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Property Briefing Sultanate of Oman Residential / Commercial H2 2014

The facts at a glance

Capital and rental value increases across all sectors in first half of year

ITC prices start to rise on account of growing demand for freehold ownership

Commercial office space faces severe shortage in short to medium term

Potentially 4,000 one & two bedroom apartments are expected to enter the rental market in the next 24 months resulting in a possible softening of rentals

Rents remain firm in ITC’s despite stock addition from The Wave’s Reehan Gardens and Muscat Hills

Rents across all sectors show year on year rise of between 10 and 16% with top end of market showing greatest uplift

Re sale values in ITC projects have been buoyed by domestic demand and higher off plan values achieved by developers

Significant take up of office space in first half has eroded oversupply position considerably

Rental value increases now likely for Graded office space offering adequate car parking provision

Property Market Review - | Sultanate of Oman H2 2014


Residential The first half of the year saw sustained demand across all sectors of the rental market and values in all space categories are now in excess of those achieved at the pre market correction peak in 2008. Reflecting the more optimistic global economic conditions, corporate housing budget allowances appear to be more generous, especially for newly arriving ventures, whose ability to recruit suitable staff was previously being hindered by inadequate housing allowance packages being offered. Demand remained high for quality residential property over the first half of the year. A noticeable change however has been the enquiry levels for shorter term accommodation with options to extend. This perhaps reflects the shorter term contracts being offered to newly arriving expatriates. Coupled with this is a growing demand for early exit provisions – again reflecting the more transient nature of today’s workers from overseas but largely being resisted by Landlords. Particularly in the quality apartment sector, there is a marked demand for semi and fully furnished accommodation. Several new developments due for completion over 2015 should provide a medium term solution for this demand supply imbalance, but demand for serviced type accommodation is expected to grow significantly over the coming years. A growing shortage of quality villas has ensured the high value end of the rental market saw disproportionate growth compared to other sectors. With companies struggling to engage high management personnel from overseas on account of competitive employment opportunities elsewhere, higher housing allowances are now being allocated to attract such personnel. Many such new arrivals are entering from the UAE where modern, quality villas abound and as such expect the same here. This has lead to a run on villas in quality new compounds, The Wave and Muscat Hills. Vacancy of such accommodation is now virtually zero and re-letting of homes almost overnight. Older, poorly maintained villas in the more central areas are struggling to find occupants. Rental growth has been sluggish for this sector unless Landlord’s significantly upgrade a property before leasing and the trend to totally redevelop old housing stock is gaining momentum which should add to new central stock in the medium term Apartment supply addition has been significant over the first half, especially in the Ghala and Bausher areas. A constant demand from tenants relocating from the more traditional areas of Ruwi and MBD has ensured occupancy is attained. It is estimated that over 4,000 residential apartments in the central areas from notable developments including Telal al Qurum, the former Quryayt Qurum site and new Taminat Complex in Bausher is likely to enter the market over the next 24 months. However, if the population of Muscat continues to grow at historic rates, this space should be absorbed without detrimental effect but any rental value increases could be slowed.

Rental Market Overview

H2 2014

Area Residential 2 Bed

Residential 3 Bed

Residential 4 Bed +

Wadi Al Kabir 375 450 600

Ruwi 350 450 550

Darsait 375 450 500

Al Wattaya 350 400 475

Qurum 500 800 1,300

Qurum Heights 600 850 1,500

Medinat Al Ilam 600 800 1,800

Medinat Sultan Qaboos 700 900 1,700

Al Khuwair 500 600 1,100

Shati Al Qurum 800 1,000 1,800

Ghubrah North 500 950 1,200

Ghubrah South 500 600 1,000

The Wave 800 1,100 1,800

Muscat Hills 750 1,100 – 1,350 1,900

Azaiba 650 850 1,400

Bausher 500 650 1,100

Seeb 400 375 750

Al Khoud 350 325 550

Rents in Omani Rials per calendar month for typical one year letting



Average rent for quality property based on normal 12 month letting

The ITC Market

The Integrated Tourism Complexes have now firmly established themselves as the prime rental destinations for mid to high level rental and purchase budgets.

Muscat Hills Golf & Country Club The Wave Muscat

The Wave Muscat successfully launched further apartments and a limited release of villas and townhouses at Reehan Residences in the first half, attracting good purchaser take up. The previously released apartments at Al Marsa zone attained near 100% rental occupancy over the period and the release of the first tranche of completed villas at Reehan Gardens provided much needed stock into the rental sector. With the completion of The Walk retail centre, The Wave is now an almost self sufficient residential, retail and recreational community, favoured by expatriates and a growing number of Omani residents. Muscat Hills Badr release was successfully sold and is now 100% occupied and the Phase 2 release of villas is reported to be selling well. With a large commercial complex and significant number of apartments planned at the developments northern sector over 2015-2017, the completion of the Oman convention centre and its surrounding infrastructure, property at Muscat Hills is likely to remain in high demand and continue to achieve higher than market norm values.

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2 Bed Apartment

3 Bed Apartment

3 Bed Townhouse

4 Bed Villa 5 Bed Villa

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2014

Both Muscat Hills and The Wave are now well established housing communities and are showing gross yields in excess of 10% for those who bought in the pioneering stages. Today, expected returns on purchase are in the order of 5-7% gross.



Pearl Villa – Bar al Jissah Residences Golf Apartment – Muscat Hills

New developments including Saraya Bander Jissah and The Barka Resort are likely to come to market soon, offering a substantial array of home options, supported by comprehensive and imaginative tourism/recreational facilities. There is a growing disparity between freehold values between Oman’s ITC’s and its neighbouring countries, with Dubai now recording average values double those of Muscat. Whilst the two markets should not be directly compared, this is likely to enhance the appeal of investment into these projects for GCC Nationals and this “second offering” of ITC’s has the potential to cement Oman as an attractive foreign investment destination, whilst meeting the ongoing growth in housing demand from its residents. H1 2014 Average Resale Values

ITC Apartment Average Sale Price per

square meter

Highest price psm

RO

Lowest Price psm

RO

1 Bedroom RO. 1,019 1,197 615

2 Bedroom RO. 1,1,37 1,353 604

3 Bedroom RO. 1,042 1,335 606

4 Bedroom RO. 923 n/a n/a

Villa Average Sale Price per

square meter

Highest price psm

RO

Lowest Price psm

RO

3 Bedroom RO. 1,085 1,335 615

4 Bedroom RO. 1,190 1,404 709

5 Bedroom RO. 1,333 2,462 986

Source – Savills research

Average sale values for ITC Property

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500000

600000

700000

Off Plan 2010 2011 2012 2013 2014

2 Bed Apartment

4 bedroom Villa

5 Bedroom Villa

Proposed Saraya Bander Jissah and Barka Resort



The Commercial Office Market

Less than one year ago, there was still being reported an oversupply position for office space. This has changed to an alarming undersupply of Graded commercial space. It is estimated that a space take up of over 40,000 square meters occurred in the first half of the year, a record level for the Muscat market. This was primarily lead by the Petrochemical sector linked partly to the award of the Khazzan Gas field project. Steady growth in employment, diversification and rising oil prices are expected to further boost the office sector moving forward. The vacancy rate for Grade A office space now stands at approximately 5 % overall but Grade B space is higher, at circa 14 %. It is estimated there is a total of 717,000 square meters of Graded office space in Muscat as at July 2014 and Grade A accounts for 39% of this space. The majority of the non Graded space is classified as such as it is without the necessary car parking to make it attractive to Multi National Companies and will likely remain vacant for some time. Most incoming Corproates are seeking car parking ratios in excess of 1 vehicle space per 25 square meters of usable space and survey results show that currently, only 4 buildings developed for the leasing sector in Muscat meet this requirement. Car Parking, or lack thereof remains the single most concern of all companies expanding or entering into the Oman commercial market. It is estimated that there is an additional 152,000 square meters of speculative space that will be completed by early 2016 and this planned supply appears sufficient to accommodate the additional anticipated demand over the next 4-5 years. However, taking into account all projects “on the drawing board”, there is a high possibility of an oversupply of space from end 2016 that could lead to greater vacancy rates and a rebate from the likely rise in rents which will occur over the short term.

Historic and current rent – quality office space in Omani Rials per square meter per month

Rents in excess of US$ 20 per square meter per month are now average for quality space in the more central location, still making Muscat the least expensive city in the Middle East for Graded office space.

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2007 2008 2009 2010 2011 2012 2013 2014

Ruwi CBD

Qurum

Shati al Qurum

Al Khuwair

Azaiba/Ghala



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Savills is a leading global real estate service provider listed on the London Stock Exchange. The company, established in 1855, has a rich heritage with unrivalled growth. It is a company that leads rather than follows and now has over 500 offices and associates throughout the Americas, Europe, Asia Paci fic, Africa and the Middle East with more than 25,000 employees worldwide. Savills is present in the Middle East with associate offices in Oman, Bahrain and Qatar. This bulletin is for general information purposes only. Whilst every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The bulletin is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research.

© Savills August 2014

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