Cairo - MENA Herald: JLL, the world's leading real estate investment and advisory firm, today released its 2015 annual review of the Cairo Real Estate Market, assessing the latest trends in the office, residential, retail and hotel sectors. The report notes that Cairo real estate market has witnessed mixed performance across various segments in 2015 which was impacted by currency devaluation, restrictions on capital outflows, construction delays, occupier vacancies and security concerns.
Ayman Sami, Head of Egypt Office at JLL MENA, commented: “While the Cairo real estate market experienced robust growth over the first half of 2015, a combination of economic, political and security uncertainties have taken some of the steam out of this growth and the market has generally cooled over the past few months. As a result, we witnessed mixed performance across the office, residential, retail and hotel sectors during 2015. It is encouraging to note that the Egyptian government is proposing structural reforms, state incentives and major infrastructure spending to attract much needed foreign investment, which will eventually trickle down to the real estate market. This government support is contributing to a continuation of positive sentiment which is leading some developers to announce new projects.
It is interesting to note that Cairo residential completions remained somewhat lower than in recent years, on the back of continued construction delays across a number of developments. The delays in project handover reflect both over-optimistic assumptions by developers and the slowdown in the level of pre-sales. Continued delays are expected in 2016 due to the unforeseen rise in construction costs as a result of the devaluation of the local currency and the restrictions imposed on the importing of construction materials. The residential market in Cairo exhibited very mixed conditions during 2015. In general terms the sale market outperformed rentals but the pace of growth in both markets slowed in the final quarter, probably as a result of continued uncertainties around the value of the EGP. Demand continues to be driven by families moving from central areas to less crowded satellite cities.
The retail market continues to transform, reflecting the changing society and continued positive sentiment. Greater Cairo has witnessed a rapid growth in international standard shopping malls and more recently a focus towards high-end retailing. Rentals in the retail market continued to increase throughout 2015, despite vacancies remaining fairly stable. This is due to the limited current availability of space in high quality super-regional and regional malls. The prospects for continued rental growth are however diminishing as the market approaches a peak in its cycle. Factors combining to restrict future rental growth include the high level of additional supply, increasing inflation, a weaker Egyptian Pound, the shortage of FX reserves and restrictions on imported goods. Ayman Sami notes that ‘We expect Greater Cairo’s organised retail market to remain undersupplied over the short to medium term.”
While the hotel market continued to improve in 2015, it remains far short of pre-revolution levels. Occupancy rates increased by 9% compared to 2014, whilst ADR’s remained more constant throughout the year, increasing by just 2%. The key to the future performance of the hotel market will be continued security and the extent to which confidence around security issues returns following earlier incidents. “Maintaining security and allaying safety fears is therefore critical to the success of the recent campaigns by the Ministry of tourism to increase foreign visitation to Egypt’ according to Mr Sami
In the office market, Central Cairo saw relatively little activity during 2015 as most demand remained focused on the new satellite cities to the East and West. The currency devaluation experienced over the second half of 2015, coupled with continued restrictions on capital outflows saw the office market turn more tenant favourable, with tenants negotiating rents down to counter the effects of the currency devaluation. As a result, rents fell during the final quarter in New Cairo, by 7% in Sector 1 and 4% in Sector 2 respectively. Vacancy rates remained stable during 2015, finishing the year at around 26%. Uncertainties regarding currency stability and the potential of stricter capital controls will probably limit new entrants to the market in 2016.
REPORT HIGHLIGHTS:
Office: A total of around 31,000 sq m of GLA of new office space was delivered in 2015, increasing the total stock to around 920,000 sq m. Of the new supply, 15,000 sq m was in 6th October, while the rest was located in New Cairo. The largest completion in the final quarter was the Landmark Admin 2, a grade A office building in sector 1, New Cairo. Similar levels of supply are expected over the next two years with an additional 70,000 sq m of GLA scheduled for completion in 2016 / 2017 (although some of this space could be delayed). Phase 2 of Cairo Festival City is the largest scheduled completion (with around 49,000 sq m of office space).
Residential: A total of just 7,560 residential units were delivered in Cairo throughout the year, compared to the scheduled delivery of 30,000 units forecast by developers at the beginning of 2015 (representing a materialisation rate of just 25%).While villa prices remained largely unchanged in the final quarter, apartment prices continued to increase in Q4 (by 8% in 6th October and 4% in New Cairo).
Retail: Cairo saw the addition of around 93,000 sq m of additional retail GLA in 2015, bringing total mall based retail space in the city to around 1.3 million sq m. All of the completions in 2015 were regional and community developments in New Cairo. A number of retail malls due to open in 2015 have been delayed, resulting in a spike in potential completions (550,000 sq m) now due to complete over the next two years. Major retail additions include a number of super regional malls namely Emaar Square in the Mokattam area, Madinaty Mega Mall in East Cairo and Mall of Egypt in West Cairo. In reality not all of these malls are likely to be delivered by the end of 2017 as currently scheduled.
Hotels: Activity in Cairo’s hotel market remains subdued with the addition of just one property, the Nile Ritz Carlton with 330 keys in 2015, increasing total supply to 28,030 keys. The St. Regis Cairo was also scheduled for completion in 2015, but has now postponed its soft opening to 2016. Future hotel supply remains limited, with only 743 keys in the pipeline for 2016 / 2017.
