At the end of 2006, both good and bad news is emerging from Beirut’s real estate sector. On the positive front, none of Lebanon’s prime properties was directly hit in the summer war between Israel and Hizbullah. No major sell-offs took place, and prices across the board have held steady. Furthermore, there was no widespread freeze on construction: most projects that had broken ground before the war continued shortly after it ended. But if the good news is that most existing projects are moving ahead on schedule, the bad news is that few developers are willing to embark on new ventures under currently unstable conditions in Lebanon: no major deals were concluded in the final months of 2006. There is still interest—and there have been inquiries—but no sales.
This wait-and-see attitude is, of course, a reaction to the end-of-year stalemate in Lebanon’s political arena. Real estate only flourishes in a stable environment; with almost every Lebanese party at each others’ throats and a high potential for mass upheaval, Lebanon at the end of 2006 fails to inspire investor confidence. The lackluster attitude among project developers—and their clients—is likely to prevail as long as no political agreement is reached.
Political compromise will restart market
Most players are convinced, however, that as soon as the political leadership comes to some kind of compromise, the market will pick up where it left off when the war started on July 12. “The market will skyrocket immediately,” insists Raja Makarem of Ramco. “There is still a lot of trust and goodwill among Arab investors. I still remember, just days after the assassination of Hariri, someone signed a deal for 30,000 meters BUA [built-up area].”
Apart from goodwill, there is also plenty of cash looking for a destination. Ever since the crash of the Arab bourses, investors increasingly perceive real estate as a relatively safe investment, with likely returns of 15% to 25%. All over the region, from Marrakech to Muscat, construction giants like Emaar and Dubai Property Holdings and property developers such as Damac have set up shop, building luxury apartments, office towers, malls, hotels and holiday resorts. However, this doesn’t mean Lebanon should fear increased competition: for most Gulf Arabs, the country remains the preferred choice for holidays and second homes. Still, their patience may eventually run out if there is no upturn.
Walking through downtown and other parts of the capital, one would hardly know there has been a lull in Beirut’s real-estate market during the second half of 2006. Construction is underway everywhere, especially in the area around the Souqs and along the seafront. Work on the mixed-use Seramis building, the Berytus Parks office building and Hilton Hotel are nearly completed, while excavation has started for the Grand Hyatt Hotel and Capital Plaza, which will have 32 apartments with a total BUA of 13,235 m2.
Following the success of the Beirut Tower, which is due to be completed in the second half of 2007, its owners have started to lay the foundations for a second residential high rise, the 29-story Bay Tower. According to Sales Director Samir Diab, 75% of apartments in the Beirut Tower have been sold, spurring the initiative to build a second property. Facing the Beirut marina, the Bay Tower will offer luxury apartments varying in size from 250 m2 to 750 m2, and a top-floor penthouse of 1,500 m2. Ranging from $3,000 to $5,800 per m2, the prices are in tune with surrounding developments.
“We had started construction just before the war and never had any intention of stopping, as 30% of the apartments have already been sold,” says Diab. Interestingly, while 80% of apartments in the Beirut Tower were sold to Gulf Arabs and 20% to Lebanese, sales for the Bay Tower are thus far a 50/50 affair. Diab confirms that the market is weak today, yet insists that it remains strong on the long-term, which, according to him, is especially true for the relatively scarce seafront properties.
The Bay Tower is not the only new development facing the marina. In between the Marina and Beirut Towers, the $100 million, 8-story Dana Building is set to appear. One of the most significant “confidence boosters” has been the Abu Dhabi Finance House’s $600 million dollar Beirut Gate project, in heart of the capital. With its territory already demarcated with logo flags downtown and final plans pending approval from Solidere, the massive project is on track to break ground in early 2007. The “gate” will consist of eight separate buildings with a total built-up area of 178,500 m2, some two-thirds of which will be residential, with the remainder reserved for commercial and retail space.
In terms of changes to Beirut’s urban landscape, the launch of the Landmark Project, a $250 million mixed-use development at Riad al-Solh Square, may be seen as equally significant. With its 168-meter-high tower, characterized by an asymmetrical design of balconies, terraces and gardens, this is a “love it or hate it” development and will undoubtedly be one of the most eye-catching structures within the Beirut Central District.
A Landmark landmark
Designed by French architect Jean Nouvel, the Landmark Building has a total BUA of 149,000 m2. The tower will host a 5-star hotel and, on the top floors, 16,300 m2 of luxury apartments. The two adjacent buildings, of 10 and 15 stories respectively, offer service apartments, retail and office space. The nine floors underground will house 37,500 m2 of parking and an 11-screen cinema complex.
However, not every developer is charging ahead. On a more negative note, Levant Holdings’ Phoenicia Village development has been temporarily halted. With a reported value of $1 billion, Phoenicia Village will be one of the largest real estate developments in the history of Lebanon. The project’s four buildings have a total BUA of 207,000 m2, some 60% of which will be residential, with the remainder consisting of office (20%) and retail (15%) space. The Kuwaiti-registered Levant Holdings issued shares for the project last June and had planned to start building as soon as it had collected $410 million in start-up capital. In light of recent developments, however, that scenario proved too optimistic.
The development climate in downtown may be illustrated by the price of Solidere shares that, after a yearly high of over $26 in January, decreased to some $18 during the war and hovered at that level for the rest of the year. However, the current lull in land and real estate transactions will likely result in a (temporary) decrease in construction in the near future, which will no doubt have consequences for the price of a Solidere share. These consequences may be mitigated by Solidere’s recently-announced plans to expand its operations outside Beirut.
Beirut is, of course, more than just downtown. In Clemenceau, Verdun, Ashrafieh and along the Corniche—to name but a few locations—construction of prime residential projects continues as well. Yet downtown is the capital’s barometer, the heart upon which everything else depends and around which everything else evolves. In that sense, it is interesting to note that there are a number of formerly inhabited, now vacant buildings in areas adjacent to downtown, such as Zokat al Blatt, Rue Spears and Qantari. As the political situation improves, no doubt they will soon make way for new developments.
Another kind of barometer
However, downtown Beirut is also a barometer in another sense. “We were about to sign contracts with five major multinationals to lease office space when the war broke out,” says Wael Makarem of the Berytus Parks, which is now in the final stages of construction. “Until now, no one has signed. They do not trust the political situation and would rather go to Dubai, even though it is much more expensive and a less pleasant place to live.”
Situated next to the nearly-completed Hilton Hotel, Berytus Parks offers 10 floors with a total of 12,200 m2 of office space. Annual rental prices conform with the average downtown: $275/m2. In Dubai, equivalent rentals are around $400/m2, and operational costs are significantly higher as well. Nonetheless, that may seem like a price worth paying when the alternative comes with political instability.