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According to JLL Q2 2016 Cairo Real Estate Market Report
JLL, the world's leading real estate investment and advisory firm, today has released its Q2 2016 Cairo Real Estate overview report determining the factors affecting all sectors in the real estate market. In March, Cairo's Central Bank announced the devaluation of the Egyptian pound from EGP7.78:US$1 to EGP8.85:US$1 in order to boost the banking system to attract foreign investment and finance major projects, as well as to help stabilize the fluctuating economic climate. The report highlights that the depreciation of the pound encouraged local investors to transfer their savings from banks and invest in the residential market.
Although rental values have continued to remain volatile, the demand for rental units especially in New Cairo is surging. This increase in demand owes to students and expatriate employees preferring to be located in close proximity of their workplaces. Ayman Sami, country head of Egypt, JLL, commented saying: "Currently, we have seen a demand for off-plan sales in the residential sector. As the banks attempt to depreciate the currency, the residential real estate sector is perceived as a 'safe haven' to invest in.
"Offices have managed to adjust to the depreciation of the Egyptian pound as Landlords are now accepting payments in EGP instead of USD, the widely cited currency in official contracts. The 'adjustments' almost came naturally due to the severe fluctuations in the EGP, the acute shortage of FX in the country along with the sluggish business climate.
"The retail sector, however, has taken a tumultuous turn as retailers face increased costs because of the devaluation of the currency and their reliance on foreign currency. The decline in foreign currency reserves seems to be exerting more pressure, as retailers are led to source foreign currency from the black market which is 15% higher than the official rate. High inflation rates attribute to lower purchasing power amongst consumers as well, who then switch to more convenient and value brands.
"Lastly, the only sector that seems to be benefiting from the depreciation of the EGP in the interim, is the hotel industry. Tourism is perceived to be cheaper with the pound decreasing in value and in turn, the tourism sector is perceived to be more attractive."
Sector summary highlights – Cairo:
Office: Cairo's office supply remained stable at 941,000 square meters of office Gross Leasable Area (GLA), with no notable completions to Cairo's office stock in Q2 2016. The market has witnessed increased demand for Grade A office space during the past period mainly driven by relocations of tenants to better quality office space and to more convenient geographical locations. In the meantime, new entrants to the market remain to be limited.
Limited new supply of Grade A office space in the short term has led vacancy rates to declines from 33% to 25% over the past year. Despite vacancies remaining high (with 25% of the existing office stock unoccupied), this decline is regarded as positive for this segment.
New Technology Parks are to be introduced across the country by the government. These specialised parks will be introduced by the Information Technology Development Agency (ITIDA) to build, manage and spread ICT parks across second-tier cities. The first two parks are being built in the New Burj El Arab City in Alexandria and in the New Assiut City in Upper Egypt. These parks will aim to serve locals, multinationals, start-ups and entrepreneurs.
Residential: Q2 2016 saw several completions across projects located both in 6th October and New Cairo. In 6th October significant deliveries have been noticed by Ashgar City due to their huge inventory on hand, in addition to apartment delivery in Palm Parks. In New Cairo, Palm Hillls' Village Garden Katameya, Mivida and Madinaty are the main contributors to this quarter's supply. Average apartment and villa sale prices remained stable in US$ and EGP terms in both New Cairo and 6th October on a quarter on quarter basis due to decreased affordability of units. With a year on year comparison only apartments in New Cairo were to increase in US$ terms despite the 14.5% currency devaluation.
Villa sales prices have decreased slightly in 6th October compared to New Cairo due to the increase in demand for larger projects in 6th October. This was primarily due to the fact that tenants in 6th October, specifically in Sheikh Zayed have a higher purchasing power.
Retail: No additional retail space was completed in Q2 2016, with current supply standing at 1.3 million square meters. Capital Mall (45,000 square meters) located in Heliopolis was expected to be completed this quarter but has been delayed and pushed to Q1 2017, indicating that no retail developments are scheduled for completion in 2016. The long awaited 'Mall of Egypt' (which will include "ski Egypt") is planned for partial opening at the end of Q3 2016 and the development should be fully complete in 2017.
Vacancy rates have also declined year on year (14% in Q2 2016 vs. 17% in Q2 2015), while remaining largely unchanged over the past quarter. Retail rents have also remained unchanged over the quarter and are expected to remain stable until the current economic conditions are stabilized. While rents have increased by approximately 13% on an annual basis in Q2 2015, rents now appear to have reached their cyclical peak.
Hotels: With limited construction activity in this sector, no additional hotels were completed in Q2 2016. Of the 1,300 rooms expected and planned to be completed in 2016 we expect only 50% to be delivered this year with the rest pushed further to 2017. Two of the hotels expected to be completed by the end of this year are the St. Regis and Steigenberger Tahrir Square, both located in the downtown area. Occupancy rates (60% in year to May) have increased from the same period of 2015 as the sector struggles to recover from the Russian Metro jet incident last year. Improving airport security and the effects of a depreciated currency are the reasons for relatively higher occupancy rates over the past year.
The financial performance of Cairo hotels has shown its first signs of improvements this year, with the average daily rate (ADR) in the year to May increasing by 5% from that witnessed during the same period of 2015.
Cairo prime rental clock
This diagram illustrates where JLL estimates each prime market is within its individual rental cycle at the end of the relevant quarter.
Hotel clock reflects the movement of RevPAR.
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