Long-term Economic Impacts Of The Pandemic Continue To Challenge Oman’s Real Estate Market

Savills, the leading global real estate advisors, released its latest report analyzing the current state of the Oman’s real estate market. In this edition, Ihsan Kharouf, Head of Savills Oman highlighted that the Sultanate is in a significantly improved position in comparison to this time last year, but headwinds remain for the real estate sector. According to Kharouf, landlords will need to be flexible, pro-active and move quickly to changing market conditions in order to attract and retain tenants. Opportunities for successful development will need to be well considered and clearly focussed on evident market gaps, opportunities and needs.

12 months after the pandemic, The Sultanate has significantly accelerated its Covid-19 vaccination programme in June with the intention of over 70% of the population being vaccinated by the end of the year. This is likely to be of significant benefit in re-opening the travel and tourism sector while allowing current restrictions on the retail sector to be significantly eased.

IMF predictions

According to Government figures, GDP (at current prices) dropped by just over 15% in 2020 in comparison to 2019. The International Monetary Fund (IMF) and World Bank are both projecting that Oman’s economy will show a moderate recovery over 2021 before seeing a notable acceleration in 2022. The IMF’s current projections are then for steady but more limited growth from 2023 to 2026.

Oman’s economy is also driven to a significant degree by government spending while, according to the IMF, government revenues dropped by 24% from OMR 11.0 bn in 2019 to OMR 8.3 bn in 2020. Encouragingly, the IMF is predicting that government revenues will recover at 15%annualy over the next two years to OMR 9.6 bn in 2021 and OMR 11.0 bn in 2022 before stabilising at a growth rate of 1% to 3% per annum from 2023 to 2026. At these revenue levels, the IMF is projecting that the government will be able to maintain spending at just under OMR 12 bn / year over the next five years.

Macroeconomic and demographic trends

During 2020, an increasing focus on providing jobs for nationals and the impacts of the Covid-19 pandemic saw a significant acceleration of the decline in the expatriate population that started in 2017. There are now around 320,000 (approximately 15%) fewer expatriates in the Sultanate in comparison to 2016 although the expatriate population has started to stabilize over recent months.

Office market trends

The pandemic and subsequent lockdown measures have negatively impacted the office market in Muscat. Office leasing activity was limited before the pandemic and the onset of travel restrictions and lockdown measures led to muted demand levels

Almost all new office leases were observed from  companies with an existing presence in Oman. Demand remains primarily focused on smaller, fully finished spaces. In contrast to the demand dynamics, recent years have seen the introduction of a significant supply of new office space which has exceeded the limited demand for office space in the city. There is currently circa 100,000 sqm of office space under construction, while requirements in excess of 2,000 sqm are extremely rare.