Bahrain's retail market has remained the best performing sector in the commercial market, with developers capitalising on the buoyant demand for retail schemes in Manama, a report said.

The latest research by Cluttons, a leading real estate consultancy highlights the resilience of the retail sector, against a backdrop of a relatively subdued wider commercial market, reported the Gulf Daily News, our sister publication.

According to "Cluttons Bahrain Spring 2014 Commercial Market Outlook" report, a key contributor to the strong performance of the retail market is the high level of Saudi tourist traffic flowing into Bahrain over the weekends.

On the other hand, rents in the office market are forecast to remain flat or dip slightly, over the course of the year, Cluttons said.

Although Bahrain City Centre has dominated the retail landscape since its opening in 2008, attention has now turned to areas north of Manama, an emerging population centre, heavily dominated by expatriates.

One such development is Diyar Al Muharraq's BD1.2 million ($3.2 million) mixed use scheme to the north east of Manama, which is due to be anchored by Dragon City, Bahrain's answer to Dubai's Dragon Mart complex.

As the government moves to foster stronger trade links with China, the new shopping mall intends to target Chinese retailers, while Bahraini and Saudi retailers are also expected to have a strong presence.

"Although a number of retail schemes are coming onto the market, including the Lagoon at Amwaj Islands, the ability of rents to cope with the sudden surge in space will be put to the test," Cluttons Bahrain head Harry Goodson Wickes said.

"However, we expect rents to hold steady in the near term, particularly for schemes close to dense population centres.

"At The Lagoon for instance, we have witnessed strong demand this year and we expect the mall to reach full capacity as retailers rush to capitalise on demand from households in the immediate vicinity,” he added.

According to the report, occupier activity levels in the office market remain low across Bahrain, with confidence levels gradually improving, following the economic downturn and period of national tensions.

The low activity levels have been further aggravated by the supply overhang from the growth spurt recorded prior to the 'great' global recession.

This is evidenced by large schemes such as the Bahrain Financial Harbour and the 27-storey Millennium Tower, which are still striving to achieve high occupancy levels.

Cluttons anticipates a further downward adjustment in rents in such schemes as landlords work to lure occupiers away from older buildings elsewhere in the kingdom.

This is reflected in the current market conditions as companies are beginning to capitalise on weak rents and relocate to what is perceived to be higher quality space.

Occupier requirements stand around the 100 sq m to 200 sq m mark; this compares to under 100 sq m at this time last year, signalling the slow but steady upturn in occupier confidence.

Still, over 90 per cent of current occupier activity is being driven by those relocating within Bahrain, while the remaining requirements stem from those new to the kingdom, according to the Cluttons report.

Occupiers new to the market often appear to have budgets slightly higher than prevailing market rates; however these are quickly adjusted downwards once they become familiar with the local dynamics.

The report also points to the government's heavy investment in new energy and transportation infrastructure, which is aiding in lifting occupier activity from this group.

The only other notable sector driving office space requirements has been the hydrocarbon sector.

"We expect office rents to remain close to, or at current levels for the remainder of the year, as overall confidence is yet to fully recover; however the general sentiment has improved over the course of this year; a trend we expect to persist," Goodson Wickes said. – TradeArabia News Service