Contractors operating in Bahrain have long complained that the real estate market has been slower to take off than its Gulf counterparts. But over the past 12-18 months, the sector has boomed.
Unlike its neighbours, this is led by the private sector rather than government-backed developers, and is leading to a huge number of developments expected to be completed in the next five years.
The amount of office space under construction or development in Bahrain is set to double current capacity by 2012, according to research released earlier this month by DTZ.
“We recently took a decision to share key findings from our work in the Gulf with the larger community, a step we hope will encourage debate and help inform those looking to invest in real estate in the region,” says Robin Williamson, managing director of DTZ’s Middle East operations.
DTZ estimates there is about 500,000 sq m of office space available, with demand for a further 79,000 sq m, which is in turn driving up rents. About 30 per cent of the excess demand comes from businesses actively seeking premises, while 70 per cent comes from businesses that would take new space if it became available.
Not surprisingly, given Bahrain’s position as a regional centre for finance, it is the banking and financial sector that is driving demand hardest, accounting for more than 34.6 per cent of tenants.
Government tenants are the next largest occupants, taking up 12.3 per cent of the office space, with construction and real estate accounting for 11.6 per cent.
Although steady economic growth throughout the financial and real estate sectors is forecast, experts say it is unlikely that it will match the rate at which properties are entering the market.
However, competition for the best-quality office space is expected to remain stiff. Accor-ding to DTZ’s office market overview, landmark schemes such as Bahrain Financial Harbour and the Bahrain World Trade Centre are demanding substantial rents for prime office space.
Rents at the World Trade Centre have reached BD18 ($48) a sq m a month, or BD216 a year. City centre office space outside these prime developments realises rents of BD12 a sq m a month on average, BD10 for central Manama and BD14 in the Seef district.
Rents have also been increasing in the residential sector and demand for property remains high, thanks to a growing domestic population and an increase in expatriates moving to the kingdom.
DTZ predicts that 2008 could be a record year for Bahrain’s real estate market. It expects annual turnover in the sector of BD2.1bn, representing a 58 per cent increase on 2007.
“The Bahrain residential market still represents an excellent opportunity for investors,” says Robert Addison, Bahrain-based country manager of DTZ and director of Emea retail. “With several high-end megaprojects in development, those looking to buy a luxury property can still do so in Bahrain at a fraction of the price currently being recorded in other markets such as the UAE.”
But like the office sector, an enormous amount of new capacity is expected to come onto the market in the next five years. The Works & Housing Ministry confirms that, within the Manama north shore development alone, more than $100bn worth of mixed-use developments are planned.
DTZ forecasts that more than 60,000 housing units are being developed within projects such as the Amwaj islands, Durrat Al-Bahrain, Reef island, Marina West, Bahrain Bay and Bahrain city centre. Retail developments are also planned in these areas, which will add about 369,000 sq m of space to existing capacity.
The majority of demand comes from the influx of Saudi visitors to the kingdom, who also account for about 77 per cent of non-national property purchases.
But an increasing number of Qatari visitors are anticipated, following the planned completion of the Qatar-to-Bahrain Al-Mahaba causeway, which begins construction early next year, in 2013. Despite this, DTZ says retail operators will face stiff competition and older malls will struggle to compete.
“The retail market is rapidly evolving and customers are becoming more discerning,” says Himal Vohora, senior consultant at DTZ. “We predict that only well-designed and well-targeted projects will be successful in the medium to long term.”