‘Hospitality sector seen as growth driver in Oman’s real estate’
Oman is investing heavily in its tourism and hospitality sector as it aims to host seven million tourists by 2040, including 2.7mn in Muscat, according to the latest Oman Market View by global real estate consultancy firm, CBRE.
This has primarily benefitted Muscat, with the construction of multiple new infrastructure and real estate developments, including the ongoing work on the long-delayed Muscat International Airport, as well as other projects such as the Mall of Oman and The Wave, which are designed to craft the ‘Oman brand’, stated a press release. While already targeting a diversified visitor base, the MICE market will become an increasingly important revenue generator for Oman in the coming years, subsequent to the opening of the Oman Convention & Exhibition Centre at the end of 2016.
Mat Green, head of research and consulting, CBRE Middle East said, “The ongoing construction of various internationally branded hotels, including the Westin, W, JW Marriott and Kempinski, will better cater to corporate demand.”
The first half of 2017 indicated steady growth of average occupancy rate, with a 2.2 per cent increase from 59.6 per cent in H1 2016 to 60.9 per cent in H1 2017, as per data from STR Global. During the period 2005 to 2016, hotel supply in Muscat more than tripled from approximately 2,900 to 9,600 rooms. This pace of expansion is also expected to be maintained moving forward, with almost 3,400 rooms currently under construction and expected to be operational by 2018, with a further 9,000 new rooms to open by 2021, depending on the pace of planned and on-hold projects.
With a number of major additions to the hotel market during the first half of the year, pressure on ADR’s has remained intense, with an 8.9 per cent decrease for the period June year-to-date, as rates dipped to RO65.89 per room per night from RO71.81 per room for a night in the same period last year. RevPAR has seen some notable decline, falling from RO42.79 per room per night in H1 2016 to RO39.82 per room per night in H1 2017, equating to a 6.9 per cent drop, as per data from STR Global.
According to the report, the residential rental market witnessed a very minor contraction during H1 2017, with rental rates declining marginally by one per cent. Landlords are now more willing to negotiate on rentals with both existing and prospective tenants to combat rising vacancy rates. Building tenant loyalty and ensuring ongoing asset management of properties, has become increasingly important as supply levels and competition have risen.
“The first half of the year witnessed a decline of around 70 per cent in the total value of real estate transactions, as compared to the same period last year, based on figures from the National Centre for Statistics and Information. This was primarily due to the sizeable decline in the value of mortgage transactions. This reflected a drop in both values and volume terms, as volumes from GCC nationals dipped by more than 50 per cent on a year-on-year basis,” said Green.
Residential sales prices fell modestly by around two per cent during H1 2017 and approximately five per cent year-on-year. Overall sales market sentiment remains weak, due to the prolonged period of low oil prices and overall economic mood, at a country and regional level.
Despite soft fundamentals, future supply levels continue to grow quite quickly, with close to 18,000 residential units expected to be delivered in the next two years. Muscat’s office market remains under deflationary pressure as the economy continues to feel the negative impacts of low oil pricing.
Average office rentals have now declined seven per cent year-on-year and three per cent during the first half of 2017, as demand levels have weakened from both local and international occupiers. With new office accommodation being delivered into the market in locations such as Azaiba, Ghala and Al Khuwayr, we expect to see a further softening of rentals, with greater flexibility in leasing terms also becoming more prevalent.
“With the economic headwinds continuing to limit new office demand, the office sector will remain somewhat constrained in the short term at least, with minimal evidence of current occupier expansion or new market entrances,” said Green.
However, with well-located Grade A office accommodation with adequate parking in comparatively low supply, occupancy rates for these properties are likely to remain high, with rental rates for prime spaces stable in the range of RO8-RO10 per sq m per month.