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Bahrain real estate market: Navigating challenges, embracing growth opportunities

From sales trends to rental values and upcoming projects, find out why Bahrain remains a promising investment destination

Bahrain real estate market: Navigating challenges, embracing growth opportunities

In Q1 2024, the Bahrain real estate sector witnessed a slight decline in market activity, with a total of 6,124  sales transactions recorded—a three per cent decrease from the previous year. However, despite encountering challenges, the real estate sector in Bahrain remains on a path of robust growth. This upward trajectory can be attributed to several factors, including government backing, bolstered investor trust, and a rising demand for properties in the area.

Residential market

According to the ‘Bahrain Property Market—Q1 2024’ report released by Savills, home buyers are adopting a more strategic approach, particularly focusing on mid-range properties. We are also seeing a notable trend wherein demand for luxury waterfront properties is rising on the back of Bahrain’s coastal location and thriving high-end tourism industry.

On the supply side, a steady stream of projects is expected to be handed over in 2024. Some of the significant names, which are expected to be in the line-up include Onyx Residences by Kooheji Development, Al Nasseem Phase 2 Villas by Diyar Al Muharraq, and Wadi Al Riffa by Bareeq Al Retaj.

The capital values of apartments showed relative stability in Q1 2024, with a modest quarter-on-quarter growth of 0.3 per cent. This growth was mainly driven by the increase in high-end apartment units, which now have an average value of $2,207 (BHD 832) per square metre. Factors such as stricter liquidity conditions, lower loan-to-value ratios, and higher lending rates have impacted the demand for luxury developments, particularly villas.

Capital values for high-end villas experienced a year-on-year decrease of 4.5 per cent, averaging at $1,544 (BHD 583) per square metre. The report also noted that the ongoing rise in supply may widen the gap between supply and demand, potentially leading to a slight decline in capital values in the near future, as residential unit values are determined by the equilibrium of supply and demand.

Rental market

Rental values in the residential sector experienced a slight decline compared to the previous quarter. Apartment rents decreased by 1.3 per cent year-on-year, while villa rents decreased by 1.0 per cent year-on-year.

Among apartments, low-end properties saw the largest decline, with rents dropping by 5.6 per cent year-on-year to $1,126 (BHD 425) per month. Mid-end properties were also affected, with rents dropping by 3.5 per cent year-on-year to $1,306 (BHD 493) per month. High-end properties, however, experienced a small annual increase, with rents now at $1,722 (BHD 649) per month.

Overall, villa rental values decreased by an average of 1.0 per cent. In the low-end segment, rents dropped by 3.1 per cent year-on-year to $2,053 (BHD 775) per month. Mid-end and high-end villa rents are now at $2,832 (BHD 1,069) per month and $3,378 (BHD 1,275) per month, respectively, after decreasing by an average of 1.0 per cent year-on-year.

Commercial market

In Q1 2024, the office sector experienced a period of subdued activity. The main driver of market activity was the renewal of leases by businesses in top-tier Grade-A properties, opting to maintain operations at their current locations. The average rental rate for high-end offices now stands at $17.04 (BHD 6.4) per square metre per month, slightly surpassing mid-range offices at $16.70 (BHD 6.3) per square metre per month and significantly exceeding low-end offices at $10.86 (BHD 4.1) per square metre per month. Consequently, there has been an overall year-on-year rental contraction of 1.8 per cent.

In terms of capital values, there have been minimal fluctuations in office rental prices, resulting in no significant changes. Despite a strong demand for spaces in high-quality assets, the capital values for Grade-A properties have remained steady. This stability can be attributed to an increase in supply, with new quality completions such as Sayacorp, Future Generation Reserve Tower, and Seef Boulevard expected in the near future. These new additions to the market may help to adjust rental rates, potentially causing a slight one-three per cent decrease in capital values.

On the other hand, lower-end properties in the Capital Governorate have seen a 6.0 per cent quarter-on-quarter decline in capital value. During Q1 2024, the main occupiers of office spaces were financial services and government entities. There has also been a noticeable rise in demand for LEED-certified office spaces, a trend that is expected to continue as companies strive to meet their Environmental, Social, and Governance (ESG) goals and requirements. Additionally, the demand for co-working spaces is on the rise, particularly from start-up companies and businesses looking to downsize or right-size their operations.

Conclusion

Overall, the Bahrain real estate market presents a cautiously optimistic outlook. While some short-term fluctuations exist, long-term factors suggest continued growth, making it an attractive market for investors and potential homeowners.