A high number of luxury apartments entering the market in Bahrain is bringing down rents and prompting some landlords to convert middle quality units into office space, according to CB Richard Ellis.

This is causing concern as they are not laid out for commercial use and do not have enough parking. The country’s zoning laws need to be overhauled or whole areas could become ‘one dimensional’, leading to greater need for car transportation on the island, the CBRE report warned.

Overall CBRE reported that Q3 2009 was fairly static in the residential sector with little movement in prices, rental rates or transaction activity. But a significant number of new apartments could affect the market unless new jobs are created.

The report said: ‘In Dubai for example, many thousands of units remained unoccupied after completion and this may be the case in Bahrain, particularly with the luxury apartments soon to be completed in Juffair and the north coast of Bahrain.’

If that happens, a large proportion of new apartments may never actually enter the supply chain, and a housing shortage could quickly revive the sales market if the cost of mortgages comes down, it adds. The Bahraini Government has pledged to build 14,000 low cost housing units by the end of 2010. Out of those, 4,000 are scheduled to be delivered by the end of this year.

The report also showed that the commercial sector is experiencing tough times. Office rents in Bahrain have declined by around -20% this year, according to the report.