Bahrain’s F1 strategy is paying off; reports good real estate benefits

Bahrain was the first to build a track and host a Formula 1 (F1) race in the region, but there was competition. The United Arab Emirates, Egypt and Lebanon were all potential alternative candidates, but in 2002 the FIA ​​called and Bahrain beat its internal competition, following a firm commitment to stage a race by 2004 , said an industry expert.

It was of course a risk, but 17 Grands Prix later, it is clear that it was a risk worth taking. Even more so, when you consider that when it comes to economic and real estate benefits, the best is yet to come, noted Julian Roche, chief economist at Cavendish Maxwell, a global leader in real estate consultancy.

With the signing of the new contract, believed to be the longest racing contract ever signed in F1, the Bahrain International Circuit has secured a place on the calendar until 2036. This will provide property developers and investors with plenty of material on reflection, he declared.

Economic benefits

The Bahrain track was designed by Hermann Tilke and built in just 16 months at an estimated cost of $150 million. How effective was the investment? One way to determine the answer is to use the detailed independent assessment that was made of the 2006 Grand Prix as a benchmark.

At that time, research commissioned by the Bahrain International Circuit (BIC) suggested that the Grand Prix now represented less than 2.76% of Bahrain’s gross domestic product (GDP), contributing a gross $394 million (approximately $350 million net after FIA fees) to the economy.

This number has undoubtedly continued to rise in real terms (after inflation), but even assuming this figure has not changed until 2016, assuming that other capital expenditure “pays for itself” in terms additional jobs and spending, and using a cost of government borrowing of 4.5% for 2006, the net profit for

Bahrain turns out to be in the $2.7 billion range, with a staggering rate of return of around 100%, the leading real estate expert said.

And that’s not counting all the races that have taken place since 2016, or the fact that gross racing revenue has increased significantly since then. Formula Money, F1’s independent industry monitor and economics consultancy, estimated the net return to Bahrain at $295 million in 2015, which would result in a net profit of $1.9 billion and a rate of yield of about 80%.

According to him, these estimates make the Bahrain Grand Prix track one of the most successful investments in the Gulf, if not the whole world.

At a more granular level, we know from 2006 research that $284 million in economic benefits accrued outside the circuit. That included $81 million for accommodation and food services, $21 million for travel, $109 million for outlets and $73 million for entertainment, the industry expert said.

Hotels generally operate at 100% occupancy during Grand Prix week, with a useful synergy having developed with Bahrain Grand Prix main sponsor Gulf Air, with half of the guests arriving at Bahrain International Airport.

This occupancy rate is despite a steady growth in the number of hotel rooms in the country, from around 6,788 to 10,488 in 2016 and 19,700 in 2020.

A strategic location decision

There are many location choices available to a government deciding to host an F1 race for the first time. Building a racetrack or organizing a street race is the first choice. Monte Carlo led the way for a street race, followed by Singapore and now Jeddah, Roche said.

When the decision was taken in 1999 to launch the project, it was indeed suggested that it be located in the streets of the capital Manama.

But everyone decided to go for the construction of a purpose-built runway, at considerable cost, and Bahrain decided to go with the latter approach.

So the second issue became localization. How far from town? Some wanted it to be located close to the country’s road network. The final choice, located in the Sakhir region in the center of the main island of Bahrain, was despite formidable construction challenges, ideal from a motorsport point of view, not least because it allowed at least some variation in elevation for the track as well as multiple circuit choices over an expansive development area, he observed.

Long-term real estate benefits

But there were also long-term real estate advantages to consider: by locating the circuit close to Manama, Bahrain could have enjoyed all its advantages at once, as early as 2004, but instead chose to make a strategic decision risky business that would postpone many of the economic benefits for decades, but ultimately avoid future congestion and contribute to the country’s strategic development, the real estate specialist said.

The next 20 years could provide benefits that locating the circuit near Manama could never provide. With the signing of the new contract, believed to be the longest racing contract ever signed in F1, the Bahrain International Circuit has a secure place on the calendar until 2036.

This will provide property developers and investors with plenty to think about. Because until now, the Sakhir circuit was simply perceived as located in the middle of the desert, a 40-minute drive from Manama, the real center of political, economic and real estate action in the kingdom.

Land values ​​in Zallaq are still significantly lower than in Manama. But as the experience of Malaysia’s New Airport has shown, development along corridors linking major assets to the traditional administrative and commercial center is both viable and likely development.

As the number of participants in the Grand Prix (and approximately 400 other events held on the circuit such as GT sports and drag racing continues to increase, and also as the nearby university expands, the need for more hotels, more other entertainment venues and even additional residences development in Zallaq has the potential to increase.

In fact, for example, the circuit is only 5 km from the sea, where there are already luxury hotels, and more are being developed.

The government is obviously well aware of the logic of development in the region, as demonstrated by the decision to build the new Bahrain Exhibition Center and the Dana Theater, Roche pointed out.

Observing relative land prices, zoning decisions, real estate investment opportunities and development decisions both in and around the Sakhir Circuit area and along what we might begin to call the Manama Corridor -Zallaq can now become an increasingly interesting topic over the years. the new pass of the decade, he added.

A far-sighted decision

Of course, hosting an F1 race doesn’t just bring benefits to the real estate market. There are temporary and permanent jobs involved, around 3,000 each year, and the Bahraini government also owns a majority stake in the McLaren Group, the industry expert said.

With the reputation of the Bahrain Grand Prix now entrenched in the global calendar, the opportunity for Bahraini developers to think about co-branding is now very real – not just along the corridor, but across the country.

However, perhaps the greatest benefit of all is the reputational benefit for the host country. It’s fair to say that especially after Sakhir’s unique contribution in 2020, hosting two races in a single season at different circuits, Bahrain is now well known internationally for hosting F1 just like any other unique event, a Roche said.

For that, Bahrain can thank the far-sighted vision of its leaders in 1999, when they chose to put the country on its way to a place on the F1 map, a place where it now sits assuredly and now with a proud racing history. successful. There will be many more to come, he added.

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