In the past year, the property market in Bahrain has come into its own with a frenzy of investor and development activity. From grand residential schemes to ambitious commercial projects, the dynamic island state is set to have a major impact on the Gulf region and beyond. More than 30 major residential projects are planned and commercial projects span the Bahrain Financial Harbour and the World Trade Center to a host of new hotels and executive apartments being built for the country’s dynamic hospitality sector.

The only clouds on the horizon, as elsewhere across the Gulf, are escalating land and construction costs, and there are concerns that locals could become alienated in the face of rising prices. But, despite these worries, the boom continues unfettered.

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And despite fears that the economy may slow down this year, the kingdom posted a healthy level of growth of 6% last year thanks mainly to higher oil prices. Like other Gulf states, Bahrain has its currency pegged to the dollar and follows US interest rate moves. Its inflation currently stands at a manageable 2.7%.

Market surge

After lagging behind Dubai, Bahrain’s residential market is expected to surge by more than 30% in the next 18 months. Brisk sales at the first three of 11 planned residential towers in Bahrain’s Marina West, the kingdom’s largest gated beachfront residential community, are a sign of the market’s ascent. The project is due for completion in 2009. Prices range from about $110,000 for a studio to $890,000 for a penthouse suite. More than 10% of the 1280-plus units were sold in the month preceding official groundbreaking, and Asteco reports two-bed sales are proving particularly popular.

In other recent developments, Pearl Development and Real Estate Company was awarded Bd2.4m-worth ($6.3m) of construction-related deals for its landmark Bd95m Abraj Al Lulu waterside project in Bahrain. The company, a consortium of Gulf Co-operation Council (GCC) investors, has awarded the deals through lead contractors Al Hamad Contracting Company.

Signature projects

Bahrain’s answer to Dubai’s Palm and World developments and Qatar’s Pearl is its three signature projects: Amwaj Islands, Durrat Al Bahrain and Two Seas. Adding to the lustre are two more waterside entities, Bahrain Bay and Lulu Island.

Amwaj Islands is an artificial island development that will soon become a ‘city’ of luxury apartments and villas. The project, being built on reclaimed land, has helped to create a beachfront 9.5km long. The development is linked to the mainland by a 3km causeway. The project has entered into its third and final stage. Ossis Property Developers is building a business park that will feature office accommodation and facilities in a landscaped environment. To contain both residential and commercial lots, some residential developments were completed last year. As part of the $1.5bn project, Cisco Systems and Oracle of the US developed fibreoptic networks connecting all residential properties and hotels.

Long regarded as the banking and business hub of the Middle East, Bahrain is home to more than 350 financial institutions. Its service sector is growing strongly attracting e-commerce, financial sector services as well as tourism and travel operators.

Among some of the big names to open new offices are Citigroup Private Bank, Masrafy, the first Islamic investment bank for women in the Middle East, and the UK’s Royal Bank of Scotland.

Designed as a distinctive architectural landmark, the Bahrain Financial Harbour has been modelled on other notable financial centres, in particular London’s Canary Wharf. It includes seafront walkways, shopping boulevards, marinas, water and pedestrian pathways as well as extensive café and dining facilities. The development is being built on reclaimed land and is due for completion in 2010 – three quarters has already been completed. Units will be either put up for sale or leased, depending on the nature of the building, and tenants will represent core sectors of the business community.

World Trade Center

The Bahrain World Trade Center (BWTC) is the kingdom’s first ‘intelligent’ building, and provides integrated corporate and leisure facilities. Designed to create an unmatched urban centre, it comprises office space, a shopping mall as well as a Sheraton Hotel. Rising higher than 240 metres, the building will offer amazing views out over the Arabian Gulf and the Manama cityscape.

Quality architectural design is at the heart of the BWTC, with high specification office space incorporating a fully integrated IT infrastructure that will provide tenants with unmatched levels of connectivity and security. Its two landmark towers were designed by WS Atkins and have been conceived to reflect the dynamism of this fast-growing economy. Each of the two iconic towers provides state-of-the-art office space, high-speed lifts and balconies. The existing shopping mall will eventually be extended to host more than 150 luxury brand outlets with a glass-domed garden court.

As the project nears completion, there has been strong demand from local, regional and international companies across multiple industry sectors.

Offices in short supply

Due to surging demand, the office sector is struggling with a shortage of supply, which has caused commercial rents to rise significantly – up 10%-15% last year alone. Yields in the office segment of the market range from 15%-20%, while for investors the figure ranges from 10%-12%.

Although there may be a shortage of supply of commercial property, there are concerns that the number of new residential projects under construction may squeeze the prices that developers will be able to obtain. There has been a lot of speculative activity in the residential sector, mainly from Kuwaiti and Saudi investors, which may spell trouble in the medium to long term.

However, despite the presence of speculators, large-scale developments are continuing to flourish. At the heart of the Amwaj Islands development are a series of new developments between Al Marsa in the south-eastern region and neighbouring Tala Island.

Al Marsa Floating City is a waterfront housing development, where housing is surrounded by canals. Called the ‘Venice’ of Bahrain, it covers 26 hectares and comprises 274 canal houses, a 150-room hotel, time-share apartments, a retail mall, restaurants and a yacht club. The development is a joint venture involving YBA Kanoo, Al Shamil Bank, Al Saraya Properties and Ossis Property Developers.

Al Marsa is one of a number of mega-projects based on reclaimed land. But, although few land-based developments can match the exuberance of developments such as Lagoon Bahrain, Durrat Al Bahrain or the $3bn Two Seas freehold residential development, there are plenty of investors queuing up to contribute to the real estate boom.