d j t f ti i t b th i t f lit d The Muscat office sector has undergone a major transformation in recent years, both in terms of quality and
its overall offering. Much of the existing stock is now aging, with poor quality facilities and substandard
parking allocations. This situation is now driving the migration of tenants to new areas where suitable
access to shaded and secure underground parking is more prevalent. At this point there is no integrated
public transport system in place in Muscat, and this means issues with congestion and building access are
likely to continue in the short-term at least.
As in the residential sector office lease rates have declined in all areas of Muscat over the past two years.
The average fall citywide was recorded at 16%, whilst the largest decreases took place in the CBD/Ruwi, Al The average fall citywide was recorded at 16%, whilst the largest decreases took place in the CBD/Ruwi, Al
Khuwair and Madinat al Qaboos areas, where rents plunged 22%.
Outside the weaker demand fundamentals, the main factors that contributed towards these rate reductions
are persistent traffic congestion and the general inadequacy of available parking facilities. The existence of
poor quality aging office stock is also starting to impact upon the desirability of Muscat. Current lease rates
in the CBD now typically range between RO8 to RO12/sqm/month.
Al Khuwair area, which had historically commanded higher rates than the CBD, due to its higher quality
ff d i it t G t ffi i i i d t f t t t d offer and proximity to Government offices, is now seeing an increased movement of tenants towards new
purpose built office buildings. This in turn has resulted in increasing vacancy rates, placing increasing
pressure on local landlords to fill voids.
Office Lease Rates By District (2007 to 2010)
12
14
CBD/Ruwi Al Khuwair Ghala Azaiba Qurum
4
6
8
10
12
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2007 2008 2009 2010
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The lowest rate drop was noted in the Ghala and Azaiba areas, with both locations registering just a 6%
decline. Much of the new office accommodation in these area has been owner-occupied meaning less
vacant office units to impact upon the market. Lease rates in Ghala and Azaiba are currently around
RO7.5 to RO8/sqm/month which reflects the relative strength of demand and the more limited supply.
One notable trend that has emerged in Muscat during recent years is the growing number of companies
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uOne notable trend that has emerged in Muscat during recent years is the growing number of companies
choosing to develop their own office facilities to accommodate their workforce. The main driver for this
move comes through the occupation cost savings made achievable by leasing excess space to outside
tenants and through offsetting of rental burdens against a long-term investment strategy. Prominent local
companies who are developing their own offices include Majan Development Company, Al Hosn
Investment Company and Qalhat LNG.
OUTLOOK
Th l t t k t f M t i t d t i d f t t bilit th t 12 th The real estate market of Muscat is expected to see a period of greater stability over the next 12 months
with lease rates for all properties starting to level out. The prolongation of increased Government
spending on infrastructure projects looks set to see a new influx of workforce to the capital, both from
outside the country as well as within.
Despite improving conditions economically, the office market continues to face major challenges as
significant oversupply impacts the market for both existing as well as new office buildings. Tenant
migration trends are set to be maintained during 2011, as occupiers look to move from aging buildings to
new dedicated office developments with higher quality specifications and adequate facilities new dedicated office developments with higher quality specifications and adequate facilities.
In the short term excess supply will supersede demand resulting in improved terms for tenants in the form
of rent free periods and more relaxed payment terms.
For more information regarding the MarketView, please contact:
Matthew Green Mohammed Faheem
Head of Research & Consultancy, UAE Senior Research Analyst
CB Richard Ellis, Middle East CB Richard Ellis, Middle East
Building 6, 8
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Floor Building 6, 8
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Floor
Emaar Square Emaar Square
Dubai, UAE Dubai, UAE
t: +971 4 437 7200 t: +971 4 437 7200
e: matthew green@cbre com e: mohammed faheem@cbre com e: matthew.green@cbre.com e: mohammed.faheem@cbre.com
Disclaimer 2010 CB Richard Ellis
www.cbre.ae/research
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