Bahrain office rents fall as oversupply issues grow

Reuters/Hamad I Mohammed

• Older offices impacted as companies opt for modernity
• Landlords offer incentives including office refits

Office rents in Bahrain are expected to experience continued downward pressure with new supply set to hit the market.

Rental rates increased by 1.6 percent in the second quarter of the year compared to the first three months of 2023, at an average value of BHD6.5 per sq m.

And office vacancy rates hit their lowest level since 2019, dropping to an estimated 26.3 percent, according to the latest report from CBRE Middle East.

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However, Bahrain is set to welcome a number of new developments, particularly within the Bahrain Financial Harbour, which will increase surplus office stock and could lead to more competitive rents.

The Bahrain Financial Harbour will boast over 100,000 sq m of grade A office space in two 52-storey towers and 4,400 car parking spaces. 

Bahrain Bay, a 1.35 sq km planned waterfront development situated on the Northern Shore, will also feature residential, commercial and retail spaces.

“There continues to be surplus office stock in the market and also some of the most competitive rents in the region,” Heather Longden, director of advisory and transactions at CBRE in Bahrain, said.

Older grade B and C office space have been impacted, according to Longden as vacancy rates, affordable rents and overall occupancy costs in the office market  “have led to a flight to quality”.

Demand is being driven by government and quasi-government entities looking for larger floor space and international firms requiring small-to-medium-sized units.

Longden explained that landlords are offering attractive incentives, including providing fitted space to tenants’ layout specifications, rent free periods and flexible terms.

“We anticipate there will be further pressure on rents, however, given the levels that are currently being quoted and achieved, we feel these are unlikely to see significant movement,” Longden said.

Savills Middle East reported that the capital values remained stable across the office development compared to the first quarter of 2023.

“There was also a noticeable uptick in demand for Leed-certified office spaces, demand for which is anticipated to see an increase moving forward as companies aim to meet their ESG goals and requirements,” Hashim Kadhem, head of professional services at Savills in Bahrain, said.

The Middle East has witnessed a 24-fold increase in Well Building Standard adoption over the last 19 months, with a large majority coming from the UAE.

The Well Building Standard is an international system that measures, monitors and certifies a series of 10 features to promote occupant wellbeing: air, water, nourishment, light, movement, thermal comfort, sound, materials, mind and community.

Over 500 million sq ft of real estate is enrolled in Well programmes across 16 countries in the Mena region, including Bahrain.

Foreign direct investment (FDI) inflows to Bahrain surged by $1.95 billion in 2022.

The kingdom’s inward FDI stock increased by 5.82 percent from $33.484 billion at the end of 2021 to $35.436 billion by the end of 2022, according to last month’s World Investment Report by the UN Conference of Trade and Development.