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14 October 2008 - Strong fundamentals drive Bahrain property market

Significant growth is expected throughout the Bahrain real estate market until 2012 with the turnover reaching $5.6 billion (Dh20.57bn) in 2008 due to high local demand, relaxed foreign ownership regulations and strong levels of liquidity in the regional market, according to a new report.

"The residential real estate sector is set for a successful year fuelled by strong local demand, relaxed foreign ownership regulations, strong levels of liquidity in the regional market and improved financing options," DTZ, a global real estate advisory firm, said in a report.

Although more than 90 per cent of those buying property in Bahrain are Bahrainis, there has been potential increase in non-national investors, mostly from Saudi Arabia.

Besides, the trend is matched with increased monthly rental prices, with prime monthly rents in the Seef area ranging from BD850 (Dh8,280) a month for a two-bedroom apartment to BD1,800 per month for a four-bedroom villa.

Robert Addison, DTZ's Country Manager of Bahrain and Director of EMEA Retail, said: "The Bahrain residential market still represents an excellent opportunity for investors. With a number of high-end mega projects currently in development, those looking to buy a luxury property can still do so in Bahrain at a fraction of the price being recorded in other markets such as the UAE."

In the commercial real estate sector, the DTZ report estimates a total of more than 1,000,000 square metres of office space being added by 2012, a 100 per cent increase on the 500,000 square metres currently available.

Prime rents for office space across the country range between BD8 to BD10 per square metre per month in Central Manama and BD10 to BD12 per square metre per month in Manama's Diplomatic Area, reaching highs of BD30 per square metre on the higher floors of the Bahrain World Trade Centre.

The DTZ report predicts current demand for office space at 79,000 square metres, of which 30 per cent is active and 70 per cent is potential. This demand is mostly driven by banks and financial institutions, which account for 35 per cent of total requirements.

This demand is generally for relatively small units ranging between 200 and 450 square metres, and the report predicts a significant rise in office rents in the short term as initial demand for these size of units remains unmet until large developments come online in 2011.

Addison said: "By 2012 the market for commercial real estate in Bahrain will have transformed, with the kingdom's current office space doubling by that point. Despite this, we predict that developers will phase development in a way which avoids a glut and we expect to see a rent increase in the short term, at least as Bahrain's economic growth exceeds the available space."

According to DTZ, growth is also predicted for retail real estate, but there is a danger of over-supply in this sector. There are now more than 18 shopping malls on the island, with a total Gross Leasable Area (GLA) in the kingdom's malls of about 280,000 square metres.

This GLA figure is set to more than double in the next five years, with more than 370,000 square metres in the development pipeline, including the retail components on some of the island's mega projects. Although the retail market is currently seeing significant success, this growth cannot be sustained with a consumer base of Bahrain's 800,000 residents alone. Bahrain will instead look increasingly to the external demand represented by foreign visitors in its immediate catchment zone, including the 6.2 million people expected to enter the country via the King Fahd Causeway to Saudi Arabia this year.

"As new schemes enter the market, competition will intensify to attract consumers. We predict that older malls, and those that are not best configured to appeal to retail customers, will find it increasingly difficult to occupy units and command prime rents.

For some, this may mean redevelopment or a change in focus, it added.

"The retail market is rapidly evolving and customers are becoming more discerning and we predict that only well-designed and well-targeted projects will be successful in the medium to long term," Addison said.

By Parag Deulgaonkar
Emirates Business 24/7 2008