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Bahrain Real Estate Report Q2 2011
Business Monitor International, March 2011, Pages: 61
Bahrain Real Estate Report Q2 2011 - The latest interviews with in-country sources in Manama, Muharraq and Riffa confirm that conditions in Bahrain's commercial real estate sector continue to suffer from massive over-development in most subsectors. The general economic environment remains subdued and we expect growth to remain sluggish well into the medium term. The slow recovery may be aided by increasing oil prices – a positive consequence of the political unrest both nationally and in the surrounding neighbourhood. Economic stability, however, may be damaged if the oil price drops down again. Bahrain is extremely reliant on oil exports. The key feature of the commercial real estate sector in all three cities is that pockets of exceedingly high vacancy rates exist. There is more than 60% of empty space for both office space in Manama and industrial space in Muharraq. Unsurprisingly, rental rates at the end of 2010 were mostly lower than they had been one year previously. Rents dropped in H110 for office and industrial space, although retail rents held firm in all three cities. Our in-country sources indicated in the interviews that we held at the end of 2010 that rents had stabilised somewhat; although there are some variations in actual rents in each sub-sector for H210, few had reached the levels that had been prevailing at the end of 2009.
Looking forward, our sources envisage that most rental rates will track sideways (and more likely increase slightly) through 2011. 2012 looks to bring increases of around 5% for most sub-sectors in all three cities, except for retail space in both Manama and Muharraq, which seems to be having a more delayed response to the downturn.
Rental yields fluctuated throughout 2010, mostly towards the positive in the first half of the year and then swinging back downwards in H210. The main theme in 2010 was convergence of net yields around 10%. This meant that, for instance, retail yields shot up to 15-20% in all three cities in H110 and then down to 10% in H210. Capital values seem to have fallen severely relative to rents as investors no longer think that they can achieve any capital return from the country's real estate.
The comments from our in-country sources in the state suggest that net yields will stabilise almost across the board in 2011, except in the hugely over-developed office sub-sector of Manama. We expect that net yields will rise somewhat – thanks to gains in rents – but think, again because of such high vacancy rates, that industrial space in Muharraq will not see any rise in yields in 2012. The future of Bahrain's commercial real estate market is somewhat at the mercy of oil prices and of continuing extensive over-development.
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