With the exception of Amwaj Islands where there was a marginal BD 50 per month rise in rents for four-bedroom villas, no other submarket in the Kingdom registered any change in rents during Q3. In fact, it has been a year since there has been any movement in average rents across all the other submarkets we track. The minor uptick registered for Amwaj Islands drove up villa rents by a negligible 0.7% during the third quarter.

Four-bedroom villa rents on Amwaj Islands remain the highest in the Kingdom at BD 1,550 per month, on average. By contrast, one-bedroom flats in Al Seef (BD 550 per month) are amongst the most affordable in the four main areas for expats that we monitor.

The stagnation in rents is re reflective of weaker underlying fundamentals in the market, underpinned by economic fragility and the ongoing impact of the low oil price environment, which has curtailed job creation levels and dampened overall sentiment.

Rental budgets outperform expectations

While it’s clear that the impact on household finances from the economic fallout will be significant this year, especially as inflation is forecast to end the year at 3.4%, up sharply on 1.5% from
2015 (Oxford Economics), the full impact of this on household budgets appears to have been relatively subdued thus far, with rental budgets demonstrating a great deal of resilience and outperforming our expectations.

In fact, data from Bahrain Property World (BPW) showed that average searched budgets in Q3 crept up to between BD 591 and BD 825 per month, from BD 582 to BD 789 per month at this time last year. The ongoing growth in the non-oil sector and subsequent steadying in the rate of job creation levels appear to have cushioned the blow to demand for residential property and as a result, rents have remained steady.

Expat dominated areas such as Amwaj Islands and Juffair remain the most sought after residential locations in the Kingdom, with the latter overtaking Amwaj Islands to become the most searched for location by tenants in Q3 (BPW). Rents for one-bedroom flats in Juffair start from BD 600 per month on average, positioning it as Manama’s second most expensive expat submarket, behind Reef Island, where average rents stand at BD 700 per month for one bedroom apartments.

As we previously reported, Saar recorded a sudden surge in activity earlier this year, which was in part driven by the subsiding of tensions and also due to the concentration of amenities and ease of access to schools and shopping areas. This trend has persisted and BPW data for Q3 positioned the area as the third most popular searched area. With three and four-bedroom villa rates still holding at an average of BD 950 per month and BD 1,200 per month, respectively, rents here remain cheaper than those in Adliya and Amwaj Islands, suggesting its popularity amongst tenants seeking centrally located, affordable housing is likely to persist.

Outlook stabilises

Despite the somewhat positive state of the residential rental market, the proportion of searches for villas continues to ebb and has now fallen to just under 35% of all searches, down from 41% last January, although the rate of decline appears to be slowing, hinting at a possible bottoming out of the market and perhaps more crucially at the continuing importance for households to contain expenses.

That said, quality and perceived value for money continue to drive interest in newly launched schemes, suggesting that tenants are very much in the driving seat and can cherry pick from a range of options on the market. At Segaya Views and Cebarco Tower for instance, we have recorded a steady level of enquiries for the 140 furnished one, two, and three-bedroom apartments on offer, with rents starting from as little as BD 650 per month.

Households in Bahrain have been faced with some very challenging headwinds over the past 12-18 months, with subsidy removals and job security fears denting confidence and driving down budgets, but we appear to be entering a period of stability with the market flattening out. The GCC Support Fund has undoubtedly contributed to the stability, by helping to maintain
a steady rate of job creation in the non-oil sector, which has been reflected in our experience through a steady, but stable number of rental requirements.

We had previously expected to see rents decline by 5% on average through the course of the year, but we have now revised up our forecasts for the residential rental market, with little to no declines now anticipated as we head toward the end of 2016.

Looking ahead to 2017, the performance of the market will very much depend on the government’s ability to maintain its relatively high state spending levels and also the ability of the world economy to shake off the dampening effects of a slowing Chinese economy, unresolved EU sovereign debt issues, a British exit from the EU and any impact resulting from the US presidential election.

The current stability is a positive indicator and has come earlier than we expected. Our view is that the market will remain relatively at until next summer or autumn at the earliest, before there is potential for a resumption in any rent rises.

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