Oman Real Estate Conference 2015 11 th May 2015 1
Contents 1. Global Real Estate Overview 2. MENA Real Estate Overview 3. Oman s Market Overview 4. Market 5. Market 6. Hospitality Market 7. Market
Global Real Estate Overview Robust Expectations for Real Estate in 2015 Source: JLL, May 2015 Following a strong final quarter of 2014, the first few months of 2015 have seen the global real estate market settle into a steady pattern of growth 3
Hotel MENA Real Estate Overview: Dubai Dubai Prime Rental Clock Q1 2015 Hotel* Rental Growth Slowing Rents Falling Rental Growth Accelerating Rents Bottoming Out * Hotel clock reflects the movement of RevPAR Note: The property clock is a graphical tool developed by JLL to illustrate where a market sits within its individual rental cycle. These positions are not necessarily representative of investment or development market prospects. It is important to recognize that markets move at different speeds depending on their maturity, size and economic conditions. Markets will not always move in a clockwise direction, they might move backwards or remain at the same point in their cycle for extended periods. Source: JLL 4
Hotel MENA Real Estate Overview: Abu Dhabi Abu Dhabi Prime Rental Clock Q1 2015 Rental Growth Slowing Rents Falling Hotel* Rental Growth Accelerating Rents Bottoming Out * Hotel clock reflects the movement of RevPAR Note: The property clock is a graphical tool developed by JLL to illustrate where a market sits within its individual rental cycle. These positions are not necessarily representative of investment or development market prospects. It is important to recognize that markets move at different speeds depending on their maturity, size and economic conditions. Markets will not always move in a clockwise direction, they might move backwards or remain at the same point in their cycle for extended periods. Source: JLL 5
Hotel MENA Real Estate Overview: Riyadh Riyadh Prime Rental Clock Q1 2015 Hotel* Rental Growth Slowing Rents Falling Rental Growth Accelerating Rents Bottoming Out * Hotel clock reflects the movement of RevPAR Note: The property clock is a graphical tool developed by JLL to illustrate where a market sits within its individual rental cycle. These positions are not necessarily representative of investment or development market prospects. It is important to recognize that markets move at different speeds depending on their maturity, size and economic conditions. Markets will not always move in a clockwise direction, they might move backwards or remain at the same point in their cycle for extended periods. Source: JLL 6
Hotel MENA Real Estate Overview: Jeddah Jeddah Prime Rental Clock Q1 2015 Hotel* Rental Growth Slowing Rents Falling Rental Growth Accelerating Rents Bottoming Out * Hotel clock reflects the movement of RevPAR Note: The property clock is a graphical tool developed by JLL to illustrate where a market sits within its individual rental cycle. These positions are not necessarily representative of investment or development market prospects. It is important to recognize that markets move at different speeds depending on their maturity, size and economic conditions. Markets will not always move in a clockwise direction, they might move backwards or remain at the same point in their cycle for extended periods. Source: JLL 7
Hotel MENA Real Estate Overview: Cairo Cairo Prime Rental Clock Q1 2015 Rental Growth Slowing Rents Falling Rental Growth Accelerating Rents Bottoming Out Hotel* * Hotel clock reflects the movement of RevPAR Note: The property clock is a graphical tool developed by JLL to illustrate where a market sits within its individual rental cycle. These positions are not necessarily representative of investment or development market prospects. It is important to recognize that markets move at different speeds depending on their maturity, size and economic conditions. Markets will not always move in a clockwise direction, they might move backwards or remain at the same point in their cycle for extended periods. Source: JLL 8
Oman s Market Overview (I/III) National economic growth Diversification of economy Muscat Investment growth Steady inflation from 2016-2018 Oman Development of tourism sector Omanization initiatives 9
Oman s Market Overview (II/III) National economic growth Oman Steady inflation Source: Oxford Economics / World Bank GDP grew by 4% in 2014 from 3.9% in 2013 Deceleration forecasted due to the impact of plunging oil prices and major government spending cuts Activity will become more dependent on the non-oil sector (including tourism) as oil output stabilises and then falls. And given the focus on curbing growth in government current spending, we expect GDP growth to settle at just above 3% pa over the medium term. Source: Oxford Economics / World Bank Inflation to remain under firm control to average 0.9% in 2015 10
Oman s Market Overview (III/III) Development of tourism sector Oman Investment growth 2,500 2,000 1,500 1,000 1,385 1,360 Inbound Tourist Arrivals 1,615 1,587 1,502 1,395 19% 2,064 2,121 48% 60% 50% 40% 30% 20% 10% 254 Foreign Direct Investment (US$ millions) 281 262 244 213 224 300 500-2% -2% -5% -7% 3% 0% -10% - 2006 2007 2008 2009 2010 2011 2012 *2013 Source: National Centre of Statistics & Information -20% 2014 2015 2016 2017 2018 2019 2020 Source: Oxford Economics A 3% share of GDP within six or seven years is being aimed for. The authorities have set a target of receiving 12 million visitors annually by 2020. Government is investing in tourism to diversify the economy with roughly 54 new hotels currently being developed Promotion of ITC (Integrated Tourism Complex) concepts and development of Muscat Airport expansion Investment in the industrial sector, transport infrastructure and oil recovery techniques. Real estate investment twice as high since 2007. 11
Demand Drivers for the Market Industrial growth Oman Vision 2020 Investor confidence in the Omani economy Employment growth Government privatization initiatives 12
Market Performance and Outlook Current Stock Current office supply in Muscat stands at approximately 720,000 sqm and comprise mainly Grade B office space Approximately 120,000 sqm of Grade A office space has been added to the Muscat market in the past 24 months. Future Supply Much of the demand for quality office space is coming from multinationals looking to open shop in Muscat albeit on a small scale. Majority of foreign companies opening businesses in Oman are on a contractual basis in which logistics and proximity to the airport is essential. 5 Rents in 2014 (OMR/sqm/month) 8 7.5 7 6.5 6 5.5 8.5 Market Outlook Although statistics of the market in Muscat suggest a healthy market but any introduction or provision of office space should be in due consideration of the current market conditions indicating prolonged absorption periods due to large introductions of supply over the past several years. Source: JLL Research 13
Demand Drivers for the Market Population Growth Affordability Integrated Tourism Complexes (ITCs) Property-ownership-linked residential visa 14
Ruwi Qurum Shatti Al Qurum Madinat Qaboos Al Khuwair Bausher Azaiba / Ghubrah North Muscat Hills The Wave Al Hail / Mawalleh Maabela Sur Al Hadid OMR per month Market Performance and Outlook Current Stock A large part of the residential developments in Muscat is outdated and old, especially in old areas such as Ruwi, Wadi al Kabir and the Port area. High-quality residential villas are mostly found in Shatti al Qurum, Qurum, Madinat A Sultan Qaboos and more recently in Airport Heights. 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 Average Rental Values during Q1 2015 all residential Apartments Villas Future Supply New developments such as The Wave and Muscat Hills are setting up new standards for quality residential development. The growth is seen to stretch the western borders of Muscat, towards Airport Heights where mixed-use gated community The Wave is seeing ongoing construction. As the area becomes more developed, more residents will be willing to move there driven by higher quality product and improving surrounding infrastructure and supporting amenities. Market Outlook As developers continue to accommodate the changing tastes and preferences of Muscat s expatriates and local community, residential supply will continue to grow. Moving forward, drivers of demand are expected to be quality developments offering a suitable mix of facilities and amenities and close to civic uses such as schools, shopping malls and hospitals in Muscat.. Source: Cluttons 15
Demand Drivers for the Hospitality Market Tourism growth Hospitality Positioning as a business hub Airport Infrastructure and Expansion Foreign Direct Investment in Tourism Integrated Tourism Complex (ITC) 16
Yearly RevPar Yearly Occupancy Rate (%) Hospitality Market Performance and Outlook Current Stock End of 2013, the total number of hotels in Oman stood at 280 hotels. Approximately 3,710 rooms of the total room supply in Muscat exist within quality hotels. Muscat represents the majority of hotel supply in Oman with a total of approximately 7,200 rooms across all categories in 2013. Approximately 63% of four and five-star hotels are located in Muscat. The main international hotel operators present in Muscat are Intercontinental, Sheraton, Hyatt, GHM, Shangri La, Golden Tulip and Radisson. Future Supply Approximately 2,125 quality branded rooms are in the pipeline for the Muscat market. The bulk of the resort supply planned as part of the large ITC projects is concentrated at the 5 star level. It must be noted that while several projects have been announced in the past few years, several are undergoing financing difficulties halting the development progress. As a result, most of these projects, as per our understanding, will only enter the market between 2015 2017. 200 180 160 140 120 100 80 60 40 20 0 75% 66% 67% 56% 60% 53% 139 178 127 132 143 155 2010 2011 2012 2013 2014 2015* 80% 70% 60% 50% 40% 30% 20% 10% 0% Market Outlook As occupancies improve, it is estimated that the hospitality market in Muscat will adjust ADRs in order to retain this positive trend. A large part of the future performance of the Muscat s market will depend upon Oman Government s ability to promote the country as a leisure and commercial destination as well as maintain political stability in general. To date, these efforts seem to have been producing the desired results as hotel guests have increased steadily since 2010. Initiatives such as leveraging on Oman Air, development of the international airport and ITCs are anticipated to provide the necessary impetus to further develop the quality hotel market in Muscat. Yearly RevPar Yearly Occupancy Rate *2015 data is only up to March. Source: STR Global 17
Market Expanding consumer base Popularity of hypermarket retailing format Tourism Lack of quality supply er interest Employment growth 18
Market Performance and Outlook Current Stock Future Supply Muscat is currently the focus of retailers and developers in terms of expansion and entry. Approximately 45%, 140,084 of the current quality retail stock is concentrated in the city s four largest and most prominent regional shopping malls in Muscat. The other regions of Oman currently lack quality supply with street retail taking up a significant portion of retail spending. Approximately 765,151 sqm of gross leasable area is expected to be introduced into the Muscat market by year 2020. Other regions of Oman, such as, Sohar are also under interest by developers due to its positioning as an industrial and logistics hub. Rental Performance Shop Type Rental Range Basis of Rent Anchor 1% 2% % of Turnover Line Shop 15 35 OMR / sqm / month F&B 25 50 OMR / sqm / month RMUs (Kiosks) 350 500 OMR / month It should be noted that the location of the unit within the shopping centre, the floor level of the unit, the size of the unit and the retail activity of the tenant each have an impact on the rent. Market Outlook As a large quantity of stock materializes post 2016 in Muscat, a general shift in the supply demand dynamics is anticipated Opportunities with regard to neighbourhood / community shopping sector in Muscat exist due to their positioning being in par with the dominant convenience retail needs of the resident population and the lack of quality retail in this format. Moreover, government spending involving infrastructural development including Muscat International Airport terminal and the Batinah Expressway, along with the construction of hotels are expected to drive the and grow the tourism sector, which may result in increase in retail demand. 19
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