Office rental rates in Bahrain continue to decline, but are showing some signs of stabilisation, according to the latest office market update by Knight Frank Middle East.

Prime monthly office rents are now BD9 per sqm.

Vacancy rates are on the rise again as new delayed stock is completed and tenants are in a strong negotiating position, typically demanding smaller fitted out units.

Landlords are realising incentives must be offered in order to secure new and retain existing tenants, the report states.

"Over supply of new and existing stock continues to exert downward pressure on achievable rental rates, carrying on the observable trend since the bull market of 2008," it adds.

"Despite the global economic downturn and negative news from Europe, leasing activity has increased over the past quarter though it remains a tenant's market. Demand for office space is restricted to small units with good quality fit-outs, as tenants seek to avoid the large upfront costs associated with relocation.

"Older buildings have become increasingly hard to let due to the quality and age of the fit-out which has resulted in a significant increase in vacancy rates in these properties."