MANAMA: Bahrain’s property markets are still under pressure from a general weakness in demand, but there remain pockets that continue to outperform, finds the latest assessment from a leading real estate consultancy.

Cluttons Bahrain Property Market Outlook Winter 2017/18 released yesterday sees a period of stability ahead in the residential space after rents retreated across the board at the start of the year.

Average rents across the country firmed during third quarter (June to September) however rents have dipped by 11 per cent over the last 12 months.

“The performance of rents in general across Bahrain has been further compounded by weaker than normal levels of demand as slower economic growth takes a toll on the rate of job creation and, therefore, overall demand for rented accommodation,” says Cluttons head of Bahrain and Saudi Arabia Harry Goodson-Wickes.

“With these potential risks in mind, our central view is that the residential rental market in Bahrain is likely to remain stable for the remainder of 2017, following the steep corrections recorded so far this year. We expect 2018 to see a continuation of stability, as the market absorbs the falls registered this year. This is, of course, predicated on the residential market being exempt from any form of VAT.”

The report says retail is playing a central role in helping various areas in the kingdom realise their full potential, with residential tenants being drawn to areas that offer high levels of retail penetration.

Including the newly opened The Avenues, Cluttons expects 78,015 sqm of new retail space to be delivered across Bahrain this year, increasing to approximately 93,000 sqm in 2018 and a further 455,000 sqm by 2020.

Developers’ confidence is reflected in 21 retail schemes spread across 1.05 million sqm, being developed at a cost of more than BD277m, all due to complete between now and the start of 2020.

“Retail remains a significant area of growth in Bahrain’s property sector and the renewed confidence amongst occupiers and developers is reflected in the fact that retail rents across all locations we monitor have remained stable over the last six months,” says Cluttons head of research Faisal Durrani.

“While our expectation is for rents to remain firm this year, the retail market is expected to remain a bright spot in the property market. Next year is likely to see rental rates remaining firm once more as more supply comes online to match anticipated demand.”

According to the report, demand for office space remains lacklustre and static, with rents for both fitted and shell and core space remaining stable since the start of the year.

This is in part linked to the sharp rent corrections that have been recorded since 2010; shell and core space is down by roughly 40-70pc, while rents for fitted space are down by a third to half over the same period.

While overall demand remains weak, start-up businesses are active in the market, many of which have been supported by the Tamkeen initiative.

According to Mr Durrani, sharp corrections that have occurred in recent years have driven rents to all time lows in many locations and so the prospect of any further drops remains unlikely, at least in the near term.

“This is why our view for 2017 is for flat growth, whereas 2018 may well see further falls in headline asking rates should VAT be imposed on the commercial office market, as is the case elsewhere in the GCC,” he adds.