With a further 158,000 sq m of top-grade office space to hit the Muscat market this year, real estate agency Cluttons has warned that average commercial rental values will continue to decline. The agency said that achievable rents in the prime area of Shatti Al Qurum had dropped by around a third since the high point of early 2008, and that unrest in the country had also seen demand decline recently. “While there is strong interest in grade A office space, many tenants appear unwilling to pay a significant premium in comparison to rental values for grade B space in the same area,” Cluttons said in a report Sunday. The agency estimated that the premium on grade A space in the Shatti Al Qurum area had a premium of between 12.5 percent to 33 percent. Cluttons added that the new pipeline of top-grade commercial supply will force landlords to adopt more imaginative methods to lease their space. “Methods which we would expect to see increasingly used include initial rent-free periods or stepped rents over the term of the lease,” the report stated. “In addition, high quality professional property management will be vital in attracting and retaining tenants.” Much of the grade A space coming online before the end of the year will be located in the Al Rawaq building in Qurum, Beach Plaza in Shatti Al Qurum, Saud Bahwan Plaza in Ghubrah and the Tilal Complex in Bausher. From the hospitality side, the Cluttons report also expressed concern about the hefty pipeline of new hotel rooms in the sultanate over the next five years. The agency predicted that up to 6,000 rooms would be added in the three-to-five-star sector in the Muscat area during that period, against a current supply of 3,777 rooms. That equates to an annual average growth rate of up to 21 percent. “In comparison, it is evident that the number of hotel guests is closely linked to the number of inbound tourists and that these have both grown at an average annual rate of around seven percent over the last five years,” the report said. “It would appear that the growth of inbound tourism will need to accelerate significantly from current levels just to maintain average occupancy levels [55.8 percent in 2010] as the projected pipeline of hotels comes into the market.” From / Arabian Business