DTZ released its Bahrain real estate market report for Q1 2010. This follows on from their last report, released in November 2009, which stated that 'Bahrain's property market is proving resilient in the wake of the global recession'. Since that report, the market continues to adjust to the realities of the post-credit crunch era.
Bob Addison, Country Manager for Bahrain, commented on the general outlook for the Kingdom's real estate market:
"Bahrain's real estate market continues to feel the effects of the global downturn. The mini–boom that Bahrain witnessed from 2006 to 2008 has now been replaced by a more pragmatic and conservative market. Going forward, developers and investors need to focus on the core drivers of the market - location, infrastructure, quality of product and facilities - as the basis for enhancing real estate values."
Bahrain's retail market has seen huge growth over the last 10 years, with total stock increasing from 200,000 sq m gross lettable area (GLA) in 2000 to 536,000 sq m GLA in 2010. This expansion has been driven by strong population growth, increased disposable incomes and a continual supply of retail tourists from Saudi Arabia and other GCC countries.
Bahrain's main retail destination, Seef District, has reached saturation point with the success of any individual mall being at the expense of another. As a result, much of the future retail growth is being planned within the major master planned developments or larger residential areas in order to offer local residential populations a retail choice closer to home. Amwaj Islands, Reef Island, Durrat Al Bahrain, Raffles City, Villamar, Water Gardens, Riffa Views and Diyar Al Muharraq all plan to incorporate significant retail elements into their schemes. Retail within these developments accounts for 51% of the total planned retail growth over the next 5 years.
Achieved retail rents in Bahrain vary significantly by retail mall scheme, reflecting their relative age, location and retail catchment market. Rents range from as low as BHD 6 per sq m per month in parts of Sitra Mall and Isa Town Mall up to as much as BHD 36 per sq m per month for the most expensive units in City Centre Mall. DTZ estimates the average rent across all mall classes to be BHD 14.7 per sq m per month.
Total office stock in Bahrain has grown significantly in recent years and has more than tripled since 2000. DTZ estimate the total office stock in Bahrain, as of April 2010, stood at approximately 630,000 sq m.
The current stock levels, coupled with the effects of the global economic slowdown, have caused a significant oversupply situation in the Bahrain office market. During the past 6 months, approximately 47,000 sq m of new office stock has been delivered to the market with a further 100,000 sq m due to be delivered by the end of 2010. DTZ estimate that approximately 548,000 sq m of new stock will enter the market over the period Q2 2010 to Q4 2013. This oversupply is affecting vacancy rates which are currently circa 7-10% for Bahrain's main Central Business Districts (CBDs) having risen from the 4-5% recorded 12 months earlier.
New office space which has emerged over the past 12 months is now starting to create significant downward pressure on office rents across the 3 main CBDs with 20-30% decreases in achieved rents being recorded within some of Bahrain's highest quality office buildings. A review of good quality stock in Central Manama shows prime rents averaging BHD 11 per sq m per month, with Seef at BHD 10 per sq m per month and the Diplomatic area at BHD 8.8 per sq m per month. Older stock in each of these areas achieves rents at between 15-30% lower.
DTZ expects to see further downward pressure on office rents during the remainder of 2010 as large volumes of supply continue to increase total stock and levels of occupier demand remain low relative to historic levels.
The freehold residential market in Bahrain has moved from the speculative investor to an end user market which has resulted in falling sales prices.
Off-plan sales have disappeared from the market and completed residential schemes have a much higher chance of securing purchasers. There are signs that an end user market is starting to emerge for well specified residential properties in good quality developments. This is already being evidenced at Riffa Views, Amwaj Islands and certain projects in Juffair where transactions are being recorded.
Villas at Durrat al Bahrain are achieving an average of BHD 504 per sq m, Riffa Views BHD 568 per sq m and apartments at Amwaj Islands (Tala Island, Zawia II and Floating City) BHD 772 per sq m. These averages are based on Q1 2010 achieved sales.
The freehold market is likely to experience further downward pressure on sales prices before any substantial recovery takes place. Sales prices are likely to be suppressed further by the large volume of stock remaining in the development pipeline.
Bahrain's leasehold residential market has also experienced a softening in demand which has caused a general fall in achieved rents over the past 12 months. The apartment sector has experienced steeper falls in rents than the villa sector with the performance of both varying across locations.
Apartments within Juffair and Amwaj Islands continue to experience the sharpest decline in rental values due to the large volume of available stock in both locations and rental declines in the region of 15-20% have been evidenced over the past 12 months. Seef and Sanabis have also experienced significant declines driven primarily by the large volume of stock brought to the market by Abraaj Al Lulu. In April 2010, good quality furnished apartments stood at BHD 560 per month for one-bedroom, BHD 740 for two-bedrooms and BHD 1,020 for three-bedrooms.
The villa market has been more resilient but has also suffered declines. Some compounds in areas popular with high-income Bahraini nationals and western expatriates such as Saar, Budaiya and Janabaiya, are now experiencing vacant units after a sustained period of full occupancy and landlords are reducing rents to secure tenants. Prime rents in the Saar area are currently averaging BHD 1,200 per calendar month for a three-bedroom villa and BHD 1,600 per calendar month for a four-bedroom villa. Achieved rents at Riffa Views for three-bedroom villas are circa BHD 1,000 per month and BHD 1,200 for four-bedroom villas. DTZ anticipate these levels will rise as the development completes and matures.
Light industrial and logistics market.
Over the course of 2009 and into 2010, demand for warehouse space has dropped with a marked fall in leasing transactions which can be attributed to a general decline in trade due to the economic downturn.
During the boom period, good quality warehousing was achieving in excess of BHD 4 per sq m. Due to the wider economic uncertainty, rents have experienced downward pressure over the last 18 months as reduced business activity and a general lack of confidence has created unwillingness amongst companies to commit to new leases, suppressing occupier demand. Achieved rents have fallen by as much as 30% in some of Bahrain's best quality warehouse schemes. Current achieved rents for good quality stock is in the region of BHD 2.5-3 per sq m with landlords offering shorter lease terms and greater incentives in addition to reduced rents.
Looking forward to the remainder of 2010 and into 2011, it is likely that rents will stabilise at BHD 2.5–3 per sq m for good quality warehousing with limited upside of rental growth as occupiers remain highly price sensitive.
Luxury hotel market
Following a sustained period of high occupancy and Average Daily Rates (ADRs) over the period 2004 to 2008, Bahrain's luxury hotel market softened in 2009, again as a result of the global downturn. Occupancy levels in Bahrain's five-star hotels have experienced a decline from their peak in 2006 at 78.8% - falling each subsequent year thereafter. In 2009, average occupancy rates dropped to 60.3%.
Although there is currently a shortage of five-star hotels in Bahrain, there is a risk of oversupply in the medium term, with 11 new five-star hotels due to open by 2014. Despite the risk of oversupply, opportunities still exist in certain underserved market segments such as four-star and boutique hotels with the latter segment currently served by a single hotel: L'Hotel in Seef.