With Mike Williams, Senior Director, CB Richard Ellis Middle East (Bahrain)
Introduction
There is no doubt that the Bahrain commercial investment market offers significant opportunities, especially given its location between two powerhouse economies in the Middle East - Saudi Arabia and Qatar, both of which it will soon be connected to directly by causeways.
However, the Bahrain office market is undergoing a period of transition at the moment largely driven by geographic factors rather than market conditions.
Office occupiers are seeking to relocate from the Kingdom's Central Business District due to access and parking constraints to areas where these two criteria are met. As a consequence there is office demand pressure being exerted in areas that were not previously considered to be office districts and rental rates in Class B (or even apartment) buildings are now higher than in purpose built office buildings in the CBD.
As an investment scenario this is problematic, and the market needs to settle into a new locational dynamic. The traffic and access crisis needs to be resolved in the CBD (Diplomatic Area) while purpose built office accommodation needs to be completed in the emerging office districts. When these criteria are met, it will be easier to "read" the market and to accurately gauge the investment opportunities.
Bahrain Bay
Bahrain Bay is an important project in the Kingdom given its prime waterfront location off the Corniche and directly facing the capital, Manama.
However, the current economic crisis will have the effect of stunting developer activity at least in the short term.
As a result, the Bahrain Bay project will likely be subject to "broken tooth" development and will not become a complete, master planned and built development for some time.
As a consequence, this may have a slightly negative effect on the overall experience.
The key issue certainly for office occupiers in Bahrain at present is traffic access and this has not yet been fully resolved with the Bahrain Bay project.
If the Government or developers were able to resolve this in the short term, there is no doubt that this would create huge value for the project both in the short and long term.
The prime commercial district in Bahrain at present appears to be Seef District where access from all parts of the Kingdom is relatively good but inevitably, the price of land in Seef is high.
Construction Industry
The construction industry in Bahrain is very non-transparent and there are problems with developers struggling with cash-flow, which is then passed on to contractors.
Both developers and contractors are therefore under intense pressure but to date, few projects have been terminated as a result.
The pace of development may well slow down across the Kingdom but it is still happening and as we emerge from this difficult economic period, we may find the industry to be leaner and healthier than it was before.
The Bahrain construction sector was strong but had not "overheated" by the time economic conditions worsened in the region and as a result the sector was not faced with such a sharp adjustment when compared to other major centres.
Although struggling somewhat, the Bahrain construction industry is generally performing better than most in the region.
Development Opportunities
As the Kingdom repositions its geographic focus, there are tremendous development opportunities in areas that are meeting the key development criteria.
In addition, the development of the causeway linking Bahrain with Qatar will create tremendous linkage between the two wealthiest nations in the GCC with Bahrain sandwiched in the middle.
Regional and multinational firms will in future be able to set up in Bahrain and serve these two major markets from one central location.
Bahrain is very much the preferred living location for expatriates amongst the three countries and staff and housing costs are therefore more modest.
The oil and gas boom of the last few years has also driven a very sharp increase in development activity in Qatar and more particularly, the Eastern Province of Saudi Arabia, which is home to the Saudi Kingdom's oil and gas industries.
The Eastern Province had historically been the poor relation in the Saudi economy, but the recent boom has changed the dynamics and Khobar and Dammam are now undergoing a very rapid physical transformation.
If construction, architecture or engineering companies can establish a foothold in Bahrain they will be well placed to serve development opportunities both here and in neighbouring countries in the future.
-Ends-
About CB Richard Ellis
CB Richard Ellis Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world's largest commercial real estate services firm (in terms of 2008 revenue). The Company has approximately 30,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 300 offices (excluding affiliates) worldwide. CB Richard Ellis offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. CB Richard Ellis has been named a BusinessWeek 50 "best in class" company for three years in a row.
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Disclaimer 2009 CB Richard Ellis
Information herein has been obtained from sources believed to be reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the market. This information is designed exclusively for use by CB Richard Ellis clients, and cannot be reproduced without prior written permission of CB Richard Ellis.
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© Press Release 2009
