BMI View: Bahrain ' s commercial real estate sector is witnessing stagnant growth as a dip in economic output, political instability and an overhanging supply of commercial space com bine to keep rental rates down. T he country has a number of large-scale commercial projects under development, including the flagship Bahrain Bay project.
A dip in economic growth over 2014 saw rental rates stagnate across much of Bahrain's commercial real estate landscape. Falling oil revenues, a contributor to overall GDP, fell as a result of declining crude prices globally, while other sectors, such as manufacturing failed to pick up the slack by showing only moderate growth.
In the office sector the market continued to feel the lingering effects of the global financial crisis, with high vacancy rates and oversupply an ongoing concern, particularly in the capital, Manama. Meanwhile, the country's flagship Bahrain Bay mixed-use development continued to suffer further delays with a number of plots remaining vacant during Q414.
The retail segment arguably holds the most-long term growth potential of the three market segments. Relatively under-developed compared with other markets in the Gulf region, the retail sector is expected to enjoy the benefits of rising levels of disposable income as well as an expanding tourism industry. Growing visitor numbers from neighbouring Saudi Arabia should prove a key factor in increasing demand for retail space in the Kingdom, especially given recently announced plans for the construction of a second road causeway between the two countries.
Bahrain's industrial real estate segment is fast expanding with a network of modern industrial parks being developed across the country as the government looks to grow the non-oil economy and capitalise on Bahrain's status as a regional trade hub. So far, demand has failed to keep pace with expanding supply, however, with the country's continued political instability undermining investor interest. However, the sector again offers substantial long-term potential as the economy diversifies and a second causeway improves road and rail links to Saudi Arabia.
Despite the positive developments outlined, our core outlook sees rental rates and yields retaining a fairly flat trajectory over 2015 and beyond. At present, the retail sector is the only area of the commercial real estate market for which we are projecting rental rates to increase in 2016.
Kuwait-based Al Tijaria Real Estate Company has established Al Tijaria Real Estate Development Company in Bahrain. The new firm is 100% owned by Al Tijaria Real Estate Company and will be the company's arm in managing, developing and maintaining its projects in Bahrain. The new company will also work on managing and developing private properties, such as residential complexes, commercial and industrial land spaces.
Bahrain will invest BHD18.1mn (USD48mn) to develop the Muharraq area. The project will be funded via a loan from the Islamic Development Bank. The plan has been approved by the country's cabinet. As part of the project, 15 historic buildings that feature on the UNESCO World Heritage List and 12 other historical buildings will be renovated and rehabilitated.
In September 2014, it was reported that one of Bahrain's largest investment firms, Investcorp had acquired a USD250mn portfolio of real estate assets in three US cities.
Key BMI Forecasts
Rental rates will remain unchanged from current levels across all three market segments during our October 2014- March 2015 forecast period.
In 2016, retail rental rates are forecast to increase by 5% in Manama.
Net yields to remain constant in all cities and sectors over 2015.