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Bahrain shopping malls must adapt or risk losing tenants

The Avenue mall Bahrain Reuters
The second stage of The Avenues mall is set to be completed by the end of the year, joining the first phase, which opened in 2017
  • Retail rents fall 7% in past year
  • Shopping mall rents drop from BHD14/sq m to BHD12
  • E-commerce projected to be worth $1.6bn by 2027

Shopping mall owners in Bahrain have been warned to adapt or risk their tenants leaving, as average rental rates in the kingdom dropped by 11 percent over the last year and the popularity of online shopping continues to grow.

Retail rents have declined by 7 percent to BHD10 ($26.5) per square metre, as the sector continues to recover from the effects of the Covid-19 pandemic, coupled with a “considerable supply/demand imbalance”, according to the latest report from Savills.

The drop has been most keenly felt in shopping malls, where rents have fallen from BHD14/sq m in 2022, to an average of BHD12/sq m this year.

Swapnil Pillai, associate director of research at Savills Middle East, said there was a “growing divide between investment-quality assets, which are professionally managed and have a healthy mix of retail offerings, compared to developments with poor layout, tenant mix and management”.

The increasing trend of online shopping is also affecting shopping malls.

E-commerce revenue in Bahrain is expected to show a compound annual growth rate of 8.3 percent, resulting in a projected market volume of $1.6 billion by 2027, as reported by analyst ecommerceDB.

E-commerce penetration in the kingdom is estimated at just over 70 percent and is forecast to reach 77 percent by 2027, according to Stephen Flanagan, partner, head of valuations and advisory at real estate consultancy firm Knight Frank Middle East.

Marassi Galleria Bahrain mallMarassi Al Bahrain
The Marassi Galleria is expected to provide competition to older malls when it opens in September

Flanagan said in order for traditional shopping malls to remain relevant they must diversify and pivot towards Gen Z-focused fashion concepts, dining and food and beverage options and leisure experiences.

“The malls that cannot or will not do this are suffering from softening rents and falling occupancies,” he said.

The Marassi Galleria mall is due to open in September. It is attached to two hotels in Muharraq, and will have 450 stores spread over 114,000 square metres of leasable space.

Phase 2 of The Avenues at Bahrain Bay is also set to complete in the fourth quarter of this year. 

Flanagan believes the addition of these malls will pile further pressure on older precincts.

“We expect the older malls’ rents and occupancies will ultimately suffer in the near to medium term unless some repositioning is done, akin to the efforts done by Bahrain City Centre in the last few months, where they welcomed 60 new brands to their lifestyle portfolio, occupying some 9,000 sq m of space in the mall,” he said.

Bahrain’s economy grew by 4.9 percent in 2022 on the back of strong growth across the non-oil sector, its fastest growth in more than nine years. 

Data from Oxford Economics estimated the kingdom’s GDP is likely to taper to 2.2 percent in 2023 on account of a drop in oil production and prices and a general slowdown in the non-oil sector.

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