Bahrain's retail sector remained the standout performer with rents stable in all of Manama’s main markets during the first quarter of 2016, according to the latest research from international real estate consultancy Cluttons.

The retail units at Al Seef continue to command the highest rents at BD12.50 ($32.8) sq m, representing a four per cent increase over the 12 months from the first quarter of 2015, stated Cluttons’ Bahrain Spring 2016 Property Market Outlook Report.

Following closely behind Al Seef is Amwaj Islands - which has seen a rental increase of 33 per cent since Q1 2015 - to stand at BD12 sq m ($31.5) in Q1 2016. However, the report indicates that the overall picture of stable rents suggests that the market may be approaching a supply-demand equilibrium, with the level of new entrants tailing off, it said.

Harry Goodson-Wickes, the head of Cluttons Bahrain, said: "We continue to see demand for retail across Bahrain with budgets remaining stable around the BD12 sq m mark. However, if supply continues to edge ahead of demand, headline rents may fall."

"Rents will also be impacted by the general economic slowdown that the kingdom is facing and it will likely cause increased downward pressure as demand stabilises this year," he added.

Cluttons’ report shows that existing food and beverage (F&B) operators are amongst the most active groups in the retail market at present. The Mesk Restaurant Complex (MRC) in Adliya for instance, has been registering strong interest from F&B operators looking to take up space.

"The kingdom’s retail sector is still perceived as being a key retail and hospitality hub for Saudi Arabia, with the weekend tourist traffic being a particularly big draw for domestic and international retailers," remarked Goodson-Wickes.

"In addition, the government is focusing on its strategy to attract high-end tourists, which is driving an upturn in the number of five star hotels. However, we believe the family market remains vastly underserved, but there are signs to suggest that developers are now seeking to target this segment," he stated.

Elsewhere in the commercial market, Cluttons data shows that office rents have remained unchanged between Q4 2015 and the first quarter of 2016, with the Bahrain Financial Harbour and Bahrain World Trade Centre retaining the top spots as the most expensive buildings for occupiers.

Over the past 12 months, however, rents for fitted-out office space in Al Seef have risen from BD5.5 sq m  to BD6 sq m , whilst shell-and-core space in the same area has climbed by BD0.50 sq m  to BD5.50 sq m  over the same time period.

The vast majority of occupier activity in Al Seef is being driven by a small amount of relocation activity within Manama, rather than by new entrants.

While cost saving is the main driver behind the relocation of many businesses, some are taking advantage of the record low rates and using the weakness in the market to upgrade to more modern facilities.

Faisal Durrani, Cluttons’ head of research, said: "There is no doubt that the office market in Bahrain is in a very challenging position. However, we see a significant opportunity for landlords to improve facilities for occupiers and focus on core pull factors such as high quality property management and adequate parking, both of which feature at the top of occupiers’ wish lists."

"Also, where possible, the provision of smaller fitted office suites is likely to be well received by the market as this segment of the market continues to perform well and is reflective of the growing number of enquiries we are noting of this type," he stated.

In the residential sector, the first quarter of 2016 marks the second consecutive quarter of rental stagnation. As a result, the annual rate of change decreased from 5.2 per cent at the end of last year to 4.4 per cent, at the end of Q1 2016. In Q1 2016, apartments on Amwaj Islands saw no change in rents, equating to an annual change of -2.3 per cent, which translates into a little over BD700 per month, on average.

Durrani continued: "While apartment and villa rents have remained stable thus far in 2016, once the regular season of tenancy renewals commences in April, it is likely that there will be an increased amount of rent negotiations at renewal as tenants move to rein in costs. In particular, the removal of utility subsides remains a complex issue, with little clarity on whether the increased cost should be borne by tenants or landlords."

"A set monthly allowance is something being considered by some landlords, rather than utilities being all-inclusive. This should, in some instances, help to soften the squeeze on tenants’ finances, while also curbing the risk of any sudden shocks to an increasingly fragile market," he added.

On the 2016 outlook, Durrani said: "It is our view that average rent declines of up to five per cent are likely this year, with some areas expected to remain stable. Our research shows that where landlords offer high quality property management and maintenance services, tenants are still willing to pay a premium and this is a trend that is unlikely to reverse."

"For instance, at the 110-unit Cebarco Towers, which offers luxury accommodation and the all two-bedroom scheme, Segaya Views, which caters to middle income families, we have seen strong demand since the schemes were brought to market," he added.-TradeArabia News Service