Bahrain's economy continued its positive momentum in 2005, with a 5.6% growth in nominal GDP reaching BD4.37bn on the back of high oil prices coupled with ongoing public and state-backed industrial and infrastructure projects. The burgeoning economy has spilled over the real estate market, which has been witnessing increased activity with several projects in the pipeline in the residential, commercial, industrial, and tourist segments. The total value of traded land permits in Bahrain have shot up in the last five years, it grew at a CAGR of 27.4% during the period from 2001-2005 and stood at BD517mn in 2005. Total construction permits stood at 10,728 in 2005 compared to 9,374 in 2004, with most of the construction activity taking place in the Northern and Middle areas which constituted 33% and 30.7% of total construction permits in 2005 respectively.
Key drivers of the real sector in Bahrain includes growing population, rising expatriate workforce, growth in credit facilities, a multitude of financing options, and a foreigners' friendly environment.
The residential sector has been witnessing a lot of speculative activity driven mainly by trading by Kuwaiti, and Saudi investors. Land prices have appreciated by about 3 to 4 times, for example land prices in high end low rise residential areas such as Saar, and Budaiya have increased from BD2.5 to BD10 per sqft. In Busaytin, another residential area; prices have gone up from BD2 to a range of BD10-20 per sqft. In Manama, land prices are in the range of BD15-22 per sqft. In largely expatriate and middle class area such as Juffair, land that was selling for BD4 to BD5 per sqft is today selling at a range of BD25-37 per sqft. Looking at the liquidity levels in the GCC region fostered by high oil prices, and the high surpluses coming from the stock market, the trend of speculative activity by GCC investors buying into Bahraini land is expected to continue further. Demand for residential properties has been increasing considering the increasing population growth and influx of foreigners, not only in Bahrain, but also from Saudi Arabia who come from across the King Fahd causeway. A lot of upscale residential projects are in the pipeline. It is believed that the residential sector in Bahrain has been saturated with high-profile commercial properties and luxury residential properties leaving the country short of housing for low income groups. It is believed that the real opportunity for the residential sector in Bahrain lies within low end residential properties.
The office sector is currently facing a shortage of supply driven by a flourishing business environment, improved macroeconomic environment, and increased foreign investments. Commercial rents have increased 10-15% in 2005. Monthly rents for office space ranges between BD4-7.5 per sqm in Seef area, BD5-10 in the Diplomatic area, and BD4-7 in Central Manama. Monthly rentals for prime office space have gone up y-o-y from BD6.5 to BD8.5 per sqm in 2005. There is a lot of supply of office space coming up shortly in Bahrain at the same time, the Bahrain financial harbor (130,000sqm), The World Trade center (35,000sqm), and another 35,000sqm by different developers. However, it is believed that the upcoming new supply might not have enough demand to support the viability of these new projects.
The retail sector has been quiet buoyant, supported by the expatriate population, and the Saudi and Gulf travelers coming for vacation in Bahrain. There is a lot of retail activity in Bahrain, with most of the shopping malls mainly concentrated in al Seef area such as Seef mall, Dana mall, Bahrain mall, Marina mall, Sheraton complex, Gosi mall, Citra mall, and Isa town mall. Most of these shopping malls are high end except for marina mall and Isa town mall. A new retail outlet, City center is expected to come up in al Seef area in 2007. The average monthly rent for retail space in Bahrain is BD16 per sqm, while in the upcoming City Center; it is expected to range between BD22-24 per sqm. It is believed that there is still room for growth in the retail sector; as the majority of shopping in Bahrain is done by foreigners and other GCC nationals who visit on the weekends.
The industrial sector has picked up lately with lots of projects in the pipeline such as the Alba line six expansion, upgrading Bahrain's oil refinery, expansion of "Bahrain Petroleum Company (Bapco)", and the privatization of Al-Hidd power and Water Station. The mega projects in the pipeline are expected to play a significant role in driving the industrial sector in Bahrain. The government has been pushing the manufacturing sector, liberalizing its policies and is targeting the private investment to improve its infrastructure. Signing a free trade agreement with the US in September 2004 has also left many positive about Bahrain's potential of attracting foreign investments. An open economy, along with the flexible regulations allowing full foreign ownership of industrial land are expected to drive the demand for industrial space in Bahrain.
Tourist arrivals in Bahrain has increased for the last four years from 4.3mn in 2001 to 5.6mn in 2004, and stood at 4.79mn in 9M-05. Total Tourist nights rose from 1.57mn in 2001 to 2.29mn in 2004. The Bahraini tourism scene is mainly dominated by business visits and weekend and holiday getaways from the Saudi causeway. The bulk of tourist arrivals in Bahrain, around 80% are through Saudi causeway, which is used by expatriates living in Saudi. We expect to witness increased activity in the tourism sector in the coming years with increasing number of visitors from Saudi along with the government efforts to relax its measures with regard to foreign ownership. Major events such as the Formula1 Grand Prix event are also expected to generate tourist interest in Bahrain, and with another causeway linking Bahrain to Qatar in the horizon, Bahrain's tourism sector will be strengthened even further.
© 2006 Al Bawaba (www.albawaba.com)
