Oversupply continues to weigh on Bahrain’s office market
Bahrain’s office market has been suffering from an oversupply of office stock and weak occupier demand since the 2008/09 crisis. Not surprisingly, this has led developers to scale back office construction activity, with little new floorspace in turn being delivered to market.
That combined with stabilising market sentiment helps to explain rental values more or less flattening over the past six months.
Despite office rents showing signs of finding a floor, at BD9m per month, prime rents are currently around 40% below their 2008 peak. What’s more, Grade A and B have seen similarly large falls. Thus, oversupply and lower corporate profits have hit all three segments fairly similarly. Over the next 12 months, with development activity expected to remain depressed, we expect the downward pressure on rents to abate.
Where is demand currently focussed?
In the first half of 2014, occupier demand was limited to small pockets of Bahrain’s office market. Small, fitted-out units remain most popular, especially among those tenants looking to avoid the upfront costs of carrying out the work themselves. Occupiers are also showing a greater preference for shorter leases in order to give them the flexibility to relocate in case of changes in circumstances. In addition, the office market is currently experiencing “churn”, with hardly any new corporate tenants entering the market.
While vacancy rates across Grade A and B stock remain high, best-in-class buildings such as Almoayyed Tower, Bahrain World Trade Centre and Bahrain Financial Harbour continue to see healthy levels of demand. Moreover, going forward, these buildings are likely to continue to benefit from high occupancy levels as tenants continue to target prime office space. By contrast, older buildings with inefficient floor plates and poor parking ratios are expected to perform poorly – suffering from higher vacancy rates and falling rents.
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Laura Westmacott | Linda Dabbagh | Bianca Riley | Samar Saliba
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