Bahrain’s Top Commercial Market Performer is the Retail Sector

The retail market in Bahrain has continued to be the best-performing sector in the commercial market, with developers profiting from the strong demand for retail projects in Manama, according to Cluttons’ new Bahrain Spring 2014 Commercial Market Outlook report.

The Cluttons report emphasises the retail sector’s tenacity in the face of a generally subdued wider commercial market. The significant influx of Saudi tourists into Bahrain over the weekends is a major factor in the retail market’s strong performance. On the other hand, over the course of 2014, rents in the office market are anticipated to either hold steady or slightly decline.

Despite the fact that Bahrain City Centre has dominated the retail scene since it first opened in 2008, interest has recently shifted to the areas north of Manama, a developing population centre that is heavily populated by expatriates.

One such project is the BD 1.2 million mixed-use Diyar Al Muharraq development to the northeast of Manama, which will be anchored by Dragon City, Bahrain’s response to Dubai’s Dragon Mart complex. The new mall aims to attract Chinese retailers as the government works to strengthen trade ties with China; Bahraini and Saudi retailers are also anticipated to have a significant presence.

World Property Channel is told by Harry Goodson Wickes, Head of Cluttons Bahrain, “Even though a number of retail projects, such as the Lagoon at Amwaj Islands, are entering the market, it will be interesting to see how rents respond to the sudden increase in available space. In the near future, however, we anticipate rents to remain stable, particularly for developments close to densely populated areas. For instance, at The Lagoon, we’ve seen strong demand this year, and we anticipate the mall to fill up as businesses scramble to meet demand from nearby households.”

The report states that despite gradual improvements in confidence following the economic downturn and period of national unrest, occupier activity levels in Bahrain’s office market remain low. The supply backlog from the growth spurt that preceded the “great” global recession has made the already low activity levels worse.

This is demonstrated by significant projects like the Bahrain Financial Harbour and the 27-story Millennium Tower, both of which continue to strive for high occupancy rates. Cluttons expects further rent reductions under such plans as landlords try to entice tenants away from more aged structures elsewhere in the Kingdom.

As a result, businesses are starting to take advantage of low rents and move to what is thought to be higher-quality space, which is reflected in the current market conditions. Occupier needs currently range from 100 to 200 square metres, up from less than 100 square metres at this time last year, indicating a slow but steady improvement in occupier confidence. However, according to the Cluttons report, over 90% of current occupier activity is being driven by people moving within Bahrain, with the remaining needs coming from people who are new to the country. Occupiers who are new to the market frequently seem to have budgets slightly higher than going rates, but once they become familiar with the local dynamics, these are quickly adjusted downward.

The government’s significant investment in new energy and transportation infrastructure, which is assisting in boosting occupier activity from this group, is also mentioned in the report. The only other significant industry driving demand for office space is the hydrocarbon industry.

The rest of the year, according to Goodson Wickes, “we expect office rents to remain close to, or at current levels, as overall confidence is yet to fully recover; however, the general sentiment has improved over the course of 2014; a trend we expect to persist.”