Weakening economic conditions, tapering off in demand for oil and gas, and an increase in real estate supply has led to increased pressure on the Bahrain real estate industry, according to leading real estate consultancy Cluttons.
The result is a market defined by increased incentives, adjustments and service quality from landlords and developers as they fight to remain competitive in the market, said Cluttons in its latest Bahrain Spring 2017 Property Market Outlook report.
A positive outcome of these conditions is a ‘Golden Age’ for occupiers in Bahrain, with historically-low prices, a strong selection of exceptionally well-managed facilities and a developer approach that is inherently focused on market-suitable properties, it stated.
According to Cluttons, the relative stability of residential rents across the kingdom’s key expat-dominated submarkets appears to have ended following a largely flat 2016.
This year has marked a change in conditions, with rents retreating across the board during the three months to the end of March. In real terms, this equates to a monthly fall of roughly BD80 ($210.67).
Apartments (-8.3 per cent) experienced a sharper rate of rent corrections than villas (-6.9 per cent). However, both segments of the residential rental market experienced the fastest rate of decline since 2009 during the first quarter.
Faisal Durrani, the head of research for Cluttons said: “Weaker economic conditions alone are not to blame for the correction now under way in the rental market in Bahrain. There has been a surge in the number of new residential developments being sold in the market, most of which are being acquired by Bahraini, or other Gulf investors.”
“A significant amount of this stock is filtering through to the rental market which is pushing supply ahead of demand– albeit with a significant upside for renters and occupiers,” remarked Durrani.
In the sales market, the Cluttons report pointed out that the extent of this burgeoning supply surge was reflected by the fact that over 4,100 units are slated for completion in the upper end of the market within the next two years.
By 2020, over 7,100 units are expected to be 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 and remaining unchanged for six consecutive quarters, it stated.
At the end of Q1 2017, average residential capital values stood at BD948 per sq m, with apartments on Reef Island (BD1,233 per sq m) and villas on Amwaj Islands (BD1,275 per sq m) remaining the most expensive in the kingdom.
Harry Goodson-Wickes, the head of Cluttons Bahrain & Saudi Arabia, said: “A lack of easy access to debt financing may deter purchasing appetite. Paradoxically, high volumes of unsold stock will also contribute to capital value volatility.”
“For now, the difficulty around controlling supply lies in the hands of developers who are promoting favourable payment plans. Those developers who continue to succeed in these difficult market conditions have focused on stock that meets specific market needs, and have a strong track-record of development in the Kingdom and across the Gulf,” he stated.
The Outlook forecasts that a correction in residential values is highly likely, particularly if the sales supply pipeline continues to expand unchecked at current rates.
Goodson-Wickes said: “For the rental market, we forecast rents to continue dipping back, with average rental rates likely to end the year 10 per cent to 12 per cent down on 2016 as the economic pressures both within Bahrain and around the region remain in place.”
“We are however somewhat optimistic that 2018 will see a return to stability, should government infrastructure spending drive up overall economic activity levels in the way we expect,” he noted.
Last year, he stated, proved another stable one 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, he noted.
“Our agency team has worked with several landlords who have now broken rank to lower rates and drive occupancy levels in the office market, revealed Goodson-Wickes.
“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,” he noted.
Durrani said Cluttons’ 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 who are already grappling with a strong US dollar.
“An extra five per cent 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 approach to allow the market some time to gain footing, with signs of stabilisation, or even a recovery in 2018,” he added.
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, scheduled to open in mid-2018, underscore the confidence being placed in the sector by occupiers as Bahrain continues to strengthen its retail offering, said Cluttons in its report.
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, it added.-TradeArabia News Service