Oil Prices, COVID-19 to Challenge Oman’s Economy and Real Estate
Savills, the leading global real estate advisors, has released its latest market report for the Sultanate of Oman highlighting the historic correlation between Oman’s GDP trends and movement in oil prices.
The report also assesses the impact of macroeconomic conditions on the real estate sector. The report offers an in-depth analysis of the office and residential rental markets, and the impacts of Covid-19.
Following the impacts of the global financial crisis in 2008/09, the economy recovered and grew steadily between 2010 to H1 2014. However, the effects of the drop in oil prices in mid-2014 became evident in 2015 and had a significant negative impact on the GDP which dropped by almost 20% from 2014 to 2016.
This was followed by a strong economic recovery in 2017 and 2018 by 7.3% and 12.1% respectively, driven by higher oil prices, before the economy dipped again in 2019.
As a result of the impacts of Covid-19 and lower oil prices, Savills would expect the Sultanate to experience increasingly challenging economic conditions over the coming months.
The total population of Oman grew from 3.6 million in 2012 to 4.6 million in 2016 and has levelled off since then. This growth was driven primarily by the expatriate population which grew from 1.5 million in 2012 to 2.1 million 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.
The number of highly qualified expatriates dropped by 17.6% between 2016 to Q1 2020 while the total number of expatriate employees dropped by 6.8% during the same period. Savills expects that the reduction in the expatriate population will be accelerated by recent events.
Ihsan Kharouf, Head of Savills Oman, said: “Expatriates play a significant role in influencing demand for real estate. Market conditions were already in slowdown/recession prior to the Covid-19 pandemic.
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 Ihsan, 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 350,000 sqm of better-quality office space for the rental market in Muscat.
In Savills’ experience, the majority of recent demand has been focused on smaller, fully finished office units with around 90% of demand coming from companies with an existing presence in Oman: demand from new market entrants has been limited.
Savills considers that landlords are increasingly likely to agree to incentives.