Bahrain’s Commercial Market Will Be Tempered by Low Oil Prices in 2015

Cluttons reports that the first quarter of 2015 saw little change in the rest of Bahrain’s office market while rents in Al Seef continued to fluctuate between BD 5-5.5 psm.

Rent declines of nearly 6% were overall recorded in the Financial Harbour and Diplomatic Area last year, but they have since stabilized, and no new declines have been noted thus far this year. Nevertheless, as a result of the government’s declining hydrocarbon revenues, the weakening oil prices will likely affect the office market as well.

Take-up activity is still typically restricted to needs under 250 square meters, but developers are still motivated to move forward with large floor-plate projects because they are still feeling upbeat about the market from last year. This is anticipated to stifle any significant return to rental value growth in the medium term, along with the negative effects of the low oil price environment.

Cluttons predicts that office rents will remain stagnant in the short term, with downward corrections likely to occur later this year and into 2016 if oil prices stay below the USD 50 per barrel threshold.

Furthermore, if the region’s governments renegotiate the USD 10 billion GCC Support Fund for Bahrain as a result of declining hydrocarbon receipts, a slowdown in infrastructure project spending will be a very real threat.

The overall level of take-up activity, the rate of job creation, and ultimately the demand in the residential market are all likely to be impacted. Although it is still too early to determine how likely it is that such a scenario will occur, we are still keeping a close eye on the risk.

The retail market remains buoyant

The retail industry is still growing and resilient elsewhere in the commercial landscape.

The US Dollar’s strength, to which the Bahraini Dinar maintains a fixed peg, is the only bright spot in the otherwise economically crippling story of declining oil prices. A stronger dollar will result in lower import costs, which will trickle down to consumers in the form of higher levels of disposable income, which portends well for the retail market in the short to medium term.

The rate at which retail space is being occupied throughout the Kingdom reflects this promising and emerging scenario. For instance, at Dragon City on Diyar Al Muharraq, 60% of the 750 retail units have already been pre-leased, and completion is anticipated later this summer as retailers compete for market share.

Carlo’s Bakery from New Jersey is among the first in a new wave of brands making their foray into the Gulf as international retailers also mobilize to position themselves at the forefront of the market’s buoyancy. The Courtyard will soon house the first Carlo’s Bakery location in the Middle East.