Hurt by COVID-19 pandemic and weak oil prices, Oman’s overall economy and real estate sector will continue to face increasingly challenging conditions over the coming months, according to a leading global real estate consulting firm.

As a result of the impacts of COVID-19 pandemic and lower oil prices, Savills expects to see increasingly challenging economic conditions and an acceleration of the exodus of the expatriate population.

Savills on Sunday released its latest market report for the sultanate. The report highlights the historic correlation between Oman’s GDP trends and movement in oil prices, and an assessment of the impact of macroeconomic conditions on the real estate sector.

According to Savills, the market conditions in both the residential and office space rental sectors in Muscat were already in slowdown/recession prior to the COVID-19 pandemic. The impacts of the COVID-19 pandemic and lower oil prices will place both the residential and office space rental sectors in Muscat under further pressure over the coming months, the consultancy said.

Savills said the total population of Oman grew from 3.6mn in 2012 to 4.6mn in 2016 and has levelled off since then. ‘This growth was driven primarily by the expatriate population which grew from 1.5mn in 2012 to 2.1mn in 2016. Current evidence suggest that a net exodus of highly qualified expatriates started in 2016 due to economic conditions and increasing restrictions on expatriate employment.’

Ihsan Kharouf, head of Savills Oman, said, “Expatriates play a significant role in influencing demand for real estate. Market conditions in both the residential and office space rental sectors in Muscat were already in slowdown/recession prior to the COVID-19 pandemic as a result of slow economic growth and negligible net population growth. The ongoing pandemic has further deteriorated the economic landscape. While the longer-term impacts of the pandemic on the sector are currently unclear, it is evident that there will be increasing challenges over the coming months.”

According to Kharouf, recent years have seen a gradual decline in achievable rental values in Muscat as a result of increasing supply relative to moderate demand. Savills estimates that there is currently around 350,000sq m of better-quality office space for the rental market in Muscat with a further circa 100,000sq m of office space under construction between Qurum and Muscat Hills which is due to be completed in the coming 12 to 18 months.

In Savills’ experience, the majority of recent demand has been focused on smaller, fully finished office units with around 90 per cent of demand coming from companies with an existing presence in Oman: Demand from new market entrants has been limited.

‘The longer-term impacts of the COVID-19 pandemic and lower oil prices on the office rental market in Muscat will only become clear over the coming months but the sector is highly likely to experience downward pressure in terms of both demand and achievable rental values in the short term,’ Savills said.

With rental values at historically low levels, however, Savills considers that landlords are increasingly likely to agree to incentives such as extended initial rent-free periods and/or assistance with office fit-outs for shell and core space rather than notable further drops in rental values.