Fuelled by the continued influx of Arab nationals and capital, Lebanon’s real estate sector continued to grow in 2004 by an estimated 20%. Solidere had an outstanding year, as the Beirut Central District experienced increased demand for property, while on the retail side, big is beautiful seemed to be the theme as ADMIC braced for the end-of-year launch of its Dora shopping mall, the biggest so far in Lebanon.

Overview 

Key indicators, such as cement sales and the number of construction permits, showed a healthy growth in the construction sector, while the number and value of property transactions increased significantly compared to 2003. Despite a rise in price, cement deliveries amounted to 1.23 million tons during the first half of 2004, an increase of 6.2% compared to the same period in 2003. It should be noted though that part of the increase was due to increased exports to Iraq. The Order of Architects and Engineers reports that construction permits grew from 4 million m2 during the first half of 2003 to 4.3 million m2 in the six months of 2004, which is similar to the tail end of the 90s reconstruction boom.

The geographical distribution of permits shows that Mount Lebanon maintained its 2003 lead as it accounted for 46.4% of the total, followed by the north of Lebanon with 20.2%, South Lebanon with 14.8% and Beirut which witnessed an increase of 4.5% to reach 12.8% of the total. According to Banque Audi data the number of property transaction during the first half of 2004 rose by 7.2% to 51,899 compared to the first half of 2003, while the value of property transactions grew by 27% over the same period to reach LL 1.7 billion. In the third quarter it slowed down to 22%, well above the 15% annual growth recorded in 2003, yet still a far cry from the 30% growth figure of 2002. Beirut maintained the lead in terms of value of properties sold, accounting for 35% of the total, followed by Baabda with 22%, Metn and Mount Lebanon with 15.8% and Kesrwan with 9.8%. The figures confirm that the market was dominated by high-end construction and property transaction, as the increase in the real estate market was largely driven by the Arab investors, who since the events of 9/11, continue to see Lebanon as an alternative home, holiday destination and place to invest.

Most players in the sector observed a relative slowdown by the end of 2004, which they attributed to the events surrounding the presidential elections and the attempted assassination of Marwan Hamade. The departure of Rafik Hariri as prime minister and the loss of his international clout were seen as less of a blow as many Lebanese are still optimistic that he will stage a comeback.

A 2004 report issued by Ramco Real Estate Advisers concluded that Gulf investors bought land worth some $680 million between 2000 and March 2004, noting: “taking into account the additional investment on project development the amount could easily more than double.

In that period a total of no less than 2.3 million m2 of land were sold in 109 major deals. The Arabs’ preferred destinations are the mountains, not too far from Beirut. With this in mind, 38% was bought in Baabda, 27% in Metn and 18% in Aley. Only 1% of all land deals concerned Beirut, which still represented the largest value for the Lebanese economy. Apart from the  controversial Sanine Zenith project, the $1.4 billion, 100 million m2 tourism extravaganza on Mount Sanine, boasting several tourist villages and 5 hotels, as well as 18 ski slopes and a golf course, the two largest purchases of land, 368,723 m2 and 123,492 m2 respectively, were concluded by Kuwaiti investment groups in the region of Qornayel.

Residential: Manhattan on the Mediterranean

Even though most construction permits and land sales centered around Baabda and Metn, the most eye-catching and valuable developments were taking place in Beirut, especially the ongoing seafront development facing the Beirut marina in the BCD. The $200 million Marina residential tower, which will be some 150 meters high, has been half built, while the foundations of the Beirut and Platinum Towers have been laid. Next to the trio, the slightly lower tower of the Four Seasons Hotel is being built. The four high rise buildings represent a total investment of some $600 million and will significantly change Beirut’s façade in the course of 2005 and 2006. With a price tag of $4,000 to $6,000 m/2 the towers’ highly luxurious apartments are arguably the most expensive property currently available in Lebanon. Some 80% of the apartments has already been sold and this seems to be trend for most of the high end residential developments in BCD, including the  Capital Gardens and Saifi II projects, which are due to be built in 2005.

Not surprisingly, Solidere had an excellent year in terms of land sales, helped by an initiative, which encouraged shareholders to sell their stock for a 15% discount on the land. More residential projects and two hotels are slated for the sea front, while the Abu Jamil area is to become a purely residential district. In spring 2004 it was also announced that the $200 million and 155-meter-high Landmark Building Riad el Solh would go ahead, adding to the BCD’s ever changing skyline. As a consequence demand for the price of land has increased, varying between $1,200 m2 inland to some $1,700 m2 on the seafront. Last but not least, after four years of delay and for a reportedly inflated price of some $12 million, Solidere announced that they are about to obtain the necessary permits needed to complete construction of the 100,000 m2 Souqs retail project by 2006.

Downtown Beirut, however, was not the only area to witness significant developments. Contrary to downtown, where 80% of investors and buyers are Gulf Arabs, Ashrafieh remains popular among the Lebanese. New, high-spec apartments are smaller, on average between 250 to 350 m2, and more reasonably priced, on average between $1,700 to $2,500 m2. The same is true for developments in areas such as Ain Mnreiseh, Hamra and Ramlet al Baida.

One of the fastest changing areas in Beirut is no doubt Gemaizeh (see box), while large areas behind the Phoenicia hotel, west of the Damascus road and along at Rue Spears have been cleared. No doubt, these current ghost towns are next in line to see some major developments throughout 2005 and 2006.

Retail: The rise of the mall

2004 was the year of the mall and 2005 will continue to be so. The $120 million ABC Ashrafieh, Lebanon’s first genuine mall opened in November 2003 and went into full gear last year. Apart from its size, the difference between ABC and existing malls, such as Verdun 730 and Dunes, is that the first truly offers a world of shopping, entertainment, food and beverages all under one roof.

Critics had doubted there would be sufficient demand for such a major development, but ABC has proved them wrong. Its 40,000m2 of retail space are fully occupied and shops, restaurants and cinema attract a constant flow of customers. In 2005 however, ABC will have to compete with BHV at Dora. About twice the size of ABC Ashrafieh, BHV is Lebanon’s first mega-mall with under its roof the country’s first Casino hypermarket, a grand department store, shops, boutiques, restaurants, café’s and a cinema. Most experts expect it to do well, seeing its excellent location between the two highways that form Beirut’s northern exit.

With rents of as much as $1,000 per m2 per year, ABC and BHV are among the hottest properties around as far as retail space is concerned. The downtown follows with rental prices varying between $800 and $1,200per m2 per year. Verdun has an average price of some $800 per m2 per year and, as a shopping district, continues to perform steadily. Prices in Hamra vary between $300 m/2 per year at both ends to some $600 for top locations in at the heart of Beirut’s only genuine high street. Following the completion of the restoration works in summer 2004, hopes remain high for Hamra to regain its leading position as shopping district. With its hotels, hospitals, banks, and universities, its history and character, the area has every potential.

In Chiah, the 50,000m2 Beirut Mall should open for business next year. In Sin el Fil, the 14,000m2 Metropolitan Mall is currently being constructed, while at Concorde square the 50,000m2 V5 Mall is planned. In comparison, the V5 will be no less than 20 times bigger than its Dunes counterpart on the other end of Verdun.

The future will tell if there is a demand in Lebanon for such a large quantity of added retail space and if there is still space for the traditional high street such as Hamra and to a lesser extent Verdun. Experts predict that shoppers may tire, after the initial excitement, of indoor shopping. One thing is certain, the increased supply of retail spaces will no doubt lead to a decrease in retail rents, which is an advantage for shopkeepers, and in the end for consumers as well.

Office: smart space sells

No major developments regarding office space took place in 2004. With an average rent of $300 per m2 per year, the BCD remains among the 30 most expensive business districts in the world, which is part of the reason that some 40% of office space in the downtown remains empty. The problem however is not only price-related. Most office space in the BCD does not meet modern international standards, but those that do, such as Atrium and the An Nahar buildings, are performing remarkably well, which is why the construction of Atrium II will begin in 2005.

Tourism: 

Last year, also saw the long awaited opening of the imposing Le Royale in Dbayeh and, following the success of the $10 million Eddé Sands beach resort in Byblos, business tycoon Roger Eddé has big plans for the ancient harbor city. Aiming to attract investment of nearly $5 billion over the next 10 years, Eddé envisions turning Byblos into the Cannes of the Middle East, with a luxury marina, hotels, restaurants spas and health clubs. Most importantly however, was the government’s official approval of the controversial Sanine Zenith project. The $1.4 billion project measures some 100 million m2 of BUA on which it is planned to build several tourist villages and hotels, as well as 18 ski slopes and a golf course.

Box: Gemaizeh

The area changing most rapidly is no doubt Gemaizeh. The old quarter bordering the downtown, which still has a flavor of old Beirut, threatens to become the next Monot, as a string of small cafés, bars, restaurants, boutiques and galleries have recently opened. The revolution began in 2001 with the renovation of the Ahwat Azaz (Glass Café) and French bakery/café Paul, which “made” the corner. In 2004, a dozen more commercial establishments opened and more are expected follow, transforming what used to be a shabby if charming, quarter into arguably the hippest quarter in town.

A handful of residential projects are also in the pipeline, especially on the strip of land bordering the downtown, but also well into the quarter. Following the success of Convivium I and II, developer Kareem Bassil is building a third halfway down the main street towards Electricité du Liban. Apart from its character, one of the main attractions of Gemaizeh was the relatively low prices. That is rapidly changing. The price of land has in some locations risen from less than $400 up to $800 per m2. The rent of retail space has in top locations tripled since the beginning of the year, while asking prices for residential property has increased by 50%, though it remains to be seen if these will be realized.

Riyadh Bank Posts 26% Growth in 2004 Profits

Riyadh Bank, the second largest Saudi bank, released its 2004 figures featuring a growth of 26% in net income to $533.3 million compared to $424.5 million in 2003. The bank attributed this rise in profits primarily to its increase in capital reaching $1.3 billion through distributing one free share for every four shares owned and $4.8 of annual profits per share. It is to note that Riyadh bank, 29%-owned by the government, has witnessed since 1997 a fast growth in profits due to the strategies and plans undertaken by the bank to develop its services and adapt to all the economic developments on both national and international scales.

NBK Records Net Profits of $515m in 2004

The National Bank of Kuwait (NBK), the country’s largest bank and the top-rated Arab bank, posted net profits of $515 million during 2004, compared to $412 million in 2003. NBK’s CEO explained that the growth in profits was achieved amid a strategy of diversification in the sources of income and prudent risk management besides taking advantage of growth opportunities presented by an improving operating environment. The bank’s total assets reached $19 billion at end 2004, while shareholders’ equity amounted to $2 billion. In turn, NBK’s return on equity (RoE) and return on assets (RoA) stood at 29.9% and 2.73% respectively, among the highest worldwide.

Country Profile: UAE

International rating agency, Moody’s Investors Service, upgraded the United Arab Emirates’ sovereign long-term foreign currency debt ratings to A1. The agency also raised the sovereign’s short-term foreign currency ceiling one grade to Prime-1 and currency issuer rating to A1 from A2. The outlook on these revised ratings was given as stable. The agency cited that the main reason behind this upgrade was UAE’s stellar economic performance in recent years in addition to the continued domestic political stability. Moody’s mentioned in its positive commentary that nominal GDP growth has averaged 11% since 1999 and consumer price inflation has remained very low. To a large extent, economic expansion has been driven by the oil sector, which generates about one third of GDP. However, the non-oil sector has also registered strong growth. The agency concluded that both the fiscal and current account positions remain in significant surplus.

Despite the uncertainly of the previous month, not to mention the added insult of their Ain Mreisseh showroom being damaged by the Hariri blast, automotive dealers Bassoul-Heneine are bullish about future sales. Introducing the new BMW 3 Series in Beirut last month, Bassoul-Heneine general manager Naji Heneine told Executive Magazine, “Until now and depending on the situation, I have not cut my orders.”

For the first month, the BMW dealers had ordered delivery of 43 vehicles of the new 3 Series, to be followed by 30 new cars each month until the end of the year. The new German driving machines, the fifth edition of the 3 Series in 30 years of the brand’s history, will retail in Lebanon starting at $41,000 and top models could go up to over $60,000, Hneine said.

The Beirut event, including ample technical praises, a cinematic overview over the line’s genesis, and presentation of two new vehicles in the conference room at Beirut’s Metropolitan Palace Hotel, was the second launch party for the car in the Middle East and came ahead of events in other, larger markets. According to BMW Group Middle East representative Joerg Kelling, the entire brand sells about 3,000 units per year in Saudi Arabia, 600 in Lebanon and 100 in Syria. 

“Lebanon is a small market in size but it is a very fashionable market. Cars that sell well here also sell well three to six months later in Gulf markets. For me personally, it is also the most exciting market in the region because of the unbelievable appreciation of the brand here,” Kelling said, adding that he is optimistic about the Lebanese market and sees a new and very large potential for BMW in Syria.

Le Brun, arguably Lebanon’s most prestigious commercial arak, has spent $100,000 on a packaging facelift. The move comes after a swift and effective response last year to a rash of fake bottles of Le Brun, which is over 100 years old, that had found their way onto the shelves of small and medium sized outlets. Even though the fake bottles only represented around 10% of Le Brun’s market share and have since been removed by government inspectors, Domaine des Tourelles, the company which owns the Brun label, felt it had to respond to avoid similar instances of brand piracy in the future.

“We have used new glass for our bottles and printed a new label that while the same is harder to copy,” explains Christiane Issa, Domaine des Tourelles’ marketing manager, who added that as of now Le Brun is be responsible for its own off and on-trade distribution of the 75,000 bottles it produces each year at its famous Chtoura distillery. According to Issa, the fakers were not particularly clever: “The capsules (cork covers) were very bad quality, the arak tasted awful and the bar codes were the same for the big bottles as well as the small bottles. Fortunately none were found at the major supermarkets, where there is a more discerning clientele.”

This is not the only example of piracy to hit the $10 million Lebanese arak industry. Massaya, who pioneered the arak revival with their blue bottles, have also reported copies of both their distinctive blue arak bottles and wine in Syria, while during the civil war many of Lebanon’s famous brands were regularly copied and exported, especially to the US, causing confusion among Lebanese exiles seeking solace in Lebanon’s national tipple.

Café’s, shops and restaurants in the Beirut Central District have reported losses of as much as 75% since the death of former Prime Minister Rafik Hariri on February 14, as demonstrations, strikes and official mourning amounted to eight days of lost business. More importantly, retailers claim, it is the general atmosphere of political and economic insecurity that deters people from going out. “Shopping is the last thing on their minds,” said one shopkeeper, summing up the general mood.

While Sunday afternoons and weekday lunchtimes have seen a relative return to normality, in the evening, the area is like a ghost town. “We are losing more than 50% in sales,” said an employee of Place d’Etoile, the café opposite the clock tower where Hariri and his entourage enjoyed their last coffee.

While all shops and restaurants in the area are suffering, arguably the hardest hit is the Virgin Megatore, which has seen its immediate surroundings sealed off. “Most customers we get these days, are demonstrators who come to use the toilets,” said Virgin’s general manager and chairman Jihad el Murr, who said his shop, at one point one of Lebanon’s best retail performers, had seen a 70% drop in sales since February 14.

Still, he was upbeat. “We do not mind this situation for three months or so,” he said, “especially if it means the political situation changes in a positive way. However, if it is to last longer, then we are forced to take drastic measures, such as laying off employees and reducing opening hours.”

It is not just sales in downtown Beirut that have taken a hit. Hamra Street, normally one of the Beirut’s busiest areas, has also seen a fall-off in trading activity, with shopkeepers reporting a 40% to 70% decreases in sales, while in New Jdeideh, the scene of a car bomb at the end of March, retailers complained of similar losses.

Continuing violence and political turmoil in the wake of the February 14 assassination of former Prime Minister Rafik Hariri have spurred fears that the instability could have disastrous consequences on the economy as a whole and the roughly $1.5 billion summer tourism season in particular. Nowhere is this concern more palpable than in the mountain resort town of Bhamdoun, where tourism is crucial to the local economy. A summer haven for holidaying Gulf Arabs, Bhamdoun has experienced a retail and real estate boom in recent years.

“If there are more explosions, the Gulf Arabs will be frightened and will be driven away from Lebanon, to places like Jordan, Egypt and even Syria,” warned economist Marwan Iskander. That would come as a serious blow to Bhamdoun’s business community, for whom the summer season, according to Iskander, generates about $60 million a year in revenue.

Developer Raffi M. Kaloustian, chairman of Le Baron, which designs and constructs villas and apartments in the Bhamdoun region, acknowledged that his company had put future plans on hold. But he, like many Bhamdoun residents, professionals and officials, stressed that it was too early to say what exactly would happen in the summer, especially given Gulf Arabs’ strong attachment – both personal and financial – to Bhamdoun.

He said he was currently building villas and apartments for 30 clients – all of them Gulf Arabs. “Not one of them has suggested postponing a payment,” he said, “because they believe in this place.”

Kaloustian said that most Gulf Arabs were aware the realities of Lebanese life, a philosophy that saw them visit every summer even when the rest of the world felt it was unsafe. “They expect an eventual boom,” he added, “but they all say: we’ve got to go through a few bombs before we get there.”

Akram Kassatly, owner of Kassatly Chtaura, the man who saw an opportunity for a locally produced alcopop and gave us Buzz, is now focusing on his first love. Investing $1.8 million into Chateau Makse – named after the Bekaa Village where the winery is located – Kassatly, who studied winemaking in Dijon in the late 60s, is joining the ranks of Lebanon’s $27 million wine industry. Expecting to produce 400,000 liters annually (roughly 500,000 bottles) the new winery, will be fulfilling a dream that was cut short in 1974.

“The war forced the company to abandon its winemaking ambitions and focus instead on the more stable concentrated syrups and non-alcoholic products,” explained Nayef Kassatly, Akram’s son, who added that Chateau Makse had already signed contracts with local grape suppliers until its own vines, of which 30 hectares have been planted, are ready for wine production. However, many within the industry say it will not be easy for a new winery, without its own vineyards, to establish itself. “There is huge demand this year. The Egyptians, Jordanians and even the Syrians are all coming to buy our grapes. They are demanding about 500 tons and this is around 25% of the independent grape growers’ harvest,” said one wine maker. “Good quality grapes will come at a premium.”

The winery will initially produce three wines retailing at around LL7,000 each: red, white and rose and, despite a local market dominated by Chateaux Kefraya and Ksara, Kassatly is confident that 50% of the production can compete in domestically, while France, the UK (Lebanese wine’s two biggest importers), the US, Japan and Sweden have all been earmarked as export markets, the penetration of which will be helped by Kassatly’s existing distribution networks. “With our know-how, infrastructure and marketing strategies, we believe the project is very promising in the long term,” he said.

Credit card issuers Visa International have given another thumbs up in their assessment of the Lebanese market. In 2004, usage of Visa-branded credit and debit cards increased by 32% to 11.6 million transactions in total. The company was especially jolly about the fact that Lebanese cardholders had carried out 2.3 million of these transactions in retail spending at Points of Sales (POS).

The accumulative value of transactions was $2.08 billion for 2004, of which $300 million occurred at POS, an increase of 31 % over the previous year. It has been a strategy of the credit card company to strengthen the credit card culture in Lebanon and increasing usage of cards at the from issuer perspective more profitable POS.  

According to Visa International’s general manager for the Levant, Said Shuqom, Visa estimates their share in the Lebanese payment card market at over 50%. Considering that the number of Visa cardholders here has risen to about 553,000 at year-end 2004, this would put the total number of payment cards in the country at about 1 million. However, the numbers provided by Visa also showed that the vast bulk of cards are debit cards, with Visa Electron cards accounting for nearly 437,000 of the total. Full fledged credit cards of different classes under the brand number less than 30,000 and the top-tier segment of Visa Platinum and Business entails precisely 2,812 plastic carriers.

Arab countries, including the Levant, are currently among the fastest growing markets for Visa International. For further growth here, the company banks on increased market segmentation and new technologies, Shuqom said. The company assumed that the turmoil of the past two months had reflected upon the usage of credit cards in Lebanon but would not be able to quantify this impact for several more weeks. In light of the situation, Visa has halted all promotion campaigns and launches of new products for the first six months of 2005, he added.