Analysis

Pragmatic planning: Bahrain property sector in focus

Big Project ME examines the growth sectors of the Bahrain real estate market as the Kingdom steps up development plans

Bahrain’s real estate sector is in the midst of a rapid expansion due to a surge in demand for residential and retail development, a recently released report from the Bahrain Economic Development Board (EBD) has found.

The economic quarterly report reveals that growth in the real estate sector reached 4.5% in the first quarter of 2017, contributing $1.7 billion to the economy, while real estate transactions in Bahrain grew by 15.2% in the same time period, reaching a total value of $770 million. This represents an 8.1% jump compared to the same quarter in 2016.

The retail and hospitality sectors also witnessed significant growth, while the hotels and restaurants sector emerged as the fastest growing during the first quarter of this year, recording a 12.3% year-on-year real rate of expansion.

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According to the H1 2017 Bahrain MarketView developed by CBRE, retail and F&B developments continue to be popular investment choices for Bahrain, though experiential and entertainment-focused retail concepts are also beginning to influence shopping centre designs.

A number of festival waterfront and neighbourhood retail projects are opening or are currently under construction, the CBRE report says, highlighting projects like the Avenues, scheduled to open in late 2017 with 33,000sqm GLA, and The Oasis, a large regional shopping centre opposite the grand mosque in Juffair, which will open in 2018.

“Retail and leisure are seen as the main drivers of tourism in the country, and international retail operators, including The Avenues and Alshaya Group, continue to work with the local market to evolve the offering,” says Heather Longden, associate director of CBRE Bahrain.

Yazan Haddad, CEO of Bahrain Marina Development Company, the developer building Bahrain Marina, a 310,000sqm mixed-use development project in the heart of Manama, agrees that there has been a notable shift in the way projects are being designed and built in the Kingdom.

He tells Big Project ME that as a developer, Bahrain Marina Development Company has been careful to keep in mind the bigger picture while designing and building its massive mixed-use project.

“Every project has its own unique niche, but they all tie into an overall development. It’s this pragmatic plan that the Kingdom itself is embarking on, for the Year 2030 Vision. It’s an ambitious plan, and we’re part of it. It aims to help develop the country and bring more investment into the Bahraini market, from different sectors. We are just one of many sectors – be it entertainment, education or healthcare, there are many projects in the pipeline that go into different sectors.

“We have seen that the pragmatic development plans of the Kingdom have contributed to the boom that we’ve seen recently in the Kingdom, across all sectors. As you drive the streets of Bahrain, you see the number of cranes that are part of the development of such mega projects. There’s a good plan in place to develop the country, to increase investment and to increase the potential for investment within the real estate sector,” Haddad asserts, pointing out that the real estate sector is a driver of many other sectors and industries across the country.

“By developing a mixed-use development like Bahrain Marina, we will be contributing to, and be a part of, this pragmatic plan to actually generate such developments within the country. Bahrain is a small country, so any project of a decent size can actually influence and make a dent in any market it’s positioned in.

“Our ultimate aim as a company with such a development is to create the ultimate destination for entertainment and leisure within the country. We want to have a new offering for entertainment, and what we’re trying to do is put a development on the map for the touristic and entertainment sectors of Bahrain,” Haddad adds.

He points out that the variety on offer at the Bahrain Marina development will definitely add it to the list of destinations in Bahrain. He explains that the target behind this, and the other major projects underway in the country, is to create appealing destinations within Bahrain, where visitors flock to the country to see particular developments or attractions.

“We’re looking at close to 250,000 visitors coming over the causeway every month into Bahrain. Everybody is going to compete for the same number of people coming into and out of Bahrain. What you need to do is differentiate yourself by giving an extra offering. It’s this offering that lets you attract visitors into Bahrain, while also making sure that your local market is being satisfied and catered for.

“Take any destination in the world. When you go to Disney World, you go there for Disney. You spend time and money there. We want to put a place in Bahrain where people think, ‘Okay, if I go to Bahrain, then I definitely need to go there.’ This is what we’re trying to do.”

However, this is not the only burgeoning sector for the Bahraini real estate market, with both the Economic Development Board of Bahrain report and the CBRE report highlighting the growth and potential of the residential sector.

Citing statistics published by the Ministry of Housing, the EDB report says the number of residential applications pending allocation of units currently stands at 55,000 and is estimated to grow by 5,000 each year, driving the high demand for residential units in the Kingdom.

Additionally, the number of housing developments, both social and private, has increased in recent years, with more than 17 housing projects underway, including some private projects.

“In terms of the residential market, we see the highest growth potential in the affordable housing market. Right now, in terms of demand numbers, there’s a deficit of about 55,000 applicants just waiting for units, which increases by 5,000 applicants on a yearly basis,” says Ali Ghulam Murtaza, director – Real Estate, Tourism & Leisure Business Development for the Economic Development Board.

“With all the supply that’s coming in, we’re probably going to hit 15,000 to 20,000 of those units, so there’s a lot of need for more affordable housing units. In the mid-to-upper sector, demand remains constant. The supply that’s coming in is being taken on, albeit at a slower rate than affordable housing, but that’s because demand numbers are also lower.

“However, in the long run, what’s happening also is that regional investors are looking at Bahrain for a second home, a weekend retreat or even units that put up for yield generating purposes.”

According to the CBRE report, the residential sector in Bahrain has been under-supplied for over 25 years, with a housing shortage of approximately 75,000 units estimated in 2017. The majority of the shortage is in the low-to middle-income segment, catering to the needs of Bahraini families, backing up the findings of the EDB report.

The current demand in 2017 is for 290,000 units, based on population statistics and typical household sizes, while there are only 216,000 completed units across all property types in the market. In order to rectify this imbalance, the government is leading an intensive strategy to close the supply/demand gap, with 40,000 units scheduled to be introduced under the housing plan by 2020.

“Areas popular with expatriates for both apartment rental and sales continue to be Juffair, Seef , Amwaj and Reef Island. One of the most active districts of Bahrain for new residential development is Juffair, where there are a number of large-scale residential tower projects under construction and planned for completion in 2017 and 2018,” says James Lynn, director of CBRE Bahrain.

“This is anticipated to lead to a significant increase in freehold supply over the next two years in this area of Bahrain. In 2016, the micro market comprised of 2,800 freehold units and this is expected to rise to over 5,000 units by 2018, which is almost 79% growth within a short two-year period.”

Finally, another major growth area for Bahrain is the infrastructure projects sector, where EDB estimates the value of the Kingdom’s pipeline of large-scale infrastructure projects across a wide range of sectors to be $32 billion. These projects will support growth within the real estate market and help maintain robust economic growth throughout the Kingdom.

In addition to developing the necessary hard infrastructure, the report adds that Bahrain is also implementing soft infrastructure, such as smart legislation which will enable investors to realise value from their capital. One example is a new regulation developed in consultation with the private sector to specifically support growth in the Kingdom’s real estate sector.

“Infrastructure is being invested in heavily,” says Jerad Bachar, executive director – Tourism & Leisure Business Development for the Economic Development Board. “Bahrain is a country that’s fortunate to have a long-standing diverse economy. Less than 20% of the economy is dependent on oil and gas. With real estate, in the first quarter of the year real estate reached 4.5% of the economy, equivalent to $1.7 billion. So it’s a big driver within our economy, and it’s a growing part of the economy.”

“Investment in infrastructure is across the gamut. Infrastructure related to road works is a big part of that $32 billion pipeline, while $1 billion of that is invested in Bahrain International Airport, along with everything supporting the airport.

“Telecommunications upgrades and so forth are a big part of that as well, along with healthcare facilities. That $32 billion is quite diversified, as is the source of financing. Some of that is coming from the GCC fund, some is coming from the government of Bahrain itself, and then a good part of that is coming from the private sector developing everything around their projects and helping support them from an infrastructure standpoint.

“The goal is really to continue to drive diversification within the economy. These development projects that are coming into the market now are all part of that diversification growth,” he concludes.

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