Trends diverge for office, home spaces

Office-space demand and residential demand shows divergent trends.

Office space market in the Kingdom is facing a tough environment and more downsides can be expected; on the contrary, residential sector demand has been very strong and expects to clock healthy growth ahead, according to a recent report by property consulting firm CBRE.

The well-documented slump in oil prices is likely to lead to consolidation of space requirements in the hydrocarbon sector with the real potential for current expansion plans to be sidelined.

Budgets to fund Ministry office projects may also be affected by the widely discussed cuts in short to medium term government spending, the report noted.

The stream of additional 70,000 m² office space in Bahrain Bay and Seef in the first half of 2016 is expected to put more downward pressure on demand and average rentals for the leading grade A projects are quoted between BD 7 and BD 9 for a square metre.

The demand for office space is still limited to existing occupiers looking to consolidate or upgrade accommodation. “Landlords who are flexible in their approach and diversify their offerings to meet tenants requirements, while providing attractive parking solutions and on-site facilities, are able to gain greater traction and achieve more favourable occupancy levels,” the report says.

Hospitality sector, similar to the office-space sector, with lot many rooms added in 4-star and 5-star categories, the industry will find it tough to fill them with guests.

According to figures released by the World Travel & Tourism Council, Bahrain ranked 95 out of 184 countries in 2015 with 10.6 per cent of GDP coming from the travel and tourism sector. However with a ranking of only 167 out of 184 for growth of contribution for 2015, at just 0.3 pc, this may point towards stiff competition to fill rooms in the medium term.

Contrary to the tough market conditions in office space and hospitality sector, residential market is expected to clock good growth ahead.  Pointing out that costs per square metre for apartments in Bahrain average US$2,072 and US$5,037 in the UAE and that transaction costs are significantly lower in Bahrain, and the recent KPMG report highlighting the fact that overall cost of doing business in the Kingdom is 35 per cent less than the UAE and 46 pc less than Qatar, CBRE says that the residential sector offers potential investment opportunities.

The growing ties with China as well as U.S. and the new British Naval facility are expected to add more demand, the study adds.

Locations with good access to Saudi causeway and popular schools, like Janabiya and Saar, are doing good, despite tough oil prices.

Also, construction activity in Juffair is going well and has received good demand.

“Prime apartment sub markets also continue to fare well with Reef Island retaining its position as the most expensive apartment location, supported by strong demand. In addition, Amwaj Islands is emerging from a relatively dormant period with an increase in construction activity in the residential sector, underlining its continuing popularity as a lifestyle destination,” the report said.