The average residential rents in Oman's capital Muscat fell by 5.9 per cent during the first quarter of the year, said a report.
 
The decline was led by the villa market, leaving average monthly villa rents at just over RO1,004 ($2,595), down 14.1 per cent over the first quarter of 2015, according to international real estate consultancy, Cluttons.

Wide-ranging redundancy programmes in key sectors, with the oil and gas sector still shrinking, are having a direct impact on rental levels, it stated.

However, Cluttons pointed out that opportunities exist for landlords to secure income by offering prospective tenants additional incentives.

The landlords who are putting tenants first by offering realistic market rents in line with the current economic reality and increasing incentives such as free access to onsite and local facilities, will likely be the first to benefit once the market does pick up, stated the real estate expert in its 'Muscat Spring 2016 Property Market Outlook.'

Philip Paul, Cluttons’ head of country, Oman said: "We continue to see increased vacancy levels in stock that is perceived to be secondary, presenting landlords with a significant opportunity to take a long-term view and refurbish during these emerging void period."

"With average rents slipping across Muscat, tenants are now benefiting from choice although Cluttons advises that good quality property correctly priced is still being snapped up quickly. Tenants are focused on good quality accommodation, with well managed facilities and amenities. With that in mind, upgrading stock is certainly advantageous for landlords at this time," noted Paul.

Faisal Durrani, the head of research at Cluttons, said: "If the expected bottoming out of the market does not in fact materialise, then demand for rental accommodation will continue to decline over the next six to 12 months, putting further downward pressure on rents, particularly as core sectors such as oil and gas, continue to show signs of shrinking."

"With this in mind, it is our expectation that rents during 2016 are likely to fall by a further five to 10 per cent, on average, across Muscat. However, it is worth highlighting that better quality properties priced at the lower end of the budget spectrum, at between RO250 per month and RO500 per month, are likely to remain stable," he added.

Cluttons research shows that during the first quarter of 2016, transactional volumes across the sultanate were slightly lower than the same period in 2015, according to the National Centre for Statistics and Information (NCSI).

The figures show that the traded value of property in this period decreased from RO1.322 billion in Q1 2015 to 0.922 billion in Q1 2016.

Paul said: "In the sales market, we have recorded price declines across the board, with buyers now watching for affordable options as the market comes in line with the new market reality."

"This decline reflects the squeeze on disposable household incomes across the region as the era of low oil prices beds in. Going forward, we expect this trend to persist, particularly as oil prices appear unlikely to stage a comeback in the near term," he cautioned.

"With the region’s governments rushing to diversify income streams through the introduction of new fees and taxes and the dismantling of energy subsidies, household incomes in the GCC are expected to come under further pressure, with disposable incomes also likely to fall and Oman has not been immune to this," he added.

On the office sector, Cluttons said rents across most of Muscat’s main markets have remained steady for the ninth consecutive quarter despite strong headwinds to economic growth.

The only submarket that has shown movement in rents in the past 12 months is Shatti Al Qurum, where office rents have risen by six per cent to RO8.50 per sq m.

Durrani said, “We are aware of instances where landlords have used the recent increase in the lease registration fee from three to five per cent as a way to support asking rents in the first year of tenancies; however going forward we expect to see significant concessions made in order to attract and more importantly, retain existing tenants."

According to him, well managed buildings may buck the trend, with rents likely to remain stable in popular schemes.

The report also highlights that in the retail market, after limited growth between 2005 and 2012, recent years have seen the introduction of a significant amount of new retail mall space in Muscat which has increased the supply of leasable space by approximately 75 per cent over the last three years alone.

According to Cluttons, the most notable malls introduced in this period are Muscat Grand Mall, Avenues Mall and Panorama Mall which are all located in Bausher. Despite the marked increase in retail mall space, occupancy levels have remained relatively stable at around 85 to 90 per cent.

"It is clear that the retail mall sector in Muscat is going through a period of rapid expansion and we expect that the significant growth will translate into an increasingly competitive market," observed Durrani.

"For retail mall owners, we expect the strengthening supply pipeline will prompt the need to carefully consider market positioning, tenant mix and rental values in order to maintain good occupancy levels,” he added.-TradeArabia News Service