ON TOPIC
Performance of retail rents in some of Bahrain’s key submarkets, BD psm/Month Al Seef
Amwaj Islands
Isa Town
Riffa
14 12 10 8 6 4 2 Q1 2016
Q2 2016
Office & Retail Market
2016 proved another stable year for Bahrain’s office and retail property markets, with no movement in headline rents reported across the Kingdom’s key retail submarkets in Q1 of 2017. In the office market, rents have slipped in some locations to the most attractive levels on record. Goodson-Wickes comments, “Our agency team has worked with several landlords who have now broken rank to lower rates and drive occupancy levels in the office market. In addition to lowering rents, we are working with them to focus on incentives and high-quality property management services, to create more favourable leasing terms in a difficult market – this includes free parking, for example.” Durrani elaborates: “Our concern for the outlook of the office market remains, with the proposed value-added tax (VAT) introduction across the GCC and the potential increase in operating costs for international occupiers already grappling with a strong US dollar. An extra 5% charge on top of rents and general operating costs may well suppress activity for longer. This does not however currently sit in our central scenario, and we are optimistic for a heeded
“For the rental market, we forecast rents to continue dipping, with average rental rates likely to end the year 10-12% down on 2016, as the economic pressures both within Bahrain and around the region remain in place”
Q3 2016
Q4 2016
Q1 2017
approach to allow the market some time to gain footing, with signs of stabilisation or even a recovery in 2018.” New schemes in the retail sector such as The Avenues, which is being developed at a cost of BD45 million and is planned to open later this year, in addition to the region’s largest IKEA store, which is scheduled to open in mid-2018, underscore the confidence being placed in the sector by occupiers, as Bahrain continues to strengthen its retail offering. The Cluttons report concludes that this has been achieved by drawing on appetite from weekend tourist traffic from Saudi Arabia, while also catering to domestic appetite for a more sophisticated retail offering. Supply Surplus
Traditionally, a significant amount of surplus stock filters through to the rental market, pushing supply ahead of demand and contributing to a widespread destabilisation of the rental market. Of course, this puts tenants in an increasingly strong position, as they can cherry pick from a range of options on the market. The extent of this burgeoning supply surge is reflected by the fact that over 4,100 units are slated for completion within the next two years. By 2020, over 7,100 units are expected to have been added to the existing residential supply. The knock-on impact on sales prices from the sudden boost to supply appears yet to materialise, with residential values holding steady, remaining unchanged for six consecutive quarters. At the end of Q1 2017, average residential capital values stood at BD948 per sqm, with apartments on Reef Island (BD1,233 per sqm) and villas on Amwaj Islands (BD1,275 per sqm) remaining the most expensive in the Kingdom. To an extent, the unique nature of these two locations and their high level of appeal among Bahrain’s expatriate community is likely to shield values from extreme volatility. However, it is our view that trouble may be brewing for the residential market, unless developers are able to restrict the number of sales per person and tighter regulation around the general resale of homes emerges. JUNE 2017 9