Majaal, First Bahrain’s warehousing and light manufacturing hub for small and medium enterprises (SMEs), has said its recently completed prototype Phase 1 has worked so well the same model will be replicated in Phase 2 which is under construction and attracting strong interest.

At least four investors have expressed commitment and are finalising agreements to become tenants. “You can expect announcements and signing agreements to take place at the forthcoming Gulf Industry Fair,” said Amin Al Arrayed, managing director of Majaal Warehouse Company and general manager of First Bahrain Real Estate Development Company, Majaal’s parent company, in an interview with this magazine. “We will make our participation in the fair business-active, not just a promotion.”

Al Arrayed: hub a good option for SMEs

The official also said Majaal was actively looking for expansion outside Bahrain and a project could be set up in Saudi Arabia within a year. The company had signed a memorandum of understanding with a local party and was also conducting negotiations with potential partners in Oman and Qatar for similar projects.

A study conducted by Ernst & Young on behalf of Majaal showed that prospects for a successful project in Saudi Arabia were good and the probability is high that the first overseas project could be located in the Eastern Province although Al Arrayed says a site need not be limited to that province. The company is looking at industrial zones that provide basic infrastructure support and have friendly policies for setting up Majaal-type ventures.

Commenting on Majaal’s Phase 2 in Bahrain, Al Arrayed said: “Phase 2 is identical to Phase 1 because what we did in Phase 1 worked well. We leased out and we have a working model, so we will do more of the same.

“This time, as we market Phase 2, we’re promoting our flexibility whereas in the first phase we highlighted space for warehousing and saw how the hub concept expanded to take in offices and light manufacturing as well.”

OPTIONS FOR TENANTS
Majaal’s policy is to offer investors open space and invite then to choose their premises in multiples of 250 sq m. Tenants are offered basic amenities but can fit out their space with  additional things such as a cooling system and shelving and racking and install forklifts – all at their own expense. Majaal can play the role of a contractor for the improvements for which there may be a fixed charge, but it also gives tenants the option of having their rent increased to cover the cost of equipment and added services.

“That kind of amortisation helps tenants avoid immediate one-time heavy capital costs. Capital costs for small companies are really a killer because they need to generate cash flows,” said Al Arrayed.

“All that flexibility has made the biggest difference to our product. There is no other company that I am aware of that offers such customisation and flexibility.

“And nobody else is providing Grade A warehousing to SMEs. We are the only good option, that’s why we are building more of the same kind.”

A view of some of the Majaal structures

Tenants are offered round-the-clock security with CCTV, access with smart cards and a guardhouse. The enclave is in close proximity to the port and airport and is linked to the new Hidd to Saudi highway. Each tenant company is also provided with its own physical address enabling it to obtain commercial registration. Majaal’s location in Bahrain Investment Wharf makes it the recipient of Government services such as water, power and sewerage and roads.

“One of the main attractions for SMEs is the option to take as small a space as 250 sq m and have running costs reduced – an important consideration for small start-up ventures. Companies have been shrinking because of the difficult times and it does not make sense to have big space. The tendency is also to move away from residential areas near Mina Salman, now that Mina Salman has closed down, and operate from safer and more convenient locations,” observed Al Arrayed.

In the fully occupied first phase of 12,000 sq m, tenants operate across a range of businesses. An export-oriented factory is nearing completion in a plot of 4,000 sq m making the tenant the largest occupier. Another big tenant is King Hamad University Hospital, which has a 2,000-sq m allotment and uses the space to store medical equipment and supplies for which it has installed racking and shelving facilities. Among other tenants is MasterBaker which imports baking products for distribution to hypermarkets and groceries. Also within the hub is Luori Chemicals while other occupants include a bank, an IT company, a publishing house, a maker of car upholstery, a company that assembles parts for ship equipment, a blinds producer and a manufacturer of construction chemicals.

A BUSINESS PLATFORM
“We have become a platform for business,” says Al Arrayed. “Around 50 per cent of our tenants have come from outside Bahrain or the region. We have Bahrain companies that are looking at positioning themselves to take advantage of the Eastern Province of Saudi Arabia.

Activity in a warehouse

“We thought it would take us 18 months to get Phase 1 fully occupied but we actually did it in a year. We leased in 2011 during a difficult time. We provided a very safe location away from residential areas. Most of the holders of 250 sq m slots moved in because of security. Even before the unrest there was pressure to move out of their previous locations.

“This is a one-stop show, a plug and play operation with high optic cable and Internet. The argument was compelling even without security.”

Al Arrayed said the Majaal venture is viewed as a long-term investment and had proved profitable. Phase 1 generates BD500,000 ($1.3 million) revenues per year and there will be three phases and the opportunity to make BD1.5 million annually in terms of cash. The company is generating 10 per cent yield on long-term lease contracts.

“We expect Phase 2 to be filled out faster than Phase 1 because in Phase 1 we were introducing a new brand and concept. People in the industry or even those outside now know about Majaal and the brand is easily recognisable. The business model has been tested and proved so attracting new tenants is much easier.”

Al Arrayed also spoke of a chain reaction effect with new tenants coming on board to be nearer their partners and suppliers who are already operating in the hub.  In a specific case of integration, cotton waste generated by one tenant is snapped up by another tenant for its production process. Gradually, businesses are engendering the community spirit. The community in Phase 1 is helping create new demand for business making it possible for Phase 2 to be occupied faster. At least two companies in Phase 1 have applied for additional space in Phase 2.