The retail sector in Oman is set to enjoy solid growth in 2014, with disposable incomes on the rise and economic expansion being fed by higher levels of state investment, though a rapid expansion of retail space in the capital may soon leave shoppers spoiled for choice, putting pressure on rental charges and returns.
According to a report issued by international property firm Cluttons in late May, there are 350,000 sq meters of gross leasable space (GLS) in Muscat’s malls, while new projects in the development stage or under construction could add an additional 115,000 sq meters by the end of 2016, Matthew Green, head of Research & Consultancy at global real estate firm CBRE, told Times of Oman.
This figure could greatly understate the amount of GLS that will come on the market in the next few years, with Dubai-based property developer Majid Al Futtaim recently announcing plans for a 120,000 square meter mall, which would be Oman’s largest shopping center, and other projects in the planning pipeline.
A growing population and an expanding economy, including a rise in the number of foreign workers, will help promote retail expansion, especially in the capital, said Green.
“Muscat is seeing some of the highest growth figures, driven by an influx of expatriates which account for over 60% of the total population of the governorate. In turn, this strong growth is driving new demand for retail facilities,” he said.
The impact of that growth should be felt this year, before the new retail space comes into play. According to Ajay Ganti, chief executive of consumer electronics retailer SARCO, prospects for the rest of this year are strong, with consumer sentiment buoyant amid higher levels of government spending and wage increases.
“2014 is more promising because consumer confidence is starting to return,” Ganti told OBG. “Now that government salaries have been raised, more people will start to buy food, cars, and phones in that order. Two hundred thousand government employees just got a wage rise of between 260-520 dollars. That's 52 million dollars in the market for them to spend.”
Demand for luxury brands
The launch of new retail space will also attract more leading brands to Oman, said Samir Hamamji, the country general manager for international jewelry marque, Mouawad.
“There are not many big names in the market when it comes to high-end luxury. Some have tried to bring (them) in the past but failed. Now they are opening more malls and trying to change the attitude of the shy market,” he told OBG.
This move to more upmarket retail may also encourage more Omanis to buy locally, rather than travel to retail hubs such as Dubai for their high-end shopping, Hamamji said.
Risk for established centers
While the development of new shopping outlets will bring many benefits, there could be downsides. The roll out of new retail space, especially of high-end malls, will put pressure on rental charges in Muscat and test the market’s ability to absorb the space as it comes on line, according to Cluttons.
Older, more established retail centers may struggle to keep high-end clients and management may have to consider lowering the rental charges or refurbishing their facilities in order to maintain occupancy rates.
The increase in GLS and in the number of brands and outlets that will be on offer to the public may also see revenue become squeezed in some segments, as growth in disposable income may not be enough to sustain the high levels of demand required to support the retail expansion.
While there is the possibility of a glut in Muscat-based retail space in the medium term, there is a growing demand for shopping outlets in regional centers, most notably Salalah, Sohar and Dqum.
Increasing government and private sector investment resulting in population growth and higher disposable incomes in these districts will fuel demand for more retail outlets and a more diverse range of products. This regional expansion will offer growth potential to retailers willing to move beyond the boundaries of Muscat.
“Development outside of Muscat will be important in the coming years. Demand for malls and high-end products in Salalah and Sohar will create tremendous opportunities in the retail sector,” said SARCO's Ganti.
Oxford Business Group