New malls and second causeway to Saudi Arabia expected to give Gulf state an economic boost
Historically less wealthy than its GCC counterparts, the Kingdom of Bahrain has taken longer to find its feet after the global recession. However, with a few major upcoming developments and increased interest in its retail sector, the Bahraini economy can look forward to a significant boost, reports suggest.
The retail sector in the Kingdom was probably the strongest performer last year, with the recent launch of ambitious developments like The Avenues, a $93 million waterfront project on Manama Corniche. Another major project expected to boost the retail sector is the $53 million Seef Mall Muharraq, a 70,000sqm development slated for completion by the end of 2014.
There is also the much-anticipated Dragon City, a Chinese-themed development to be built on 115,000sqm of land with 55,000sqm of retail and wholesale area. Construction on the project began in April last year, and the mall is expected to be complete by the end of June 2015.
According to real estate advisory firm CBRE, smaller-scale neighbourhood retail is yet to be serviced on a wide scale by retailers but is gaining popularity as developers recognise the risk of oversupply due to a growing number of mega-malls. Smaller scale retail developments include the 3,150sqm Segaya Plaza launched by Eskan Properties, which is fully let, and the Danat Al Madina in Isa Town, which has witnessed interest from retailers.
Moreover, Cluttons predicts that the upcoming King Hamad Causeway, the second terrestrial link between Bahrain and Saudi Arabia, will significantly boost Bahrain’s residential, retail and industrial markets. Bahrain’s economy heavily relies on traffic entering the Kingdom from its larger and richer neighbour Saudi Arabia, via the existing 25km King Fahd Causeway.
“The current causeway has been a significant contributor to growth in the economy. The announcement of a second connection to Saudi will no doubt boost the performance of the residential and retail markets further,” says Harry Goodson-Wickes, head of Cluttons Bahrain.
“We have recorded a steady rise in demand from Saudi nationals seeking to purchase weekend homes in Bahrain this year. In addition, the steady level of domestic housing requirements has prompted several developers to make a return to the market to capitalise on this growing pool of buyer demand. The longer-term ramifications for the residential market are too early to judge, but there will be an obvious long-term boost to the broader market with more traffic expected to flow into the Kingdom from Saudi Arabia.”
According to Faisal Durrani, Cluttons’ international research and business development manager, “The Bahraini economy, which is still working to find its feet following the global downturn and unprecedented national tensions, will receive a tremendous boost from improved connectivity with the rest of the GCC. The Kingdom already serves as a critical logistics hub for the central Gulf, and the new $5 billion King Hamad Causeway will further strengthen the attractiveness for logistics and industrial occupiers looking for additional hubs in the region aside from Dubai.”
Goodson-Wickes adds that the retail sector will also see a boost from the new causeway, with weekend tourist traffic into the country, particularly from Saudi Arabia. “In fact, we are already seeing Chinese and other major regional and international brands seeking out space in retail developments such as The Lagoon and Alargan Village. This announcement will no doubt drive further interest in this exciting segment of the real estate market.”
Despite the positive outlook for its retail sector, Bahrain’s office market looks bleak. Adversely impacted by oversupply, the country’s commercial property market suffers from “demand levels that remain close to record lows”, causing rents to fall in most submarkets during the first half of 2014 before stabilising in the third quarter of last year, Cluttons says.
CBRE has also not recorded any improvements in the Kingdom’s office sector this year, due to the oversupply situation. Vacancy rates currently stand around 25% on average, with new developments close to completion, such as the United Tower and Al Baraka Bank Building at Bahrain Bay, to be added to existing prime office stock in the first half of 2015.
“There is definitely a large supply of commercial projects and structures in the market, largely because they are an integral part of the master-plans loaned out for development,” says Stefan Burch, director of professional services for Knight Frank’s Bahrain and Saudi Arabia operations. “In my view, Bahrain’s commercial property segment is very elastic in its supply and potential supply, and it is a risk in my opinion.”
The residential sector fared better in 2014, however, with rents remaining largely the same across Manama. Cluttons recorded no change in rents during the first three quarters of 2014, despite the weak economic environment, and they are expected to remain stable over the near to medium term due to a limited supply pipeline.
Areas such as Juffair and Amwaj Islands are popular with US military employees and people new to Bahrain, the CBRE report says. “Amwaj Islands, which are considered as a ‘safer’ option, continue to attract local and foreign investors alike, as the area develops as an attractive community proposition with retail, hospitality and entertainment components already in place,” says Steve Mayes, director, Middle East Research, CBRE Bahrain.
Burch agrees that Amwaj Islands are increasingly popular, adding that mixed-use developments will be the next big thing in the Kingdom. “Mixed-use developments appear to be the next big offering in Bahrain. Reef Island and Amwaj Islands are gaining traction in terms of attracting attention from buyers and investors,” he says.
“Historically, Bahrain’s problem has been the lack of people and residents. But areas like Reef and Amwaj have responded very well to the demand from existing and new buyers; they provide more than just a place to live in. Bahrain has traditionally been a single-use development driven market, but developers are now realising that potential residents need to be offered ancillary developments and retail support as well.”
Burch adds that it would be great for Bahrain if a mega event like the Expo or World Cup were held on its shores, but is positive about the Kingdom’s future. “Bahrain is yet to figure out a clear USP, perhaps, but if the activity on developments like Amwaj and Reef is any indicator, then Bahrain is set to grow into a mature market too.”