Bahrain’s office market remains subdued following a six per cent rent decline in prime areas such as the Diplomatic area and Bahrain Financial Harbour in 2014. And although no further contractions have been recorded this year, rents remain stable as weakened oil prices and reduced government revenues start to impact commercial occupancy across the kingdom.

According to real-estate firm Cluttons, take-up activity in the commercial segment remains generally limited to units less than 250 square metres, but despite this, developers are buoyed by sentiments from a positive 2014.

Yet in the short-term Bahrain’s commercial market is set to slow down as occupancy stagnates with companies unlikely to expand operation in light of an uncertain economic landscape.

The Cluttons report goes on to predict a slowdown in the residential segment with “declines likely as we approach the end of the year and demand starts to weaken.”

The report goes on to identify the submarkets most at risk are the ones dominated by Western expatriates such as Amwaj Islands and Reef Islands where the annual change in rents at the end of the first quarter of this year stood at 2.2 per cent and 3.6 per cent respectively.

Further to this, villas and apartments have both continued to perform equally although villas in Saar, Adilya and Amwaj Islands have seen steady demand increase as a result of government infrastructure schemes, which have driven up tenant demand in these areas.

While the market as a whole seems to be subdued in anticipation of the impact low oil prices will have on the greater economy, the outlook for sales seem to be more stable, according to the report.

In a preemptive move, the government introduced mandatory tenancy agreements protecting the rights of both the landlord and the tenant in April 2015. “The government is clearly making positive strides to increase the level of confidence and to heighten investor interest,” says Harry Goodson-Wickes, head of Bahrain and Saudi Arabia at Cluttons. “A lot of that is tied into the regulation; for example, making sure leases are registered and [ensuring] rent protection.”

The authorities also took steps to limit rental increases to once every two years with a maximum cap of 5 per cent for residential units and 7 per cent for the commercial market. According to the report, “this offers a greater sense of security to investors eyeing the residential market as the move is likely to negate the chances of any exceptional periods of volatility.”

Government initiatives to ensure the resumptions of many stalled projects have also given developers confidence that the authorities are committed to supporting the real estate market. Projects such as the Villamar development as well as the Amwaj Gateway Towers, Marina Wrest and Riffa Views have all been earmarked for accelerated completion.

Meanwhile, as the slump in oil prices begins to have its inevitable impact on Bahrain’s wider economy, analysts fear a short-term slump in both the residential and commercial market leading up to the end of 2015.

Despite this, the rhetoric coming out of Bahrain has been a positive one. Analysts and government officials have told MEED that the fiscal and macro-economic policy moving forward will be one that pushes the private sector in order to diversify the economy and stimulate growth.