Bahrain Market Report: Steady recovery

Bahrain's construction market is improving

ANALYSIS, Projects, Bahrain, Construction market

Bahrain’s construction and property sectors are showing signs of recovery but there are still obstacles to overcome. Yamurai Zendera reports

When you talk to the major contractors and consultants about Bahrain, the normal refrain tends to be something along the lines of: ‘It’s quite a small market, we don’t have much work going on there’, or ‘We’re focusing on other parts of the GCC’.

Those who are working there, however, tell of the great opportunity to establish long-term ties in a part of the region that is often overlooked – particularly in recent years.

A report by Deloitte published this year put Bahrain’s share of the region’s project market (planned or underway as of February 2013) at a meagre 3%. Moreover, the report showed that the overwhelming majority of the country’s construction spend (as of April 2014) was in the mixed-use sector (73%), followed by the residential sector (14%).

A case in point is Bahrain Bay, one of the Kingdom’s biggest mixed-use projects valued at around $2.6bn. The 43-hectare site sits on reclaimed land just north of Manama’s Diplomatic Area, the current central business district (CBD). Its vision is to develop an extension of the CBD, creating a 24-hour downtown where people will live, work, and entertain in an open atmosphere.

As part of the Bahrain 2030 Plan, Bahrain Bay will become the central heart of the new Manama, connecting people directly from the airport. This new connection will eventually tie into the King Fahd Causeway, which carries 50,000 passengers to and from Saudi Arabia daily.

One of the development’s main hotels, the Four Seasons, should be ready in the “next few months”, Philippe Dessoy, general manager of main contractor Besix told CW.

With its H-shaped design, it will comprise a 201-metre waterfront community with 43 storeys, 260 guest rooms and a penthouse level “Sky Pod” restaurant which will offer extensive views of the Arabian Gulf.

Two recent events, however, best sum up the dichotomy of Bahrain that tends to explain why hesitant foreign companies are seeking transparency.

Not less than a fortnight ago the government was announcing plans for a second road link – King Hamad Causeway – with Saudi Arabia, expected to bring in significant benefits to residential, industrial and retail markets.

Yet hot on the heels of this was the revelation that the much-delayed $5.3mn “Smurf’s Village” theme park had been scrapped after the main investor pulled the plug. Bahrain’s Central Municipal Council, which approved the project in September 2012, has yet to be given an explanation for the move, according to local media reports.

Paula Boast, a Bahrain-based partner (construction & projects) at international law firm Trowers & Hamlins, noted that disputes have depleted in the last 12 months and the market is “simply getting back to building”.

“Key market players and government alike are driving a strong message emphasising that stalled projects will be coming back online, both in the public and private sectors. The drive to boost Bahrain’s construction and real estate investment opportunities generally is being actioned on a global scale,” she explained.

“Project streams are focusing on island-wide infrastructure development. Progress alongside the role played by private finance is seen as crucial, particularly in relation to Bahrain’s low-cost housing market, which is now forging well ahead, and the industrial and energy project sectors.”

Boast said that alongside these financial and building drivers are a variety of government and legislative reviews based on improving a project’s investment environment which, in turn, will encourage real estate expansion.

“They will support project progress across the board and include new property development laws, mechanisms for dealing with defaulting developers and, importantly, recognising and protecting investors,” she said. “Similarly, Bahrain’s construction health and safety regimes, as well as enhanced standards for building regulations, are also on the review agenda.”

There is certainly empirical evidence of delayed projects taking off in the Kingdom, none more so than the $1bn upgrade of Bahrain International Airport. In recent weeks, the Ministry of Transport has floated a flurry of tenders for various packages.

Financed by the Abu Dhabi Fund for Development and managed by consultancy Hill International, which was appointed in January 2014, the expansion project is expected to boost capacity to 13.8mn passengers a year, bringing the Manama airport in line with other airports in the region that have either upgraded or are in the process of doing so.

Infrastructure projects generally have received a shot in the arm, funded by the so-called GCC “Marshall Plan” where $10bn worth of aid has been pledged to the Kingdom by other members. This has already had some impact on social housing.

Meanwhile, property consultants Cluttons said Bahrain’s wider residential market has experienced a slow but steady increase in the demand for rented accommodation off the back of cooling political tensions. Rents throughout the course of last year edged up by 2.4%, it said, but this masked the fact that rents are only beginning to level off after years of decline.

The source of tenant demand remains firmly centred on the US Navy’s regular rotation of personnel, which is aiding in the generation of churn and activity in the market, Cluttons noted, pointing to the hydrocarbon sector as the only other notable generator of new jobs and therefore tenants.
If the green shoots of recovery are being seen in the residential market, the opposite is true in the office
market, which took a battering during the global financial crisis.

Large schemes such as the Bahrain Financial Harbour and the 27-storey Millennium Tower, although experiencing healthy demand, are still some way off achieving full occupancy.

Property consultant Knight Frank said there is an oversupply of space that was built in the run-up to the 2008-09 crash. Office rents, it said, are currently bottoming out at $23.90 per m2 per month. Prime rents remain 40% below 2008 peak levels.

“While vacancy rates remain high, best-in-class buildings such as Almoayyed Tower, Bahrain Financial Harbour continue to see healthy levels of demand,” it said.

Cluttons points to some optimism in Bahrain’s retail sector. For instance, in May, Diyar Al Muharraq, one of Bahrain’s leading urban developers, appointed Nass Contracting to build phase one of Dragon City, a Chinese-themed retail development similar to Dubai’s Dragon Mart within its masterplanned project. Leasing is expected to start shortly, with the development expected to open in June 2015.

Several contractors, meanwhile, told CW that they are bidding for work in the Kingdom. Indian-based builder Shapoorji Pallonji said it was bidding for a couple of projects: Plot F 02-1 at Bahrain Bay, which is set to contain a JW Marriott Hotel & Serviced Apartments, and the main construction package at Bahrain International Airport.

It is also keeping tabs on a new, five-star hotel development for Bahrain Tourism Company, a medical city, Bahrain University/ College of Engineering, and Bahrain International Stadiums.

Mechanical and Civil Engineering Contractors Company (MACE) said it has bid to the Ministry of Housing for the design, construction, operation and maintenance of Al Madina Al Shamaliya Sewage Treatment Plant and Long Sea Outfall.

Bahrain-based Global Mechanical & Electrical Contracting, a subsidiary of AJM Kooheji Group, on the other hand said it is currently working on several projects, including Sukoon Tower in Juffair for Tasheed Properties, Wadi Al School in Riffa and Hammad Town School in Hammad Town both for the Ministry of Works, and Abu Obaida School in Muharraq for the Ministry of Education.

General manager Gautam Majumdar said he saw potential in the local infrastructure, education and health sectors.

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