Optimistic outlook for Oman’s Construction sector
Prospects are bright for the Omani residential as well
as commercial office construction market on the back of
increasing population and rising employment levels
In their quest to move
away from predominantly oil-based economies, the GCC
nations initiated several big projects, with
construction being one of their top-most priorities in
the last decade. The GCC construction sector saw a
period of spectacular boom and was subsequently
adversely affected by the global economic meltdown.
Although the sector is showing signs of recovery,
investors are still taking a cautious approach. However,
the growth of the sector is supported by sound economic
fundamentals and healthy growth forecasts of the GCC
countries. With oil prices expected to be stable, any
further increases in government spending will support
investment and consumer spending, thereby having a
positive effect on GDP growth, which will bode well for
the overall economy in general and construction sector
Although the construction and real estate sector has
started recovering from the lows of 2008-2009, growth is
still far from pre-crisis levels. The growth is also not
uniform across all regions within the GCC and while some
countries are leading the recovery; others continue to
take a more careful approach. Prospects in the Qatari
construction market are looking optimistic on the back
of strong GDP growth and the successful bid for the 2022
FIFA World Cup. In Bahrain and Saudi Arabia, the focus
of the residential construction sector has shifted to
providing affordable homes to the low and middle income
group of population. UAE’s reputation as a safe and
stable country amid the recent ‘Arab Spring’ is likely
to have a positive impact on the construction sector
despite the current oversupply and cautious approach to
GCC region continues to enjoy premium on rental yields
as compared to the mature markets of the US and Europe,
which will keep the overseas investors’ interest intact
in the sector. Due to low number of transactions taking
place in the marketplace, the determination of the price
ranges is a challenging task, thereby making this a
buyer’s market. We foresee continuation of this phase in
near to mid-term.
Residential construction market
Oman’s construction and real estate market did not
witness the same boom as exhibited by other GCC member
countries mainly due to government regulations (non-GCC
nationals were not allowed to acquire freehold interest
in land till 2006). However, post 2006, when the
government introduced a change in law, allowing foreign
nationals’ ownership rights in land located in
designated Integrated Tourist Complexes (ITCs), the
residential construction and real estate market received
a big boost.
Since the construction and real estate sector was not as
big as compared to other GCC member countries, the
global recession in 2008 did not have as severe an
impact on Oman as it did on some of its counterparts in
the GCC region. With an oversupply of residential units,
Oman’s residential construction and real estate market
underwent a correction and average lease rates in Muscat
dropped by nearly 13 per cent between 2009 and 20101.
In the last few quarters, the lease rentals have shown
some signs of stabilisation. An improving private sector
is the primary driver for the recent growth in Oman’s
economy. The number of employees in the private sector
has grown by 20.7 per cent from 2008 to 2010 leading to
a surge in demand for properties2.
The residential prices which fell significantly from
their peak in 2008 showed signs of stabilisation in
2011. We expect this trend to continue in future
(particularly in Muscat) on the back of a recovering
We expect demand for residential properties to be strong
in the well developed localities of Qurum, Shatti Al
Qurum, Madinat Qaboos, The Wave and Muscat Hills.
Over the long-term, we have an optimistic outlook on
residential construction markets on the back of
increasing population and rising employment levels.
Commercial construction market
Oman is currently facing a steep fall in property
prices due to oversupply and muted demand. The
post-crisis period has been marked by declining office
prices, rentals, and high vacancy rates due to
oversupply of commercial properties. Currently, the
office vacancy rates in Oman stands at around 25 per
In Muscat, stock of modern commercial office space has
increased drastically over the last few years on the
back of economic and demographic growth, government
diversification and privatisation initiatives. However,
Grade A buildings which meet the requirements of
multi-national companies still remain in short-supply.
This situation might change in the next one year with
the completion of several office buildings like Al Rawaq
Building in Qurum and Tilal Complex in Al Khuwair.
Prime office rentals in Muscat fell by around 33 per
cent between Q3 2010 and Q2 20113. Rental yield from
property in Muscat stood at around 5.5 per cent gross
return to value. However, based on original purchase
price off plan, the properties rental yields stood at
around 10 per cent per annum4.
The commercial office properties market will continue to
be marked by oversupply in the short to medium-term as
new supply enters the market. However, though the
overall commercial office properties market will remain
oversupplied, quality new office space in smaller
modular units will be in undersupply.
Prices as well as rentals will continue their downward
spiral in the near-term. Due to lack of suitable office
space around Muscat, many companies are looking at the
option of constructing purpose-built offices, which may
result in further downward pressure on occupancy levels
and rentals in Muscat.
Over the long-term, we have an optimistic outlook for
commercial office construction markets on the back of
increasing population and rising employment levels.
Free Zones in Oman
Oman too has put emphasis on development of free
zones which is expected to act as a catalyst for
economic development, investment and providing
employment to Omani nationals. Currently, there are two
new free zones under development, namely Al Duqm Free
Trade Zone and Sohar Free Trade Zone. The Duqm Free
Trade Zone and Industrial Area is proposed to be housed
on a 24,000-hectare plot near Duqm port. The Sohar free
zone is being built on an area of 4,500 hectare and had
begun its first phase development in 2010. We expect the
completion of these Free Zones to boost demand for
commercial office space in Oman.
Key Growth Drivers
Continued growth in global oil demand and an
increasing long-term trend in oil prices have given a
boost to GCC’s economy. With oil prices expected to be
stable, any further increases in government spending
will support investment and consumer spending, thereby
having a positive effect on GDP growth. Positive GDP
growth forecast for the GCC region is expected to be
translated into an increase in construction activities.
Increasing urbanisation and young & growing population
base is likely to drive the construction sector across
the GCC region. The GCC is also home to a large
expatriate population and in a bid to drive real estate
growth and investment, the governments of several GCC
countries have opened up the real estate sector to
foreigners, allowing them to own/lease properties. This,
combined with the increasing influx of expatriate
population in the region mainly due to shortage of
skills among local nationals, is likely to drive housing
demand in the GCC’s member countries.
Most of the GCC member countries have also been
pro-active in changing their existing regulations in
order to attract Foreign Direct Investment (FDI) and
provide better living conditions to the expatriates
giving a further boost to the construction sector. Oman
will also benefit from a favourable attitude of the
government towards improving transparency in the real
Manageable inflation levels in the GCC region coupled
with low property prices (as compared to historical
prices) are likely to act as demand drivers for
residential as well as commercial construction markets.
We have an optimistic outlook on the Omani residential
as well as commercial office construction market on the
back of healthy growth in population and increasing
May - 2013
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