Bahrain: Retail’s mixed messages

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The outlook for the retail sector is mixed, with a recently released study reporting that some of Bahrain’s shopping centres are facing difficulties, while other indicators suggest that consumer sentiment remains solid and spending could be set to rise.

In a study of the Kingdom’s property market released at the end of May, CBRE, an international real estate consultancy, said that growing competition between malls, an increase in the number of smaller neighbourhood shopping centres and the unrest in some areas have combined to weaken the performance of several of the country’s malls.

According to the report, while malls such as the City Centre and Seef Mall continued to enjoy high occupancy and strong rental rates, others have had difficulty retaining tenants and drawing customers. The entry of the 150,000-sq-metre City Centre mall in 2008 has had a major impact on rates and occupancy levels at other local shopping venues. “The remaining malls have been faced with increasing vacancy rates and lower profile tenants, and in some cases rates have fallen by almost 75% as mall management have sought to maintain both occupancy and footfall levels,” the report stated.

Recent events have played a role as well, with the report pointing to problems at Sitra Mall in particular. It cited issues including the “failure to locate the anchor tenants in locations that have any impact on the rest of the mall, poor access, social unrest in close proximity to the mall and outlets that fail to meet the needs of the mostly low-income villages nearby” as factors behind its decline.

Weak demand for office space is also having an impact. According to estimates from CBRE, around half of prime office space is empty, with this having a corresponding effect on rates. The monthly leasing rates for class-A office space dropped to BD8 ($21) per sq metre in first-quarter 2012, down from BD12 ($30) in first-quarter 2009.

Low occupancy rates in major office complexes like Bahrain Financial Harbour (BFH) have reduced traffic for associated retail outlets. At present, the BFH has 78 listed tenants, with Mike Williams, senior director at CBRE, estimating the occupancy of the office space in the towers could be as low as 25%. The 74,000-sq-metre Harbour Mall, situated in the BFH, has only a handful of outlets currently in operation.

Despite these issues, new retail projects are moving ahead. In mid-May, the management of the residential and commercial project Diyar Al Muharraq announced it had signed an agreement with Chinese firm Chinamex to roll out a themed shopping mall on the Bahraini company’s self-titled island. Work on the 46,000-sq-metre Dragon City retail centre will begin shortly, according to Diyar Al Muharraq’s chairman, Abdulhakeem Alkhayyat, and the company has said it expects to attract 500,000 visitors a year once completed in September 2014.

Chinamex’s previous development in the Gulf, the massive 1.2-km, 3950-store mall in Dubai, Dragon Mart, which is the largest trading centre for Chinese products outside of mainland China, has struck a chord with regional shoppers due to its low prices and wide selection of goods on offer, with footfall rising by 84% in 2010. Developer Nakheel announced plans in late 2011 to expand the mall by around 160,000 sq metres, and subsequently said that it leased more than 93,000 sq metres of this in just five days.

The Kingdom’s retailers also look set to benefit from improving consumer sentiment, with a number of key indicators suggesting activity should pick up in the second half of the year. According to the findings of the latest regional consumer confidence survey conducted by market research firm YouGov, Bahrain’s consumer confidence remains resilient, with many shoppers indicating they could raise their spending levels.

While the majority (58%) of Bahraini respondents thought it was a bad time in terms of business conditions, some 24% said it was a good time to make purchases. This positive news for retailers was further bolstered by the survey’s findings, which showed Bahrain’s Propensity to Consume/Spend Index (PCI) rose to 104.9 points, meaning a majority of respondents were likely to increase their spending in the coming months.

That sentiment could be fuelled by an expanding economy, although there have been contrasting forecasts regarding the rate at which expansion is expected to occur. The IMF has forecast that GDP will increase by 2% this year, up on the 1.8% recorded in 2011, while Bahrain’s Economic Development Board has tipped growth to be 4-5%, according to a report issued by the organisation in late May. Whichever figure is closer to the mark, there should be a rise in disposable income and cash in the economy, which could ultimately flow into the retail sector.

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