Bahrain's real estate sector has 'bottomed out'
The real estate sector in Bahrain has ‘bottomed out’ in terms of rental rates and sale prices during the first quarter, and it is also clear that huge pent-up demand is waiting to cash in on the Bahrain upturn – when it happens, according to top property expert CBRE.
The ongoing political stalemate which is still evident in the Kingdom is making it difficult for the economy to move to the next phase of recovery from the global and regional economic downturn, said CBRE in its Q1 market review for the Kingdom.
It is unclear when this will take place, but talks between the various opposing parties in Bahrain’s political landscape are key to this topic and there is little indication that agreement or even meaningful discussions will take place in the short term, it added.
Ratings agencies Standard & Poor’s and Fitch remain reasonably sanguine about Bahrain, both currently allocating BBB ‘Stable’ sovereign ratings. The Kingdom has also received firm political and financial support from its GCC neighbours including the provision of a $10 billion ‘Marshall Plan’ financing initiative.
The government has started using this money to address a wide variety of infrastructure issues including roads, schools, hospitals, social and affordable housing and it is rumoured, possibly some of the stalled real estate projects, the report stated.
According to CBRE, the total value of real estate transactions in Bahrain grew by 46 per cent in 2012 compared to the year before. The biggest increase came from Bahrainis and non-GCC expatriates although the increase by expatriates was more due to the delayed registration of purchases they had made in previous years than new purchases, it added.
On the office sector, CBRE said it continued to remain stable. "Few movements have taken place in or out of the market and consolidation activities have virtually ceased. Rental rates are sitting at their effective bottom rate and those waiting for further falls are likely to be disappointed," the expert stated.
Landlords have now reached their lowest rental rates and will not go any further than the point that they have already reached, even if this means their buildings will remain empty in the short term, it added.
"When the market starts to turn it is likely to experience a period of ‘soft growth’ as some slack in the system is taken up, but once we get through this, the lack of development over the last couple of years will mean that those entering the market looking for new space are going to be frustrated by lack of supply," said the report.
The result at this point is likely to be sharp rental rate growth, but for now, this remains some way off," it added.
In the investment sector, the last few years have been characterised by a significant mismatch between the expectations of buyers and sellers, said the CBRE report.
Buyers have been seeking quality commercial properties yielding between 10 and 12 per cent, in the hope of picking up ‘distressed’ assets in this category.
"Now we are starting to see the emergence of buyers who are more realistic in their expectations as the sheer pressure of liquidity has forced them to adopt a more realistic outlook. We now have a small number of buyers seeking quality assets at 8 per cent and negotiations are in progress. It seems that those seeking 10 per cent yields or more will be forever disappointed."
On the hospitality sector, CBRE said a number of press reports have indicated significant increases in occupancy rates for hotels in the Kingdom compared to 2012.
For January 2013, STR Global reported that occupancy in Manama had risen by 40 per cent compared to January 2012, the highest rate of increase in the Middle East and Africa region.
This indicates an encouraging trend in the hospitality sector’s core markets which have historically been midweek business guests and weekend stays by Saudi and Kuwaiti leisure visitors.
On the retail sector, CBRE said Seef District has for many years exhibited success and failure simultaneously and was widely considered to be over-malled until the introduction of City Centre, which simply cannibalised the existing market, the report stated.
"Due largely to the social unrest that took place in Bahrain during 2011, footfall levels across all the major malls in Bahrain fell significantly, worsening the plight of some of the already underperforming malls. However, levels of visitation have continued to pick up through 2012 and the first quarter of 2013m," it added.
City Centre continues to dominate the market due largely to its scale which marks its status as Bahrain’s premier ‘destination mall’, at least double the size of its nearest competitor, Seef Mall.
However, Seef Mall has made huge strides in recovering from the shock of City Centre’s market entry by repositioning itself to meet the needs of its core market - families. The mall has worked hard to create a child-friendly environment with the result that occupancy and rental rates have both strengthened significantly from a fairly weak position in 2011, said the expert.
On the residential leasing sector, CBRE said in most areas, stability has returned in terms of their occupancy and rate.
The main expatriate areas of Amwaj Islands, Saar, Hamala and central Manama have shown little movement in the first quarter although there has been some pick-up on Reef Island as relatively new properties in this location are proving very popular with the rental market due to its excellent location on the waterfront and its proximity to major employment districts, retail malls and five star hotels.
"Effectively, with the exception of a few selected projects, residential rental rates have hit their lowest point and have been stable at these levels for several consecutive quarters. Anyone wishing to upgrade, relocate or pick up a bargain would be best advised to start this process in the very short term because it seems unlikely that there will be any further downward movement in the market," the report said.
Reef Island has proved particularly appealing to new residents to Bahrain and many of the residents of Amwaj who enjoy the lifestyle and waterfront setting of Amwaj, but are frustrated by the relative remoteness of the islands from the main commercial districts, malls and employment. We have seen reasonably significant movement from Amwaj to new properties on Reef Island in the past 6 months.
Durrat Al Bahrain continues to act as a very popular second home (weekend) destination, while the strongest project in terms of sales rates continues to be Riffa Views where mortgage lenders are reporting another 10 per cent growth in sales prices over the past six months.
Riffa Views unit prices have now risen by around 20 per cent compared to 2011 and this has been driven largely by Bahraini families attracted to the relative peace and tranquillity of the location and the private roads within the project which make it a safe environment for families, according to the report.
However, it is interesting to note that most sales transactions have been for the smaller 3 and 4 bedroom units with very little demand for the substantially larger 5 bed and larger units, CBRE stated.
This would appear to indicate that transactions are very much focused on actual owner-occupiers rather than investor/speculators, it added.
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