Boston, MA -- (ReleaseWire) -- 02/20/2014 -- While the Bahraini economy continues to grow, we believe the real estate sector will remain stagnant. We predict some slight increases in rents and also that net yields will remain the same across all sectors as a result of the instability that continues to plague the country and scare off investors and tourists.
We believe the government-fed construction boom will continue to affect the commercial real estate market which is persistently suffering under the fallout from the global financial crisis and political unrest. Bahrain has been one of the slowest Gulf Cooperation Council (GCC) economies to recover from the crisis and the protests stemming from the Arab Spring contribute to the fact that economic growth is likely to be slow. In the real estate sector, this has translated into stagnant rents and an endemic oversupply of rental space.
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Since oil makes up 80% of Bahrain's export income, GDP growth is extremely sensitive to movements in its price. As a result, it is difficult to be optimistic about the short-term prospects for Bahrain's commercial real estate market. The longer-term outcome will depend on Bahrain achieving a level of economic growth outside the export-oriented oil sector.
In terms of specific sectors, BMI finds some consistency across office, retail, and industrial sectors in that they all show similar stagnation in both rents and net yields. While corporations in Bahrain continue to expand and seek newer and larger units, an uncertain political environment is slowing these transactions to a crawl. There is also a lack of new corporations wishing to enter Bahrain, therefore vacancy rates and low rents may persist until companies regain their confidence that Bahrain is a stable home for their business.
Retail is similarly affected by these factors, especially as it is so closely tied to tourism. The Bahraini government will continue to encourage further tourism, but these efforts may be in vain if there is not a political solution in the near term between rival factions in the country. Tourism from Saudi Arabia will continue, however, providing a small stream of business for luxury retailers. But as long as Dubai remains an enticing and secure location, it will be the preferred choice for international travellers. Bahrain's economy will remain on a recovery path heading into 2014, driven by the normalisation of oil output, continued improvements in non-oil business activity, and steadfast fiscal support from the government. We forecast real GDP growth of 3.4% in 2014. However, the continued uncertainty of Bahrain's political trajectory remains a key downside risk.
- First Bahrain completed their Majaal development at the Bahrain Investment Wharf catering to small and medium-sized businesses looking for industrial space;
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