“The global recession was already making itself felt before the beginning of 2011 then, in February, the Arab Spring came to Bahrain and protestors brought the economy to a halt. Since then the whole country has been watching and waiting to see whether an agreement can be reached between the government and opposition parties,” said Harry Goodson Wickes, Cluttons Country Head in Bahrain.
The market has been characterised by an oversupply of new office space coming to the market while at the same time there has been a levelling off or drop in demand. Cluttons estimates that approximately 100,000 square meters of office space came to the market this year with a further 60,000 square neters predicted to be completed next year. Current occupancy rates are at approximately 60-70% on a total stock of 850,000 square meters.
The market is dominated by companies looking to downsize or take advantage of the lower rates being offered in new buildings. Landlords of new buildings having to fit-out their offices with few tenants willing to invest in a fit-out given the underlying market uncertainty.
In residential sector, certain areas have benefitted from the unrest earlier in the year while others have suffered. Saar and Budaiya, typically family areas with many villa compounds, have seen vacancy rates increasing, whilst Jasra, Janabiya and Amwaj Islands have seen an increase in demand due to their reputation as ‘safe’ areas. Overall rates have come down but not to the extent seen in other sectors of the real estate market.
Developers have traditionally been targeting the top end of the market with a particular focus on building apartments. Due to oversupply and the total collapse of the off-plan sales market, a number of developments, such as Marina West and Villamar have suffered from funding issues and have been put on hold. Developers have now refocused their projects towards affordable housing in order to match demand.
In the retail sector, the malls all suffered earlier in the year when the Saudi Arabian Causeway was closed and their main supply of spending customers was shut off. Slowly things are returning to normal but rents have still come down in all but the very best locations. There is great discrepancy between locations; Dana Mall is reporting rising vacancy levels and falling rents while, on the other side of the Shaikh Khalifa bin Salman Highway, City Centre is reporting a waiting list for available units and rates are remaining flat.
Cluttons believed that the unrest caused a number of features in the real estate market over 2011, including the downgrading of Bahrain’s credit rating by most international agencies, and a delay in issuing Bahrain’s $1billion Sovereign bond issue. Cluttons in Bahrain is aware of number of companies who either closed or delayed opening or expansion plans in the Kingdom during 2011. Whether this can be solely attributed to the civil unrest or marginal trading is unsure. Due to the market factors, residential occupancy rates and rental levels and sales prices have fallen in most areas.
For the 2012 outlook, Clottons expected that the current political situation will calm down next year. However, with competition from Dubai, Abu Dhabi and Qatar, it remains to be seen whether the damage has already been done and whether Bahrain be able to continue to attract new companies in what is an increasingly competitive environment.
In the Commercial sector, rates will continue to come down with demand being for small fitted out units. Vacancy rates will increase and some landlords will become under increasing pressure to attract tenants. Cluttons expects some very good deals being offered for shell and core space with long rent free periods and low rates. As rates continue to drop in the Seef District the team also predicts that more companies will locate there from more congested areas such as the Diplomatic Area and Central Manama.
In residential sector rates are likely to remain relatively flat in Amwaj, Adliya, Jasra and Janabiya with rents continuing to fall in Saar and Budayia. Reef Island will start to see occupancy rates rising and will establish itself as a premier address in Bahrain. There are some large apartment developments due to be completed in Juffair which will keep rents there under pressure.
Some of the large freehold apartment developments that are currently on hold will manage to secure new financing and will start back up again.
With regard to retail sector, the focus for developers is now on small neighbourhood malls and strip retail and next year will see a number of these coming to the market resulting in falling rates. The large malls will continue to experience mixed success with the best ones able to maintain occupancy rates while the majority will continue to suffer and experience falling rental rates.
Cluttons predicts that in 2012 the CBB will continue to recognise the need to independent qualified valuers. In 2012, a focus will be on defining gaps in the marketplace and providing market facing product. Affordable Housing will also be in the spotlight, offering housing that the population can afford to purchase, and not the price at which a developer can ‘afford’ to sell. This may need Government intervention and an acceptance of quicker and more cost effective construction practices.