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DTZ, a leading global real estate advisory firm, has released a Bahrain market report, providing detailed insight into the impact of the global economic downturn on the kingdom's real estate sector.
The comprehensive report provides fresh information on the freehold and leasehold residential, retail, office and industrial sectors.
The report found that following a four-year period of sustained growth, due to reduced levels of liquidity and low investor confidence, Bahrain's residential sector underwent a significant correction, with transactions in late 2008 down 52 per cent year-on-year.
The freehold 'Off Plan' sales market has virtually disappeared whilst DTZ suggests completed schemes should secure sales at corrected prices.
Robert Addison, DTZ's director and country manager of DTZ Bahrain, said: "We have moved into an era of extreme caution on the part of purchasers, many of whom have entered contracts that commit them to phased payments, against pre-agreed dates.
"However, given various delays DTZ believes that this could herald a move towards phased payments against construction milestones or much smaller pre-construction payments (deposits) with the balance on delivery of the finished project."
Large volumes of new stock coupled with reduced demand have weakened the leasehold sector for apartments, especially Juffair and Amwaj Islands being particularly susceptible with rental levels down between 15-20 per cent from their peak in early 2008.
With limited signs of recovery in freehold sales, the report predicts ongoing downward pressure on apartment rents as landlords aim to secure income from units they cannot sell.
With an estimated 23,000 apartments due for delivery from master planned schemes by 2012, the report predicts recovery will be slow.
Villa rents have been more resilient due to an under supply of 'quality' products, notably in Saar, Budaiya and Janabiya, with prime monthly rents on average BD1,000 for three bedroom villas to BD2,500 for five bedroom villas.
The report outlines key drivers of a growing population, increased income and proximity to the Eastern Province of Saudi Arabia contributing to the growth in Bahrain's retail market from 185,000 sq/m GLA in 1999 to 510,500 sq/m GLA today.
New retail development across Bahrain for the next five years (without factoring in delays or cancellations) is estimated at 412,000 sq/m GLA, representing an 80 per cent increase on existing stock.
The report details a move from the low vacancy and rising rents in 2008, to one of oversupply and softening rents today.
DTZ has experienced a 23 per cent drop in the number of enquiries for office space, reflected by the reduced number of financial services start-ups. However, enquiries from government bodies and professional services companies have increased, as anticipated during a recession.
The report notes that 270,000 sq/m of planned office space has been delayed indefinitely or cancelled in the last 12 months, with a further 50,000 sq/m due for delivery in the past 12 months, pushed back to late 2009 and beyond. The pipeline for office development stands at 520,000 sq/m by 2012, which would represent a 90 per cent increase on existing stock if all were delivered, an outcome which DTZ views as being unlikely.
DTZ anticipates the backdrop of government investment into both heavy and light industry will lead to significant development activities within the industrial sector, which is currently under supplied.
With an increasing population and the need for more sophisticated logistics, the report asserts that the warehousing and logistics market across the Gulf is still relatively immature and underdeveloped, with limited speculative development activity, and thus is a potentially attractive development opportunity.
Commenting on the report's overall findings, Mr Addison, said: "Bahrain is key market for DTZ and we are delighted to share our findings with the community. Whilst the future remains unclear, drivers for value are beginning to re-emerge and over time are likely to lead to a stronger, more resilient property market in Bahrain."
