The island kingdom is the fastest-growing economy in the Arab world, according to the United Nations, and its buoyant economy continues to have a major impact on the commercial real estate sector, with 500,000 square metres (m2) of office space now on the drawing board.

Its nominal GDP grew 5.6% last year to Bd4.37bn ($11.7bn), thanks to high oil prices and ongoing industrial and infrastructure projects. The number of construction permits shot up from 9374 in 2004 to 10,728 in 2005.

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Although the country still exports considerable amounts of petroleum products, its depleted reserves are barely enough to satisfy domestic consumption. Hence the need for diversification into real estate.

Pressure on prices

The red-hot investment climate has turned up the pressure on land prices, which have increased four-fold. The office sector has had to grapple with a shortage of supply, which has forced commercial rents in the region up by 10%-15%, and the overall commercial market has grown by 5%-10%.

Monthly rents for office space range between Bd4-Bd7.5 per m2 in the Seef district, to Bd4-Bd7 and Bd5-Bd10 in the Central Manama and Diplomatic Area respectively. Monthly rentals have increased from Bd6.5-Bd8.5 per m2 in 2005. Yields in the office segment range between 15% and 20% for developers and between 10% and 12% for investors.

While the tiny 33-island archipelago’s residential scene is spreading out far and wide, the commercial focus is very much on two landmark projects, the Bahrain Financial Harbour (BFH) and the Bahrain World Trade Centre (BWTC).

Core sector targets

BFH, which is designed to be a major international finance centre along the lines of London’s Canary Wharf, is targeting core sectors in the business community, including investment and commercial banks, legal and advisory services, IT firms, financial consultants and real estate investment trusts. Sharjah-based Al Hamad Contracting won the $250m contract to build the first phase and the entire project is due to be operational by 2010.

Some units will be for sale, others for leasing, depending on the building. Units range in size from 3000m2 to 51,739m2, and from 5400m2 to 105,529m2 in the built-up areas.

Health and educational service providers, media services and logistics businesses are among the ancillary sectors also being targeted at BFH, which is being built on 380,000m2 of reclaimed land. Gulf Finance House has a 60% stake in BFH and the Bahrain government holds the remaining 40%.

Designed as a distinctive new architectural landmark for the region, the Financial Centre, the first phase of BFH, contains the Dual Towers, Financial Mall and the Harbour House. It even has the ultimate status symbol: a helipad to transport high-flying executives to and fro. Three-quarters of the construction has been completed.

Khalid Abdul Rahman Al Rajhi, a prominent Saudi Arabian businessman, recently bought the Harbour House for $30m. It will be connected to the Financial Mall through a suspended bridge, and be located amid seafront walkways, shopping boulevards, promenades, marina and water pathways with water taxis, coffee shops and dining facilities. The 12-storey standalone office building, which is due to be ready by the end of this year, covers 12,240m2 and each office floor will have an approximate diameter of 28 metres.

The BFH will have 10 distinct components on completion in 2009, the Financial Centre, Commercial West and East, Harbour Row, the Hotel, Residential South and North, the Diamond Tower, the Bahrain Performance Center and the Dhow Harbour.

Gulf Holding Company recently launched the $450m Villamar at the Harbour, the first waterfront residential development comprising 494 one-to-four bedroom apartments, 54 villas and six penthouses. The villas ‘float’ four-storeys above the ground in a self-contained building at the perimeter.

Landmark trade centre

The BWTC is due to be completed by the end of this year, pushing back the previously announced September finish. Work on the development’s twin 50-storey towers had been delayed due to the Al Dana boat disaster in March, in which 50 employees of companies involved in the project died. The landmark towers are being designed by international architects WS Atkins and the lead contractor is joint venture firm Nass Murray & Roberts.

The towers, which are now in their final stages of development, will contain office space that raises the technological bar in the corporate world. The 240-metre commercial buildings will provide 43 storeys of leaseable space. The BWTC will be equipped with a structured cabling system that integrates its SMART features, including all forms of surveillance, data, energy and other systems, and provides the highest levels of connectivity. Security features include the latest CCTV surveillance and monitoring, automated access for tenants to common areas and the latest warning and response systems, which are designed to keep the blue chip tenants safe and secure.

Wireless unified messaging in hotspot areas will provide access to voicemail, fax and e-mail, all from a single point, and tenants will benefit from the ability to install WiFi and high-speed broadband internet-enabled hardware as suits their needs.

The towers are being designed with the environment in mind: three wind turbines will provide up to 35% of the total power used by the buildings.

Bahrain-based BankMuscat International is taking up 4000m2 of space in the East Tower (floors 15 to 21) and plans to open its fifth retail banking branch on the ground floor.

Thinking big

Among the other big projects, Ossis Property is to build a business park on Bahrain’s Amwaj Islands. The 23,000m2 park will feature offices and amenities in a landscaped setting. It is divided into two phases, with the north section set for completion in late 2007.

The Abu Dhabi Investment House believes that The Lagoon Bahrain, a waterside commercial project at the heart of Amwaj Islands, will help to accelerate the pace of development in the kingdom following its completion in 2008.

Bahrain Bay Development BSC, a joint venture between Arcapita Bank and a Bahrain-based investment group, has been formed to oversee a development off the north-east coast of Manama. The project will be a balance of commercial, residential and retail spaces set around the Manama waterfront and the centrepiece will be Bahrain’s first Four Seasons hotel. Phase 3 will involve other development partners, such as CapitaLand, for the development of residential, retail and commercial sub-projects around the anchor developments.

Bahrain’s International Investment Bank (IIB) and Saudi-based real estate company SNASCO have appointed Canada’s Cansult as the consultant and Bahrain-based Projacs International as the project manager on the West Bay tower project in Business Bay. The 28-storey tower will have a built-up area of 75,702m2 and provide 21 floors of office space. The structure, which will cantilever over a four-storey podium giving the building an x-shaped appearance, will be completed towards the end of 2008.

The tower will be offered on freehold sale. “Investors can expect a 22% return on investment per year for the first three years,” says Salah Noor Al Deen, IIB’s chief operations officer. Better Homes will handle the commercial sales of the building’s office spaces and leasing of its retail outlets.

Rising profile

Since the Heritage Foundation/Wall Street Journal 2002 Index of Economic Freedom report, which ranked Bahrain at number one in the Middle East and 15th worldwide for economic freedom, the kingdom’s commercial profile has blossomed. Citigroup Private Bank opened a new office in Manama late last year, in response to the growth in high net worth individuals (HNWIs). Individuals with a minimum net worth of $10m form the bank’s target market.

Masrafy, the first Islamic investment bank for women in the Middle East, will be located at Bahrain Financial Harbour and target HNWIs; and the Royal Bank of Scotland, one of the top 10 banks in the world by market capitalisation, is planning to break into the Middle East market by opening an office in Bahrain.

A major new retail outlet, City Center, is due to come on stream in the Seef district next year. It is likely to raise competition and push up rents – average monthly rent for retail space is Bd16 per m2 now but could increase to Bd22-Bd24 at the new facility.

The energy factor

The industrial sector predictably evolves around energy-related projects. An anticipated deal for Qatar to supply natural gas to Bahrain could pave the way for Aluminium Bahrain (Alba) to become the world’s largest mega-smelter. Alba’s current production, following Line 5, stands at more than 830,000 tons per year. If Line 6 is built, it would take production up to 1.3 million tons.

Bahrain started construction work on the Bapco refinery expansion and the Banagas LPG storage units last year, with a combined budget exceeding $200m. Bapco’s board approved the Overall Development Drilling Programme, encompassing the drilling of 48 vertical wells and 15 special wells in 2006-2007, and the application of various methods and techniques aimed at enhancing oil production efficiency.

Malaysian firm Gamuda Berhad won a $174m contract to build two concrete marine bridges, associated embankment works and fly-overs at the Sitra Causeway and Nabih Saleh Island.

Hospitality hots up

New hotels and executive apartments are coming on stream as the hospitality sector booms in tandem with the buoyant commercial and residential sectors. Radisson SAS is due to launch the Diplomat Radisson SAS Residence and Spa in Manama this October, next to the existing 246-room Diplomat Radisson SAS Hotel. The 14-storey corporate apartments block is within 10 minutes of Bahrain International Airport and close to the BFH and BWTC.

Domina Hotel Group and Al Hamad Construction and Development Company are building the 340-room Domina Bahrain Hotel and Towers, which is scheduled to open in March 2007.

The Banyan Tree Desert Spa and Resort, Al Areen, is due to open next year, with claims that it will be the only all-villa private pool resort in the Gulf.

The Four Seasons Hotel, set to be the centrepiece of Bahrain Bay, is expected to be the tallest building in Bahrain. The plans include 220 rooms, conference facilities and a private beach.

The Bahrain Rotana Hotel is designed to have 300 rooms and suites, a number of restaurants, meeting space and leisure facilities when it opens in the middle of 2008.

And, in perhaps the most eye-catching development, Bahrain will get its first multi-million-dinar luxury super-yacht hotel within two years. London-based Aquiva Developments has signed up with a group of Bahrain investors to anchor the 170-metre-long floating hotel with its 100 rooms and “world class spa” on the Manama city shoreline.

The construction boom continues full steam ahead.