Oman’s real estate market is experiencing fast-paced growth thanks to various enabling factors such as enhanced infrastructure spending, a favourable demographic, interest from regional investors and business growth. Mayank Singh reports.
The real estate market in any country is a major barometer of its economy for a variety of reasons – it is a major contributor to GDP; creates employment; leads to capital investment and provides livable cities for a growing population. In the GCC region, the real estate sector has been a linchpin of the economy for a number of years, with the fortunes of the sector being a reliable bellwether on where the economy is headed. Over the years, Oman’s property market has evolved and become sophisticated with Integrated Tourism Complexes (ITCs), hypermarkets, warehouses and industrial complexes.
So, what are the underlying trends in Sultanate’s real estate market? According to Clutton’s Residential Market Outlook, Muscat, Winter 2014 report, rental value growth for two and three bedroom apartments during the first three quarters of 2014 followed a path of stabilisation with Q3 experiencing no change in average rents, following a 0.7 per cent rise in Q2. This equates to a 2.3 per cent rise during the 12 months to the end of Q3 2014, with two-bedroom apartments (3.1 per cent rise) outperforming three-bedroom apartments (1.5 per cent increase) over the same period.”
In term of specific areas, two bedroom apartments in Azaiba remained amongst the most sought-after in the capital due to their relative affordability, with average rents standing at RO550 per month at the end of Q3. This compares to three bedroom apartments at The Wave, which averaged RO950 per month during Q3. Says Benjamin Cullum, general manager, Hamptons International, Oman, “The residential market has been strong with an underlying demand for housing, particularly in the Muscat area, as it remains a magnet for expatriates and Omanis. There has been a decent take up of apartments over the last 12 months because of the developments taking place.”
The Clutton’s report goes onto state that villas too have recorded no change in rents during Q3; however average rents now stand 4.8 per cent ahead of Q3, 2013. On an annual basis, four-bedroom villas have seen the most significant change with monthly rents rising by just over seven per cent to RO1,610. On a submarket level, Azaiba, with a 20 per cent increase, was the strongest performer on an annual basis to the end of Q3, 2014. In particular, the areas located midway between old Muscat and the new emerging areas to the West of the capital continues to draw in families seeking a relatively central and affordable base. The strong levels of demand have not been matched on the supply front and this has aided the sharp rise in rents.’
Integrated tourism complexes (ITCs) like The Wave, Muscat and Muscat Hills have raised the level of properties available for rent, forcing other landlords to follow suit. Says Glenn Meek, general manager, BetterHomes, Oman, “The trend now is to have houses with ducted ACs, fully fitted kitchens and other amenities. With corporate budgets for rents being reduced, ITCs are out of reach for a number of people; but tenants are still looking for places with gym, swimming pool and other features.”
Gated community development
The demand for better quality has led to a rise in requests for gated communities. The influx of expatriate families to Muscat has helped to drive overall levels of tenant requirement in gated communities. The demand has been centered on three bedroom villas and this is reflected in the fact that rents in this category rose by just over five per cent during Q2, 2014 before levelling off during the seasonal summer slowdown.
In terms of the existing and projected supply pipeline, properties of this type remain generally confined to ITCs such as The Wave, Muscat and Muscat Hills; but there is an increasing interest by smaller developers, who are looking to exploit the gap in the market. Amongst the most notable new residential schemes to complete is the IZZ villa complex in Police Heights, Qurum, which will be brought to the market shortly.
Ken Mueller, chief business development officer, Yahya Group Holding and general manager, Dolphin Village is upbeat about the prospects of gated community development. “Dolphin Village has 100 per cent occupancy, with a waiting list. The rents have gone up by seven to nine per cent but occupancies have still been high,” he says. Dolphin Village has 337 homes – both twin villas and homes, three pools, two gyms, two tennis courts, one squash court and a spa. A new clubhouse has just been opened with a full service restaurant, a lounge with indoor and outdoor service right along the pool. Dolphin Village offers a community and a lifestyle. Emboldened by its Dolphin Village experience, the Yahya Group Holding is in the process of getting approvals for a master plan on another mixed used development called Dolphin Vista which will stretch from the Muscat Expressway (in Bausher) to Dolphin Village. Dolphin Vista is expected to break ground in 2015 and all its phases will be completed in six to seven years.
The efforts to improve Muscat’s transportation network too augurs well for the real estate market, as it will link far-off areas with capital. Chittaranjan Gauba, senior advisor, Engels and Volkers, Oman says, “The best news that we have got recently is the setting up of a Public Authority for Transportation. This is going to make a huge difference to the real estate market, easing out pockets of overcapacity. Good transportation should open up newer areas like Amerat, as people will be willing to move from their traditional homes.”
Demand for villas
It is evident that the villa pipeline is limited and hence villa rents are expected to resume their gradual upward climb in the coming months following the normal summer hiatus. Furthermore, as job creation levels are projected to remain robust, demand in this segment of the residential market is likely to continue outstripping supply over the short to medium term, encouraging further strong rental value growth.
Christopher J Steel, managing partner, Savills Oman adds, “The mid-to- high-end budgets are quite particular about their property requirements, so there is a shortage of properties to meet the high-end market. The rents for good quality villas at The Wave and Muscat Hills have gone up by 15-20 per cent year-on-year. The top-end budgets are pretty small but so are the property choices; and at ITCs they get the benefits of good gardens, support facilities, quite environment, community services.” This may ease up once more stocks from ITCs are on offer in the market.
The first phase of the new Saraya Bandar Jissah ITC, which broke ground in April will include two new five star hotel properties, operated by the Jumeirah Group. This is in addition to the three luxury residential zones, all of which are expected to complete in 2017. A second phase with two further residential zones is planned for delivery in 2020. In total, 398 residential units are being built. Off-plan sales of the residential units in the first phase are due to be launched shortly.
Says Sheikh Hamood al Hosni, CEO, Saraya Bandar Jissah, “Collectively, all ITCs offer different lifestyle themes; however our focus for the Saraya Bandar Jissah project is to make sure that our audience understands the unique qualities of the development – the stunning surroundings, larger property sizes on offer and the real sense of community that has been incorporated in the master plan. The master plan offers an extremely low property density with only 20 per cent of the 2.2 square kilometers site area being developed, helping to maximise breathtaking views. The price point is appealing to buyers who appreciate the lifestyle and investment opportunity on offer.”
The Clutton’s report states, “The robust level of tenant demand remains centered primarily around the higher end of the market and on villas in particular. This has led to a number of developers rushing to deliver new residential stock to the market as they move to capitalise on the depth of requirements, as evidenced by the heightened number of feasibility studies being undertaken. The majority of this planned supply is however expected to be at the middle-to-lower end of the quality spectrum and demand is likely to be limited for such schemes, with take up expected to be driven by the amenities available, the quality of finish and pricing, in that order of importance, although apartments in Azaiba remain an exception to this. As a result, further divergence in the already two-tiered rental market is expected to follow, with rents at the higher end of the market likely to move upwards at an accelerated pace.”
On the other hand, the sales market has remained buoyant. The number of non-resident Indians (NRIs) purchasing retirement homes in Oman to capitalise on the relative affordability compared to neighbouring markets like Dubai, and the added attraction of property ownership-linked visa, continues to gather pace. In general, retirement property hunters’ budgets hover around the RO100,000 mark, with one bedroom apartments at The Wave, being amongst the most sought after. Although there is activity at the RO300,000-500,000 mark, this is limited and largely confined to first time buyers or buy-to-let investors.
Hawazen Esber, CEO, The Wave, Muscat, says, “The year 2013 was a record year for The Wave with over RO60mn in sales and resale activity. This year has continued in the same manner, with strong investor confidence in Oman’s economy and the property market in general. The demand for premium quality housing which offers integrated lifestyle facilities such as golf courses, marina, retail, leisure and offerings has been growing steadily.” Over 80 per cent of The Wave’s recent launches have been sold out. There has been a shift in demand towards more contemporary finishes and interior designs from local buyers, with Omanis making up 45 per cent of the owner occupiers. Says Cullum, “Though The Wave Muscat and Muscat Hills are ITCs, they are not holiday homes as was originally envisaged; but they are good quality residential areas, drawing people and businesses.”
The Wave has sold over 1,700 properties with more than 1,200 handed over, including villas, townhouses and apartments. The first marina-front apartments in Marsa 1 will commence handover in early 2015. The Wave’s attractiveness is set to be bolstered by the projected completion of the five-star Kempinski hotel in 2015 and the four-star Wave Plaza Hotel operated by Shaza Hotels, which is due to be completed by 2017. With two more hotels being planned and a real community feel now beginning to emerge as retailers move into the recently completed Al Marsa Village retail centre, a further upward pressure on capital value growth rates is expected as the development becomes an increasingly desirable place to live.
Elsewhere, Muscat Hills continues to grow in popularity in both the rental and sales market. Two-bedroom homes at the ITC are currently priced at RO115,000 and offer partial golf course views. Although not on the coast like The Wave, the development is considered to offer better value for money for the time being. Once the French curriculum school opens and further amenities are delivered, capital values are expected to rise to similar levels to those at The Wave.
Says Sheikh Hamood, “As the only Integrated Tourism Complex launched since 2007, we believe that Saraya Bandar Jissah will become the new benchmark for other tourism development projects. We also believe that coming to the market at this time, and making it a real success will encourage other developers to return to the market. We actually want to develop that part of the city (Qantab beach area), because we find it very unique in terms of sightseeing and revenue opportunities.”
Just like the residential market, the commercial market space too has been differentiated into Grade A and Grade B property. Says M Sudhakar Reddy, CEO, Al Habib & Co, “Commercial properties are doing badly in various places as they have been built without adequate car parking. The municipality regulations mandate that there should be one car park for every 50 sqm of construction; but the actual demand is higher, probably one car park every 25 sqm, because of the lack of public transportation. There is still demand for Grade A office space, in the right location with a host of facilities.”
Adds Cullum, “Office space has gone from a boom and development period to a period where demand is more muted. CBD area has lost out in a big way because of the accessibility and parking problems and the obsolescence of properties.” There are very few properties that tick all the boxes related to tenant requirements like parking ratio, price and added amenities like coffee shop and restaurants.
During the first three quarters of 2014, average monthly office rents were held steady at between RO4 and RO8 psm in most submarkets. This does not however mask the fact that rents for more secondary and tertiary space are still experiencing gradual declines, while Grade A rents in desirable schemes are holding steady. The persistent demand from larger corporate occupiers and smaller SMEs for top tier schemes, allied with the limited supply pipeline is expected to sustain the upward pressure on rents in the near to medium term. This is a trend that is expected to persist, particularly as the pipeline of lower grade schemes yet to complete remains strong and vacancy levels in this portion of the office market remain high. Conversely, Grade A supply levels in central Muscat are currently limited to a handful of schemes such as Al Asslah Towers, Beach One and Al Rawaq, where reported occupancy levels range between 75-90 per cent.
The strong demand for higher quality schemes has encouraged a number of developers to step into the market. In particular, there is heightened development activity in the Airport Heights area, which is quickly emerging as the capital’s new CBD away from old Muscat. The movement of banks westward continues with the National Bank of Oman and Bank Sohar building new headquarters in the West of the city.
Elsewhere, the only substantial amount of Grade A space waiting in the wings is the new Panorama Mall in Al Khuwair, which will include 5,500 sqm of prime office space, spread across six levels. It is expected to complete in Q1, 2015. In addition to this, the Ominvest Building in Shatti Al Qurm is set to deliver 5,954 sqm of Grade A office space to the market soon. Says Mueller, “People seek quality and convenience and if you can provide these, it adds value and such properties always sell well.”
Hassan Mohammed Juma, managing director, Mohammed Juma Sultan Co, says, “A lot of quality retail space like the Mall of Oman is being built while LuLu, Centrepoint etc are expanding drastically. This is because of an increase in salaries, and a change in lifestyle with people being ready to spend more. There is an ongoing debate about whether these malls will find enough tenants. Looking at other economies, we find that retail malls get occupied, as they create demand. Secondly, a lot of reallocation is happening in the retail space.” For example, Qurum, with CCC, Al Araimi and Sabco Centre, was a prime retail area, but it has lost out to hypermarkets. “Oman is an underserviced market in all areas, whether it is F&B, retail etc. I think that the new retail spaces will be occupied. But Oman is not ready for high-end retail because the average per capita income is low. Moreover, for people who can afford things, Dubai which offers the best of brands is just next door,” adds Hassan. Overall, 380,000 sqm of retail space is in the pipeline. While the development is welcome, market watchers feel that there needs to be a point of difference between various malls. Malls need to serve a purpose to attract people. For example, Muscat Grand Mall (MGM) brought in new brands into the market along with F&B outlets to draw people. The upcoming IKEA and Mall of Oman is expected to do the same.
The focus on attracting ‘value brands’ to Muscat’s shopping malls persists and this is an ongoing strategy for several mall operators. At Markaz Al Bahja, there has been a notable rise in footfall, rental values and occupancy following the introduction of Matalan and Red Tag as the shopping centre’s two main anchor outlets. Red Tag, a fashion and home furnishing brand, has moved quickly to capialise on demand for mid-range brands and has expanded to six outlets across Oman. Another example of the focus on the value sector has been at MGM where R&B, a value fashion outlet and Homes’R Us, a mid-range home furnishing outlet from the Apparel Group, have been positioned as the mall’s two main anchor stores.
Another value retailer that has experienced fast paced growth is Centrepoint of the Landmark Group. In addition to Al Khuwair, Centrepoint has developed further retail stores in Ruwi, Muscat City Centre, Sohar and Salalah. A new Centrepoint outlet will open at Barka Mall that is currently under construction, while its existing store in Al Khuwair is being expanded. Says Hawazen, “The Walk is the new commercial and retail gateway at The Wave, and it has brought an additional four-storeyed retail, commercial and business facility, adding 10,850 sqm. In total, we now have 16,000 sqm of retail space.”
Says Steel, “There will always be a demand for F&B in Oman; but other categories of retailing are governed by the appetite of international franchises for retail space and at present Oman’s per head spending power is less than competing countries in the region. So there is a general reluctance to bring in as many brands to Muscat as in other countries.”
Hypermarket chains expand
While mall operators may be reconfiguring their retail offerings, the hypermarket sector has continued to create and capture marketshare and remains central to the retail mix at the major shopping malls. For instance, Lulu Hypermarket and Carrefour, which have a high market penetration across the Sultanate, are set to be joined by SPAR, the Dutch supermarket chain, which signed a deal with Khimji Ramdas in 2013 to introduce nine supermarkets in Oman by 2016. In the face of rising demand, the forecast of some 380,000 sqm of mall space that is expected over the next two years, may to an extent temper rental growth potential.
Says Reddy, “The second generation malls like City Centre and MGM are doing well, unlike first generation malls like Al Khamis, Sabco and Al Araimi. The second generation malls brings in huge footfalls because of their entertainment component and international offerings.” Around 60 per cent of new malls are occupied by regional and international brands.
Despite the surge in mall retail space, high street retail has continued to remain popular, especially in densely populated parts of Muscat such as Ruwi High Street, Al Khuwair Commercial Street, Seeb High Street and Al Khoud High Street, all operating at near 100 per cent occupancy. The focus of these streets is generally on local and value outlets rather than international brands. They are aimed at the requirements and spending power of the general population rather than being more aspirational as the larger malls. The strength of demand for units is reflected in the fact that rents are generally equivalent to those achieved by top-tier malls. Says Reddy, “Retail is very location-specific, and the better places are doing extremely well. For example, in some areas of Ruwi, you need to pay key money in addition to rent. In Honda Road, we manage two properties. While in 2002, we were struggling to rent them out at RO3.5 psm, today it rents at RO15 psm without much effort.”
As expected, the closure of Port Sultan Qaboos (PSQ) at the end of summer has acted as a catalyst for enhanced industrial development in Sohar. Apart from the RO50mn port expansion now underway at Sohar Port, the adjoining freezone also continues to grow, with approximately 80 per cent of the 500-hectare first phase now allocated. The rapid take up has prompted authorities to bring forward the second phase of expansion by three years and development on phase two is expected to commence by the end of 2014. The Saud Bahwan Group and the Suhail Bahwan Group have been amongst the most active occupiers. Both have set up separate automotive logistics facilities which are together projected to result in the movement of 200,000 vehicles through the freezone annually. Says Cullum, “Sohar has seen an increase in land value, but it is still early days in terms of the container port moving there. Although the area has strong underlying strengths, the continued development of the port, freezone and the GCC rail network will be crucial factors affecting the area.”
Despite the reconfiguration of industrial estates around the capital, as occupiers relocate and reposition themselves after the closure of PSQ, rents have remained unchanged through the first three quarters of 2014. Monthly warehouses rents have held steady at between RO2-4 psm across all major areas. With strong occupier demand unlikely to ebb in the near term, rents are likely to begin drifting upwards early next year once Sohar Port’s freezone becomes saturated and occupiers are forced to seek out space in a supply-constrained market. Says Steel, “Logistics and warehouses are very important. The Batinah highway is of specific salience from a regional logistics perspective. Given the upcoming rail link, and developments in Duqm and Sohar, there is international interest in this area,” he adds. “Duqm is going to experience significant growth because of its location and the available housing and support amenities infrastructure. Unlike Sohar, where people left once the facilities finished, Duqm is pursuing a different model by creating a permanent population.”
The Cluttons report states, “The government has announced plans to commence development of the 90 mn sqm, South Al Batinah logistics hub by the end of the year. The hub which is strategically located to the South of Barka, with direct access to planned road and rail developments, is expected to compliment Sohar Port, while bolstering the industrial and logistics capabilities of northern Oman tremendously. This is in turn expected to boost the appeal of the northern coast among larger regional occupiers and logistics operators.’
Despite the upbeat mood of the market there are a few imponderables facing the market. Says Mahmood Al Manthary, CEO, Real Estate Souq, “The multiplicity of authorities is a nightmare that haunts investors in the real estate sector. The lack of a central authority that finalises building, development and other procedures leads to delays. A real estate regulator will bring about considerable improvement in the sector.” Hassan adds, “Dubai has a Real Estate Regulatory Agency (RERA) and the Oman Real Estate Association, has been asking for a similar regulator in the Sultanate. The sophistication of the regulation should be a function of the size and maturity of the market.” For example, there is a rule that no one can be a broker without an office, adequate training and license; but this is followed more in the breach. The lack of reliable data is another challenge facing the sector.
Aware of such lacunae, the concerned governmental authorities are looking at better regulation. “There has been a certain amount of uncertainty about government policy when it comes to zoning requirements. People felt that irrespective of what an area was zoned as, they could always get permission to do something else. Till now, people were using residential areas for commercial establishments; commercial zones were being used for warehouses and light industrial. People were ready to invest, as they felt that there will always be demand whether it was for commercial, industrial or residential usage. Over the last six months, there has been a block on the change of use, and the government has said that if a land has been registered and licensed for a particular purpose then it cannot be changed,” says Gauba.
Despite such challenges, overall market sentiment remains positive. Says Hawazen, “There is an increasing interest from regional buyers looking at relocating to Oman as a safe living environment or purchasing a second home as an investment. Around 50 per cent of Oman’s population is under 25 years of age, which will increase demand for property in the coming years as more of the population seeks to become home owners. With projects being completed, and new job opportunities being created, we expect to see increased activity in the real estate sector.”
Infrastructure spending by the government is another catalyst for the sector. Says Sheikh Hamood, “The government has reiterated its commitment to various projects like the expansion and development of Muscat International Airport and Salalah Airport, new hospitals, infrastructure projects and housing programmes in their Eighth Five-Year Plan. Therefore, we foresee an increased interest in property investments in the Sultanate. Adds Hassan, “The real estate market will do well because of strong internal demand and investment from regional investors. Oman offers reasonably priced property with attractive returns. All-round stability and a good simple market for business, adds to its charm.”
If the real estate sector is any indicator of the way the Sultanate’s economy is headed, then one can confidently predict an upward trajectory. The demand for enhanced facilities and amenities in the residential and commercial space is leading to better quality. Shift in container port activities to Sohar and the upcoming railway project augur well for the Barka to Sohar stretch. Developments in Duqm will create a new township, while ITC projects are experiencing steady progression. If you were planning to invest, build or purchase property, then it may be a good time to take the plunge.