Rental rates in Bahrain 'may have bottomed out'
Manama, October 21, 2012
Office occupancy and rental rates in prime areas in Bahrain have stabilised in Q3 this year and appear to have bottomed out, says a new report.
Apartment and villa rental rates have also stabilised in the kingdom, while secondary market sales appear to be picking up in selected locations, said the MarketView from CBRE, a leading property consultant.
The supply pipeline of premium office space in prime locations has dwindled to historically low levels.
Office space requirements have migrated back to smaller spaces with low rental rates, parking and access the key issues.
It said activity levels in the third quarter of the year were generally modest, the inevitable result of the combination of the summer holiday season and Ramadan.
However, in terms of its market positioning in the region, Bahrain was reasonably prominent and was declared the most economically free nation in the Middle East/North Africa region by the Fraser Institute.
During the quarter, plans for the investment of the $10 billion GCC fund allocated to Bahrain following the social unrest in 2011, were unveiled at the National Assembly. Projects to be included in the spending programme are primarily focused on social and economic infrastructure encompassing electricity, roads, water, schools, hospitals, dry docks and stadia.
Despite plans for significant Government expenditure, in macroeconomic terms, Bahrain’s problems are certainly not over. Relatively low levels of FDI remain a concern and GDP fell by 1.3 per cent in the second quarter compared to the first quarter, albeit 4.3 per cent up compared to the second quarter of 2011, the report said.
In the tourism sector, the number of people visiting Bahrain has returned with a vengeance. In the first six months of 2012, over four million people crossed the causeway from Saudi Arabia into Bahrain with over 230,000 tourists in the kingdom during the one week of Eid in mid-August.
In addition, cruise liners will once again be visiting Bahrain with a minimum confirmed 33 visits (possibly as many as 60) scheduled between November 2012 and April 2013.
The office market was very quiet in Q3, the result of the confluence of summer and Ramadan together with the general slowdown in the sector. Although the financial and Sharia-compliant insurance sectors are displaying some interest in space in Seef District this is usually at the expense of space in Diplomatic Area or on Government Avenue, it said.
Spatial requirements have migrated back towards the smaller end of the spectrum and occupiers have become not only highly sensitive to rental rates but are also seeking fitted offices in order to minimise capital expenditure, the report said.
The oil and gas sector that was driving demand for a while appears now to be largely satisfied and the only large spatial requests in the market at present are ministry relocations/consolidations.
Rental rates for the highest quality local Class A stock remain around BD8/sq m/month while the bottom rates in this category remain unmoved at around BD4/ sq m/month. At the peak of the market in 2008, BD4/sq m/month would have been considered the bottom end of Class B rental rates, an indication of how far the market has dropped during this period.
Although the residential leasing market should have been at its quietest during the summer months, activity picked up sharply in the last month of the quarter, particularly in the apartment sector.
The leasing market for villas both inside and outside compounds saw little activity during the quarter and the divergence in the levels of business between apartments and villas reveals an emerging characteristic of professional expatriates entering the Kingdom.
Increasingly, expatriate professionals are arriving with ‘bachelor’ status, possibly a reflection of the perceived security situation in the Kingdom arising from the reports of social unrest that have received widespread international attention.
The rapidly growing hydrocarbons sector is still generating employment opportunities in Bahrain for senior professional expatriates and in this sector at least, there is still some demand for family accommodation. However, the traditional areas for such accommodation which are based in the north eastern-corner of the Kingdom in and around the more troubled villages, continue to suffer low levels of demand, occupancy and rental rates. Rental rates for villas in this corner of Bahrain have fallen significantly since their peak in late 2008 but appear to have bottomed out.
Rental rates and occupancy levels in emerging villa compound districts such as ‘New Janabiyah’, Hamala and Jasra which have benefitted from their isolation away from trouble spots, their close proximity to the British School and easy access into and out of Manama to the east and Saudi Arabia to the west, have remained much firmer, the report said.
In the apartment rental sector, rates at Amwaj islands remain firm with high occupancy. This area has become popular among the younger professional expatriate crowd but there are few new properties available and choices for new tenants are relatively limited and prices relatively high.
The most popular locations for apartment tenant enquiries are currently Reef Island and Juffair, the first for proximity to the commercial office and retail district of Seef together with the availability of new properties, and the second for the selection of competitively priced, brand new properties that are available.
The residential sales sector appears to be attracting the first indications of renewed interest from investors with a number enquiries received from potential buyers seeking apartments in premium projects and locations. Local mortgage providers have also reported that sales at completed villa projects in secure areas such as Riffa Views, have picked up and sales prices have actually risen by between 10 per cent and 20 per cent compared to a year ago in this project in particular.
However, the sales sector has some baggage, with a number of uncompleted apartment projects creating a poor impression with respect to the kind of protections afforded by the state to off-plan buyers who have, in a number of cases, been left high and dry, the report said.
The high-income gated villa community at Riffa Views has recently established its own homeowners panel in order to open the door for greater participation in the management of common areas in the short term and a fully-fledged owners association in the longer term, it said.
Social and affordable housing for nationals remains a pressing concern for the Government and in response to this there are numerous ‘micro’-scale residential projects springing up around the kingdom. Despite the Government’s attempts to divert as much of the $10 billion aid package to the problem of housing as it can, the overall numbers present severe difficulties. There remain over 50,000 households on the social housing waiting list while many thousands more are in desperate need of ‘affordable housing’, it said.
Attempts to meet demand through the provision of smaller units, apartments, fast building techniques and so on have all been met with resistance from the local low-income communities and it is quite possible that managing expectations over the next few years will be more important than actually trying to meet demand head-on. – TradeArabia News Service