Property

Bahrain retail rents resilient amid economic slowdown – Cluttons

Commercial and residential markets show signs of softening

PHOTO: Bahrain is still perceived as a key retail and hospitality destination for visitors from neighbouring Saudi Arabia. Credit: Shutterstock

Bahrain’s retail sector remains resilient, with rents stable in all of Manama’s main markets in the first quarter, according to real estate consultancy Cluttons.

As per Cluttons’ latest report on the Bahraini market, retail at Al Seef continues to see the highest rents at BD12.5 per square metre (psm), a 4% increase over the 12 months from Q1 2015. Following closely behind Al Seef is Amwaj Islands at BD12 psm in Q1 2016, a 33% increase since the same period last year.

The retail market, however, may be reaching a supply-demand equilibrium, as the number of new entrants declines, Cluttons said.

“We continue to see demand for retail across Bahrain with budgets remaining stable around the BD 12 psm mark,” said Harry Goodson-Wickes, head of Cluttons Bahrain. “However, if supply continues to edge ahead of demand, headline rents may fall. Rents will also be impacted by the general economic slowdown that the kingdom is facing and it will likely cause increased downward pressure as demand stabilises this year.”

Bahrain’s retail sector is still perceived to be a key retail and hospitality hub for neighbouring Saudi Arabia, and weekend tourist traffic is a big draw for local and international retailers, Goodson-Wickes added. “In addition, the government is focusing on its strategy to attract high end tourists, which is driving an upturn in the number of five star hotels.”

“However, we believe the family market remains vastly underserved, but there are signs to suggest that developers are now seeking to target this segment.”

Meanwhile, commercial and residential rents in the kingdom have shown signs of softening, Cluttons said. Office rents remained unchanged between Q4 2015 and the first quarter of 2016, with the Financial Harbour and World Trade Centre retaining the top spots as the most expensive buildings for occupiers.

“There is no doubt that the office market in Bahrain is in a very challenging position. However, we see a significant opportunity for landlords to improve facilities for occupiers and focus on core pull factors such as high quality property management and adequate parking, both of which feature at the top of occupiers’ wish lists,” said Faisal Durrani, Cluttons’ head of research.

In addition, the provision of smaller fitted office suites is likely to be well received by the market, Durrani said, noting that Cluttons has been receiving growing number of enquiries of this type.

In the residential sector, Q1 2016 marks the second consecutive quarter of rental stagnation. As a result, the annual rate of change decreased from 5.2% at the end of last year to 4.4% at the end of Q1 2016.

“While apartment and villa rents have remained stable thus far in 2016, once the regular season of tenancy renewals commences in April, it is likely that there will be an increased amount of rent negotiations at renewal as tenants move to rein in costs,” Durrani said.

The removal of utility subsides in particular remains a complex issue, and there is little clarity in the market on whether tenants or landlords should bear the increased cost.

“A set monthly allowance is something being considered by some landlords, rather than utilities being all-inclusive. This should, in some instances, help to soften the squeeze on tenants’ finances, while also curbing the risk of any sudden shocks to an increasingly fragile market,” Durrani said.

Cluttons expects average rents to decline by up to 5% in 2016, with some areas expected to remain stable, he added. However, tenants are likely to pay a premium for high quality property management and maintenance services – a trend unlikely to reverse.

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