Skip Ribbon Commands
Skip to main content

News Release


Floatation of Egyptian Pound causes challenges for real estate stakeholders

According to JLL’s Cairo Real Estate Market Overview for 2016

​JLL, the world's leading real estate investment and advisory firm, today  released its 2016 Cairo Real Estate overview report which analyses factors affecting the office, residential, retail and hotel sectors.

The hot topic during 2016 was the decision of the Central Bank of Egypt (CBE) to float the Egyptian Pound and the impact this has had on the real estate market. The Egyptian Pound showed signs of increased volatility following the devaluation and in December of 2016 lost 52% of its value. Such a rapid devaluation has resulted in uncertainty and has delayed decisions by both investors and occupiers who are waiting to see where the EGP will settle in value.

Ayman Sami, Country Head of Egypt, JLL, said, "the currency devaluation has increased costs of inputs in the construction industry, negatively impacting developers cash flows. Developers have naturally sort to pass on these increased costs to home buyers in the form of significant price hikes. To help minimise the impact of higher costs, some developers are offering more flexible payment terms, while others are seeking to achieve more efficient unit designs and higher densities."

The office market has also been significantly impacted. As most lease contracts were formally quoted in US dollars, rental prices have effectively doubled for office occupiers in EGP terms.

"With an increase in office rental prices, companies now naturally face increased prices on raw materials and as a result, pressure to increase wages for their employees," added Mr Sami. "In order to mitigate increased costs on their tenants, some landlords have agreed to exchange rates below the actual market rate." 

According to the report, 2016 saw the doubling of rental prices in retail contracts, also quoted in US dollars. With this hike in inflation, retail tenants faced restrictions in import, increased prices of imported goods and as a result, a decrease in demand from consumers. Some mall developers have capped the exchange rate in order to alleviate pressures faced by retail tenants while other developers changed their quoting currency to EGP.

The hotel and tourism industry is the sector of the market that should benefit the most from the currency flotation. Demand in this sector is expected to increase as visiting Egypt has now become 52% cheaper. This has helped increase occupancies in the hotel market. Hotel owners are taking the opportunity to renovating existing structures rather than investing in building new hotels.

Sector summary highlights  – Cairo:

Office: Q4 witnessed the completion of Majarrah Business Complex in 6th October adding 17,000 square metre to Cairo's office supply. Following the flotation and as rentals increased in EGP terms, relatively smaller companies cancelled relocation plans to grade A office space and will be pushed to find less quality space in a less prime area. Vacancy rates remained more or less stable throughout the year, signaling limited office activity across the market. New Cairo continues to be the most sought after destination for office occupiers, with activity in 6th October (mainly Smart Village) being very limited over the past quarter. Vacancy rates in JLL's monitored basket currently stands at 27% and is expected to increase as new supply is added to the market and demand remains at its current levels.

Office rents have remained stable over the past quarter as the market is still adjusting to current business conditions. Office rents also remained flat on a year-on-year basis, with the exception of New Cairo (sector 1) that recorded a year-on-year decrease of 7% from the same period the previous year.

Rentals could see a further softening in 2017. Over the medium term, stronger demand could however be generated by improved business conditions as a result of the structural and economic reforms being introduced.

Residential:  2016 saw the completion of several new projects across both 6th October and New Cairo.  In 6th October, significant apartment deliveries were recorded in Ashgar City, Palm Parks and October Park. In New Cairo, significant deliveries were recorded by TMG's Rehab and Madinaty, Emaar's Mivida and SODIC's East Town.

As a result of the currency flotation average sales prices for both apartments and villas decreased significantly in US Dollar terms, especially during  the fourth quarter in both New Cairo and 6th October. On a Year-on-year basis even though average unit prices increased by an average of 30% in EGP terms, the increase was not enough to overcome the 61% decrease in the value of the Egyptian Pound witnessed between Q4 2015 and Q4 2016.

Rentals were more resilient to the currency flotation than sales prices as rental units are partially targeted towards foreigners and in some cases are quoted in foreign currency. Even though the exchange rate used is generally capped at a lower rate than the market rate, this has allowed landlords to curb the full effect of the currency flotation.

Retail: No additional retail space was completed in 2016, leaving the stock at 1.3 million square metre. Capital Mall (45,000 square metre) located in Heliopolis was expected to be completed in Q4 but has been delayed to 2017, resulting in no completion of any retail development in 2016.

The long anticipated opening of 'Mall of Egypt' (which will include "Ski Egypt") has been rescheduled to officially open in Q1 2017. On a similar note, Madinaty Mega Mall has also pushed its opening back from Q1 2017 to 2018.

Vacancy rates have marginally increased year-on-year (from 15% in Q4 2015 to 17% in Q4 2016), on the back of limited new completions. Vacancies remained largely unchanged on a quarterly basis.

While rents for prime units remained stable at US$ 1,600 square metre per annum, the number of units that can achieve these levels has declined. Average rentals are expected to remain under downward pressure due to continued declines in consumer spending and retail sales. We expect average rents to decline over the next 6 months before a possible recovery in the second half of 2017 providing sufficient foreign currency is available and the current economic reforms have resulted in more positive sentiment by this time.


500 hotel rooms were added in Cairo in 2016. The fourth quarter saw no completions due to the delayed opening of the refurbished and rebranded Steigenberger Tahrir Square, which was pushed back to 2017.

The St. Regis Cairo and Radisson Blu Nasr City openings have also been postponed and are expected to open over the first quarter of 2017. In the short term, hotel owners are expected to renovate older buildings and create value from more efficient operations rather than investing in new buildings during the current volatile business conditions.

Occupancy rates increased by 5 percentage points to 59% in year to November 2016 when compared to the same period of 2015 as the market is continuing its recovery after several years of instability. Improvement in airport security and development of inbound tourism form Arab countries are some of the reasons for increased occupancy rates.

Average Daily Rates (ADR's) declined slightly (-3%) throughout the year and in comparison to 2015 data to US$102 in year to November data.

Even though occupancy rates are increasing, ADR's did not increase at the same rates due to the current reliance of hotels on the local market and hence has a ceiling to price increases in order to attract visitors. Once travel bans are lifted and foreign tourists and currency begin to flow ADR's are expected to increase.

Construction Costs

In a new feature to their annual report, JLL have released data on construction costs for different asset classes in Cairo, with this data collected from their growing project and development management teams. The devaluation of the EGP has resulted in a major spike in construction costs in 2016 and this is expected to result in double digit increases in tender price inflation over the next 2 years.  

– Ends –