_Is now a good time to rent commercial space in Bahrain?
Starting in 2010, Manama’s office market become increasingly favourable to tenants with headline rental rates falling by circa 45% to 50% from the peak in 2008. However, 2018 saw the market stabilise with rent falls abating, a sign that the market has bottomed out, though it remains to be seen when rental growth will return to the market due to the elasticity of the supply pipeline.
As a result of the economic backdrop, the rate of completions has slowed dramatically since 2014 which has avoided any compounding effect of the supply-demand imbalance. Demand for commercial office space continues to be limited and largely centred on small, fitted out units as tenants look to avoid cap expenditure. This trend has been prevalent for the past seven years and looks set to remain in the short to medium term. In addition, Bahrain has implemented RERA to govern the real estate sector, we are witnessing a number of Build to Suit opportunities currently under construction, which shows positive signs for investment in the market.
Vacancy rates across the market continue to hover around the 40% mark with best in class schemes commanding better occupancy levels. Conversely, older buildings with inefficient floorplates and poor parking arrangements look set to suffer from lower occupancy levels and higher falls in rental rate.
As a result of these market conditions and the lower cost of doing business in Bahrain when compared to other regional financial centres, the Kingdom is well placed to take advantage of new entrants to the market that are seeking access to the GCC.
"Commercial rents are 60% and 61% lower in Bahrain compared to ADGM and DIFC respectively."
Using KPMG’s cost of doing business in Bahrain (Financial Services) 2018 report it can be seen that on a total costs basis, when looking to accommodate one CXO, two Heads of Department, two Directors, five Managers and 10 Analysts, Bahrain is 35% cheaper than Abu Dhabi Global Market (ADGM) and Dubai International Financial Centre (DIFC). Commercial rents for accommodating these 20 employees are 60% and 61% lower in Bahrain compared to ADGM and DIFC respectively.
Whilst the market has shown signs of stabilisation throughout 2018, this has come as a result of dramatic falls in rental rates. This stability looks set to continue in the short to medium term though it is unlikely to translate into rising rents or capital values in the foreseeable future as the market struggles to absorb existing stock.
For more information on the Bahrain commercial and hospitality market, read the Knight Frank report here:
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