PHOTO
Bahrain, 19th April 2017
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 international 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.
The Cluttons Bahrain Spring 2017 Property Market Outlook highlights that 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.
Residential Market
Cluttons report that the relative stability of residential rents across the Kingdom’s key expat dominated submarkets appears to have ended following a largely flat 2016. 2017 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 BD 80. Apartments (-8.3%) experienced a sharper rate of rent corrections than villas (-6.9%). However, both segments of the residential rental market experienced the fastest rate of decline since 2009 during Q1.
Faisal Durrani, Head of Research for Cluttons commented, “Weaker economic conditions alone are not to blame for the correction now underway 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.”
In the sales market, the Cluttons Bahrain Outlook notes that the extent of this burgeoning supply surge is 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. At the end of Q1 2017, average residential capital values stood at BD 948 psm, with apartments on Reef Island (BD 1,233 psm) and villas on Amwaj Islands (BD 1,275 psm) remaining the most expensive in the Kingdom.
Harry Goodson-Wickes, 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.”
The Cluttons Bahrain Spring 2017 Property Market 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 concludes, “For the rental market, we forecast rents to continue dipping back, with average rental rates likely to end the year 10% to 12% 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.”
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 commented, “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 adds, “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 who are 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 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 BD 45 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. 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.
-Ends-
Press contact:
Leen Al Barqawi
Leen.AlBarqawi@edelman.com
056 547 1436
About Cluttons
Cluttons is a global real estate services company, with a presence in over 50 countries. Cluttons was one of the first surveying and property advisory businesses to open offices in the Middle East, and now offers dedicated real estate services across the Arabian Gulf, with offices in Abu Dhabi, Dubai, Sharjah, Bahrain and Oman.
Cluttons provides clients with residential sales and letting services, commercial leasing and investment, consultancy, property and facilities management, and valuations, fulfilling their property needs across the Middle East. Cluttons delivers its high-quality real estate services to clients ranging from international corporate and institutional investors, to private individuals and families.
With a strong presence in the Middle East since 1976, Cluttons is a trusted market leader in the region, having grown its operations and established a proven track record of success over the last 40 years.
Founded in 1765, Cluttons employs over 700 staff worldwide and has a fast-growing international presence, including a network of offices in the UK, Europe, Middle East, Asia Pacific, India and Africa.
For further information, please follow us on:
https://twitter.com/cluttons
https://www.facebook.com/Cluttons
https://www.linkedin.com/company/cluttons
© Press Release 2017
