Economic prospects for real estate

Sherine Abdel-Razek , Thursday 16 Feb 2023

How has the present tough economic situation affected demand for real estate in the residential, commercial, and hospitality sectors?

Economic prospects for real estate
Some 18,000 residential units were delivered in Greater Cairo in 2022


In an overview of the Cairo real-estate market, JLL, the leading real-estate and investment management group, highlights main features of supply and demand for different segments of the market in 2022, the year that saw two devaluations of the Egyptian pound and the outbreak of the Russia-Ukraine conflict.

Some 18,000 residential units were delivered in the Greater Cairo area in 2022, according to the JLL report. This figure includes apartments, villas, and townhouses located in East Cairo (and its extension), West Cairo, Mostakbal City, and the New Administrative Capital that have been handed over for immediate occupation.

The figure is less than the market average, as the devaluations of the Egyptian pound in 2022 together with expectations of further depreciation against the dollar in the short term have led developers to put sales on hold along with new project launches.

They have opted to pause work on projects that have been launched on paper but have not yet seen construction on site in order to give room to hedge for further economic turbulence when planning budgets and pricing strategies.

As for buyers, according to the report “the current macroeconomic situation in Egypt has contributed to a shift in mindset among potential buyers. Indeed, affordability constraints have led many to instead opt for renting rather than purchasing a property.”

There has been no better evidence of this than the nine and three per cent increases in rents in neighbourhoods of 6 October city and New Cairo, respectively.

This trend seems here to stay, especially in the light of the emergence of startups to facilitate new “reverse rental marketplace” solutions. The report says that these “match landlords with potential tenants, the latter listing all their property requirements in an effort to efficiently connect with the former party.”

Another feature of the residential market is that slowing sales in the primary market led to an increase in prices in the re-sale market in the fourth quarter of 2022.

“Despite the sharp increase in prices, motivated sellers were open to negotiation. This is partly due to the low yield being achieved for residential properties, which makes them a less-attractive investment option,” the report says.

Units used as offices saw the delivery of around 193,000 square metres of space in 2022, pushing Cairo’s total office stock to 1.9 million square metres.

Almost twice this figure is scheduled to be completed this year, with a proportion of this comprising new buildings planned to be delivered in the new capital’s central business district. However, the report doubts the timely delivery of these units.

Unlike in the residential sector, the demand for office units picked up in the fourth quarter of last year as tenants wanted to capitalise on prices before the anticipated depreciation of the pound that took place in early January.  

Of the units dedicated for offices, the report says that there is a clear mismatch between demand and supply of good quality office space. “This gave landlords of prime office buildings the upper hand during negotiations, while many of them continued to quote rents in dollars to minimise currency risk,” it notes.

In the fourth quarter of last year, average office rents in Cairo reached $347 per square metre per annum, flat when compared to the third quarter of the year but up five per cent year-on-year.

The retreat in business sentiment caused by the current economic slowdown has been partly offset by the strong growth of demand for business outsourcing, predicated on the country’s workforce being able to accommodate activity across varying time zones and allowing companies to maintain business continuity.

The drop in the value of the Egyptian pound has meant lower salary costs for international firms looking to outsource work.

The total stock of retail space (shops and malls) in Cairo increased by almost 30 per cent in 2022 to reach 2.9 million square metres.

There is currently an imbalance in Cairo’s retail sector, with demand subdued and excess supply in the market. With the exception of the food and beverages segment, most tenants put their expansion plans on hold at the beginning of 2022.

Meanwhile, the recent devaluations and inflationary environment have led many landlords in Cairo to start selling retail units to generate cash flow and fund ongoing plans.

While annual headline inflation ended the year at 19 per cent, its highest in five years, the food and beverages and clothing segments experienced some of the largest price hikes, increasing by almost 30 and 15 per cent, respectively.

This significantly impacts affordability by slashing buying power and limiting consumer purchases for many in the country to essential goods only.

As a result, the report expects that in the short term landlords are likely to focus on maintaining occupancy levels in their properties. It expects that retailers will be inclined towards malls where landlords provide most capital expenditure contributions and other incentives, especially in an environment where there is an abundance of retail developments and strong levels of competition.

Despite the widespread belief that tourism and the hospitality sector have been the hardest hit by the Ukraine conflict and its repercussions, the figures say the opposite. Around 200 new hotel room were completed in Cairo last year, bringing the capital’s total hotel-room stock to approximately 28,000, with an additional 900 scheduled for completion in 2023.

“Despite the challenging economic environment, hotels in the capital continued to rebound in the fourth quarter. This has been supported by spending from inbound tourists holding foreign currencies, which in turn has helped sustain activity levels in the sector,” the report said.

The UN COP27 Climate Conference held in Sharm El-Sheikh in November attracted thousands of visitors, not only to the resort but also to the capital as well. The Ministry of Tourism and Antiquities also launched an international promotional campaign to entice fans attending the FIFA World Cup 2022 in Qatar by offering half-price entry to Egyptian museums and archaeological sites during the tournament.

The cabinet announced cooperation with airlines to provide flights from Qatar to Egypt, and hotels provided discounts for visitors.

These moves translated into a recovery in Cairo’s hotel-occupancy rate, as readings between January and November 2022 reflected an increase to 64 per cent from 48 per cent in the corresponding part of last year.

* A version of this article appears in print in the 16 February, 2023 edition of Al-Ahram Weekly

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