While weaker growth and uncertainty have cast a shadow over Oman’s retail sector during the past 18 months, activity is expected to pick up in the medium term on the back of a rapid rise in leasable space, supported by increased government spending.
Last year, GDP in Oman rose by 4.6%, according to data issued by the National Centre for Statistics and Information in mid-April. However, the retail and wholesale segment expanded by just 2% year-on-year compared with the overall services sector notching up 13.1% growth, almost three times the rate of GDP.
Slower growth in retail is seen by some as a sign of caution amongst consumers. Ratings agency Fitch warned in April that a continued downturn in oil prices could hit business and consumer confidence in some parts of the Gulf region, citing Oman as one of the states most at risk from the negative impact of lower energy revenues. The trend could reduce both government spending and capital inflows into the sultanate’s economy, Fitch added.
The government will be hoping that its 2015 budget, issued at the beginning of the year, will help the retail sector to improve its performance by boosting consumer confidence. The budget sets out a 4.5% increase in state spending, including wage rises for public servants and higher investment in infrastructure.
A string of new projects earmarked for the sector in the coming years also bodes well for the industry’s longer-term prospects. According to research conducted by real estate consultancy JLL, the next five years will see more than 760,000 sq metres of gross leasable retail space added to existing shopping areas in Muscat on the back of major investment.
However, while retail space is set to increase in the capital city, other regions of the country remain under-served, according to Andrew Williamson, JLL’s head of retail for the MENA region. Speaking at a property conference in Muscat in May, Williamson told participants that shopping space development was in short supply outside the capital, particularly high-quality sites. The city of Sohar is also attracting more interest from developers due to its growth as an industrial and logistics hub.
One retailer that has given the Omani market a vote of confidence is hypermarket chain LuLu. The firm, which currently operates 12 outlets in the sultanate, announced plans in early May to increase its total number of stores to 17 over the next year and a half. “We are committed to extending our footprint, with plans to open five new stores in the next 18 months,” LuLu’s managing director Yusuff Ali said when attending the opening of a shopping centre in the Military Commercial Complex near Muscat.
Meeting new demand
The retail sector will also benefit from a drive by the state to ensure more pre-planning is put into new housing developments, including auxiliary community services.
Talal bin Sulaiman al Rahbi, the deputy secretary-general of the Supreme Council for Planning, told a real estate conference in May that the traditional practice of building houses on parcels of land allocated by the state has led to developments being scattered, leading to difficulties in providing utilities and other services.
Al Rahbi added that under Oman’s ninth five-year plan, which is set to come into force in 2016, new housing would take the form of residential complexes that would be rolled out across the governorates and make them easier to serve.
A cluster approach to housing will also open the door to community-level retail developments to meet the needs of residents. Demand for such centres is likely to gain momentum, as officials look to reduce the Ministry of Housing’s waiting list through the organised township policy under Oman’s next five-year plan.