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Real Estate Market Overview Q2 2013 (March – June) Cairo
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Real Estate Market Overview
Q2 2013 (March – June)
Cairo
Macroeconomic overview
2
Indicator 2010 2011 2012 2013 (f)
Egypt
Population (millions) 81.1 82.5 84 85.4
Real GDP Growth (Y-o-Y) 5.1% 1.8% 2.2% 2.1%
Consumer Price Index (% change) 11.3% 10.1% 7.1% 11.1%
Greater Cairo
Population (millions) 19.5 20.0 20.7 20.8
Sources: IHS Global Insights, June 2013; CAPMAS, September 2012;
Cairo Statistics Center, 2012
Cairo – one step forward, two steps back
The content of this report reflects the Cairo
market up to late June and does not take into
consideration any political events that started
to take place during the last week of June. The
volatile political environment may or may not
lead to further uncertainties on the direction of
the Egyptian economy.
While the foreign reserves have remained
relatively stable over the past 6 months (up
marginally to USD 16bn), there are increasing
signs of a deterioration in the economic
fundamentals:-
• Depreciation of the value of the Egyptian
pound
• Increasing inflationary pressures
• Increased foreign debts
• Petrol and electricity shortages
Rising political and economic uncertainties during Q2 are leaving the economy increasingly vulnerable.
Further delays to the agreement of the USD 4.8 billion loan that Egypt has formally requested from the IMF are also adding to the sense of uncertainty, with little progress reported over the past six months.
The failure to make progress in these negotiations has also increased the reliance on loans from friendly Arab and other regional nations:-
• Libya has granted USD 2.2 billion to the Central Bank of Egypt to boost the economy and support the foreign reserves.
• Turkey has loaned Egypt USD 1 billion and is expected to increase the loan by another USD 1 billion.
• Qatar continues to provide financial support, with a total of USD 8 billion provided to the Central Bank of Egypt.
• The major impact of the deteriorating political and economic backdrop on the real estate market has been to increase uncertainty and risk. This is resulting in delays and a natural reluctance to commit to long term decisions by both investors and occupiers.
In these circumstances, activity in the real
estate market during Q2 has been relatively
limited, as stakeholders delay decisions while
waiting for greater clarity.
The limited activity seen during Q2 can be
grouped into two major categories:-
- Short term / tactical decisions as a
number of tenants seek to relocate out
from central Cairo to more secure
suburban locations
- Long term / strategic decisions as
some investors / developers recognise
that now is the right time to commence
or continue with long term projects
aimed at capturing the potential growth
and value in the market once more
stable political conditions return .
Talking points – Q2 2013
4
• The Egyptian economy remains under
pressure from a multitude of political
challenges.
• IHS Global Insights predict real GDP
growth of 2.4% in 2013. Egypt’s GDP has
been estimated to grow to EGP 2.071
trillion in 2013, up from EGP 1.733 trillion
last year.
• As part of the plan to build one million new
social housing units over the next five
years, the Ministry of Housing and New
Urban Communities has announced plans
to construct 175,000 units in 25 different
governorates.
• The Egyptian government has announced
new laws regarding development along the
Suez Canal. This plan includes new
projects within the Suez Canal region.
• The government has also announced a
number of ship repair and supply centres
along the Suez Canal that could generate
revenues of between USD 5.6 billion and
USD 100 billion.
• Qatar has demonstrated its on-going
support to Egypt by providing a total of
USD 8 billion in loans and other financial
support. Additional investments from Qatar
include several industrial and tourism
projects totalling USD 18 billion over the
next five years.
• 6th of October City will witness a number of
major construction projects over the coming
few years. The Ministry of Housing and
Urban Communities has announced a 922
acres project, of which 44% will be
dedicated to housing.
• The Real Estate Tax Authority has
announced that any residential property
with an annual rental value below EGP
24,000 will be exempted from property tax
as of July 2013. Recent amendments to the
2008 tax law exempts single-home owners
from paying property tax and has raised the
bracket to residential properties valued at
EGP 2 million instead of EGP 500
thousands.
• Given the importance of the tourism
industry to the overall Egyptian economy,
the government is working on a number of
major new initiatives. The government has
announced, that EGP 6 billion of additional
capital will be invested to support and
promote the tourism sector.
Cairo prime rental clock
*Hotel clock reflects the movement of RevPAR.
Source: Jones Lang LaSalle
Note: This diagram illustrates where Jones Lang LaSalle estimate each prime market is within its individual rental cycle as at end of relevant quarter.
5
Q2 2012
Rental Growth
Slowing
Rents
Falling
Rental Growth
Accelerating
Rents
Bottoming Out
Retail
Rental Growth
Slowing
Rents
Falling
Rental Growth
Accelerating
Rents
Bottoming Out
Q2 2013
Residential Office Hotel*
Cairo Office Market Overview Office
711 711 784 819 947
127 50
0
200
400
600
800
1,000
1,200
2010 2011 2012 2013 2014
Tot
al S
tock
(`0
00 s
q m
)
Future Supply Completed Stock
Office supply and demand
• Total Grade A office space in Greater Cairo stands at approximately
819,000 sq m as at Q2 2013.
• Quarter 2 has witnessed the completion of one further Grade A office
building located in 6th of October. Dorra Group has delivered a total of
24,000 sq m in its Capital Business Park project.
• A further 4,800 sq m of office stock has been added in the Mivida
project this quarter, with other expected completions being delayed
until later in the year.
• The majority of recent office development has been focused in urban
settlements like New Cairo and 6th of October, with both of these
areas witnessing a surge of new office buildings.
• Major scheduled projects for this year include The Polygon located in
6th of October and Summit 75 located in New Cairo.
• A total of 127,000 sq m could be delivered during the rest of 2013.
Nevertheless, it is anticipated that much of this space will experience
delays and will be held over into 2014 and beyond.
• In contrast to Q1, which recorded a sharp decline , vacancies have
increased again during Q2 to stand at around 25% of all completed
office stock. This increase reflects the limited take-up activity and the
withdrawal of tenants from buildings including Pyramids Heights in
6th of October and other buildings in New Cairo. One tenant in these
buildings has moved to Nile City Towers in Central Cairo.
• Leases in Quarter 2 included Pepsi Co. acquiring 2,000 sq m in City
Stars, a prominent NGO relocating to a 350 sq m office in Zamalek
and Alstom acquiring 5,000 sq m in Summit 44 in New Cairo.
• Jones Lang LaSalle is aware of approximately 82,000 sq m of
potential demand for new office space. The majority of this current
demand emanates from companies in the oil and gas and banking
sectors.
7
Office Stock (2010 – 2014)
Source: Jones Lang LaSalle, Q2 2013; Note: GLA of Grade A Office Space Source: Jones Lang LaSalle, Q2 2013
Office Space Demand by Sector
Major office projects in Greater Cairo
8
Downtown
Smart Village
New Cairo
CityStars
Nile City Towers
Citadel Plaza
Mivida
Existing
Future Supply
6th of October City
Cairo Festival City
Capital Business Park
Office rental performance
• With continued sporadic street protests, lack of parking and general
congestion in Central Cairo, several multinational companies have
decided to relocate to new urban settlements that benefit from better
security and accessibility.
• Despite this, Nile City towers remains the city’s prime office location,
with asking rents remaining stable at USD 40 per sq m. Effective rents
are however somewhat lower, with rent free periods being offered,
depending on the space required by each tenant.
• Similar to previous quarters, prime office rents have also remained
stable, in New Cairo Sector 1 and Sector 2 at USD 25 and USD 18
per sq m respectively (although asking rents are somewhat higher for
Cairo Festival City which falls within Sector 1) with an asking rent of
USD 33 per sq m. Rents in West Cairo have followed the same
pattern and are similar to those in New Cairo sector 2 standing at
USD 18 per sq m.
• Additional supply that is anticipated to enter the market in the second
half of 2013 will lead to a decrease in asking rents. Tenants will have
an improved negotiating position, adding more pressure on landlords.
• The supply of Grade B buildings will also contribute to the decline in
the asking rents of Grade A buildings over the coming months. Many
occupiers are now considering Grade B buildings to reduce their real
estate costs.
• Leasing incentives such as rent free periods, landlord contributions to
fit out and the provision of additional parking are expected to increase
across all building grades.
Common Market Practices
9
Prime Office Rents* (Q1 2012 – Q2 2013)
(US
D /
sq m
/ pm
)
Parking 1 slot per 100 sq m
Service Charge USD 3 (Could go up to USD 8)
Lease Terms 3 years, 5 years or 7 years
Escalation Rate 5 Per cent, 7 Per cent or 10 Per cent
5101520253035404550
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013
Source: Jones Lang LaSalle, Q2 2013
* Prime office rents in Central Cairo – see definitions for further details
Office Rents in New Urban Areas (Q2 2013)
5
10
15
20
25
30
New Cairo Sector 1 New Cairo Sector 2 West Cairo
Indicator Level Comment / Outlook
Current Grade A Office
Stock 819,000 sq m
Most Grade A supply outside of Central Cairo with Grade A
supply in CBD limited to one building – Nile City Tower.
Future Grade A Supply
(2013) 127,000 sq m
Further construction delays and cancellations could reduce
this supply pipeline.
Greater Cairo Grade A
Vacancy 25%
Increased over Q2 and likely to
increase further during the
remainder of 2013.
Grade A rents in:
Central Cairo
New Cairo, Sector 1
New Cairo, Sector 2
West Cairo
USD 40 / sq m / month
USD 25 / sq m / month
USD 18 / sq m / month
USD 18 / sq m / month
Rents are expected to decline
over the coming quarters
Office market summary
10
Cairo Market Overview Residential
Residential supply and demand
• The completion of around 4,400 units in this quarter brings the total
stock of residential units to approximately 78,500 units.
• The largest portion of these deliveries have been in New Cairo
(3,200), while a total of 1,100 have been in 6th of October.
• Madinaty (Talaat Mostafa Group), the huge residential compound
located in New Cairo, has delivered nearly 2,000 apartment units in
the third phase of the project.
• Deliveries in New Cairo included Lake View (350 villa units in the
projects’ third phase), Hyde Park (50 apartments and 50 villas) and .
Layan Residence (140 villas in the projects’ second phase).
• Most of the deliveries in New Cairo this quarter have been apartment
units, with Family City, High Land and Hayat Heights completing
nearly 300, 150 and 192 apartments respectively.
• In 6th of October, the quarter has witnessed the delivery of
apartments in Al-ofouk’s Continental project (250 units) and Jewar
has completed a further 80 apartment units.
• Other completions in 6th October have included Zayed Dunes (50
villas and 250 apartments). Palm Hills Development and SODIC have
also contributed to the delivery of units in this quarter, with Casa
delivering nearly 365 apartment units and Allegria (150 villas).
• Following the success of Westown in 6th of October, SODIC has sold
out the first phase of its Eastown project, located in New Cairo, (300
apartment units) and has launched 144 apartments in the second
phase.
• Other projects launched in Q2 included Galleria Moon Valley in New
Cairo (328 apartments).
12
Source: Jones Lang LaSalle, Q2 2013
Residential Stock (2011 – 2015)
67 74 79 104
131
25
27 19
0
20
40
60
80
100
120
140
160
2011 2012 2013 2014 2015
No
. of u
nits
('0
00)
Future Supply Completed Stock
Major residential projects in Greater Cairo
13
Helwan
New Cairo Palm Hills October
Westown Mivida
Cairo Festival City
New Giza
Katameya Heights
DreamLand
Kenana
6th of October City
Existing
Future Supply
Residential performance Sale Prices
• Average asking prices across the Cairo residential market have
increased by 8% in Q2. Higher construction costs and the increased
value of the dollar have been the main drivers behind the increase in
prices.
• The average sales price for apartments in New Cairo has increased by
11% in Q2 to stand at USD 1,125 per sq m (up from USD 1,016 in Q1).
Villas have also followed the same pattern, increasing 3% to an
average USD 1,741 per sq m.
• Apartments within 6th of October have witnessed a slight decline in
prices by 3% to stand at USD 897 per sq m, due largely to lower asking
prices in the Palm Parks project. While asking prices for villas have
increased by 10% in Q2 to stand at USD 1,111 per sq m.
Rental Performance
• There has been an increased demand from foreigners especially Arabs
to urban settlements which marginally increased rental rates. Many
landlords have started to compete aggressively offering high quality
finishes with good standard furniture. These incentives have allowed
for a further increase in the rental rates.
• Rents in New Cairo have generally increased for both apartments and
villas during Q2. Apartments have recorded an 8% increase to stand at
USD 1,083 per month while the average rents for villas stands at USD
3,333 per month (up 17% from USD 2,833 in Q1).
• The average asking rents for apartments in 6th Of October has
increased 14% to stand at USD 867 per month, while villa rents have
increased by 17% to USD 2,533 per month during Q2.
14
Source: Jones Lang LaSalle*
* Rentals relate to a basket of two bedroom apartment and three bedroom villas in
each location.
Source: Jones Lang LaSalle*
• Sale prices USD per sq m
• Dollar Value calculated at EGP 6.97
Sales Price (Q1– Q2 2013)
Rental Rates (Q1-Q2 2013)
Indicator Level Comment / Outlook
Current Stock 78,500 units Based on a sample of 100 gated compound projects in New Cairo and 6th of October
Future Supply (2013) 25,000 Units Further construction delays and cancellations could reduce this supply pipeline.
Sales Performance (USD / SQ M)
New Cairo
Villa
Apartment
6th of October
Villa
Apartment
1,741
1,125
1,111
897
Rental Performance (USD / Month)
New Cairo
3 bedrooms Villa
2 bedrooms Apartment
6th of October
3 bedrooms Villa
2 bedrooms Apartment
3,333
1,083
2,983
867
Residential market summary
15
Increased demand from foreigners especially
Arabs. Fierce competition between landlords
to maintain finest quality fit outs and
furniture.
Retail Cairo Market Overview
Retail supply and demand
• Market uncertainties have impacted the retail market, with no deliveries
witnessed in the first half of 2013, leaving stock stable at 773,000 sq m.
• The only confirmed mall that will enter the market in the second half of
2013 is Cairo Festival City with a total of 150,000 GLA.
• Other projects currently scheduled for 2013, including The District,
Emerald Mall and Porto Cairo Mall, are all likely to be delayed until 2014.
• Majid Al Futtaim’s (MAF’s) acquisition of the Metro Supermarket chain is
expected to be finalised within Q3. MAF currently operates Carrefour
stores in Egypt and 19 other countries across the Middle East and
Central Asia.
• International retail groups have continued to launch new accessories and
leather brands in the market. Significant new entrants in Q2 included
Michael Kors which has opened its first store in City Stars (Egypt’s
largest shopping mall).
• Tommy Hilfiger has launched its Tommy Hilfiger kids line in a separate
standalone store.
• Other anchor brands have opened stores in highly visible street locations
in busy areas, rather than within retail malls.
17
Source: Jones Lang LaSalle, Q2 2013
Retail Stock (2010 –2014)
578 761 773 773
1301
528
181
0
200
400
600
800
1,000
1,200
1,400
1,600
2010 2011 2012 2013 2014
GLA
in (
'000
sq
m)
Future Supply Completed Stock
Major malls in Greater Cairo
18
Mall of Arabia
Dandy Mall
Cairo Festival City
Sun City Mall
CityStars
Maadi City Centre
Mall of Egypt
6th of October City
New Cairo
Existing
Future Supply
Composition of retail supply
• Cairo is currently supplied with just 773,000 sq m of space in organized
retail malls. The proportion of total retail space in malls will increase in the
future as new community and regional malls are delivered. For the
moment, the retail market of Greater Cairo is considered undersupplied.
With the significant pipeline of projects being delivered over the next few
years, it is however foreseen that future supply will more closely match
demand.
• Around 58% of the total mall based retail stock in Cairo is in centres over
30,000 sq m (regional and super regional malls), with the remaining 42%
spread across numerous smaller centres.
19
Name Type of Retail Centre GLA (sq m)
CityStars Super Regional 150,000
Mall of Arabia Super Regional 180,000
Maadi City Centre Regional 33,500
Dandy Mall Regional 65,000
Golf City Mall Regional 40,000
Sun City Mall Regional 60,000
Katameya Downtown Community 30,000
Source: Urban Land Institute (ULI)
Type of Centre Range of GLA (sq m)
Convenience Less than 3,000
Neighbourhood 3,000–10,000
Community 10,000–30,000
Regional 30,000–90,000
Super Regional 90,000–150,000
Source: Jones Lang LaSalle Q2, 2013
Major Retail Centres in Greater Cairo
Source: Jones Lang LaSalle
Breakdown of GLA by Type
Retail rentals
• Average quoting rents for prime line stores in regional & super
regional malls in Greater Cairo have remained unchanged over the
past quarter and currently range from USD 920 to USD 1,410 per
sq m per annum.
• In certain circumstances, retailers may however be able to negotiate
lower rates, rent free periods and landlord contributions to fit out.
• Although the limited supply of good quality retail space in Greater
Cairo should have resulted in strong competition and rental growth,
economic and security concerns have had a negative impact on retail
spending. Average transacted rents for Regional and Super Regional
malls have therefore declined by 20% – 30% from levels witnessed
before the revolution in 2011
• Average asking rents are expected to remain stable over the short
term, although transacted rates may decline due to upcoming new
supply and on–going economic uncertainty.
• While base rentals are lower than pre–revolution levels, some centres
have been able to achieve turnover rentals over and above base
rental levels.
• A number of landlords have converted their rental leases into EGP’s,
or have agreed to cap the US Dollar for new leases to attract and
retain tenants. To ensure demand is maintained as high as possible,
a variety incentives are also being continuously granted.
• Some retailers have also been successful in negotiating tenant only
break clauses, to maximise their flexibility and provide potential exit
strategies from space in an unstable or untested locations.
• While there is increased interest being expressed from new market
entrants, this is unlikely to convert into pressure for rental increases
during 2013.
20
Source: Jones Lang LaSalle
Average Quoting Rental Rates: Regional / Super Regional Centres
in Greater Cairo
Line Shops (USD / sq m / per annum) USD 920 – USD 1,410
Retail sector summary
21
Indicator Level Comment / Outlook
Current Retail Space (GLA) 773,000 sq m The GLA of good quality retail malls remains low but is increasing as a
percentage of total GLA.
Future Supply 2013 / 2014 715,000 sq m
There is a substantial supply which could potentially be added to the retail
sector by the end of 2014, but not all of the proposed supply is expected
to complete within this timeframe.
Current Vacancy Level 25%
Vacancies among line stores in Super Regional malls
declined in 2012 but are likely to increase again in
2013 given the new supply that is entering the market
.
Average quoting rents
(line stores in regional /
super regional malls)
USD 920 – USD 1,410
sq m per annum
Average asking rents are expected to remain stable
over the short term, although transacted rates may
decline due to the upcoming new supply and on–
going economic uncertainty.
Hotel Cairo Market Overview
Demand
• The hotel sector is now showing signs of improvement. Tourist
arrivals have started to pick up, reaching 4.9 million in the year to
May (a 12.3% increase over the same period in 2012).
• Revenues from the tourism sector totalled USD 3.4 billion in the
period from Jan to April 2013, an increase of 16.2% compared to
the same period in 2012.
• The chart below shows the growth in both tourists and the number
of hotel nights demanded in the year to May 2013, compared to the
same period in previous years.
Hotel supply and demand
23
Supply
• There are no new hotel rooms introduced into the market in Q2 with the
existing supply of quality rooms in Cairo remaining unchanged at 27,000
rooms in 159 properties.
• According to the Egyptian Hotel Association, there are a further 29 hotels
offering 7,995 rooms currently under construction in Cairo. This data only
includes projects with approved construction licences.
Sources: Egyptian Hotel Association
Current Hotel Supply
Sources: CAPMAS
0
1
2
3
4
5
6
0
20
40
60
80
100
120
140
160
2011 YTD 2012 YTD 2013 YTD
Mill
ions
of t
ouris
ts
Mill
ions
of h
otel
nig
hts
No. of Nights No. of tourists
Current Hotel Demand (May 2013 YTD)
Major hotels in Greater Cairo
24
InterContinental City
Stars
Marriott
Four Seasons
Dusit Thani
Hilton Dreams
St. Regis Cairo
Nile Ritz Carlton
6th of October City
New Cairo
Existing
Future Supply
• Despite improving occupancies, average daily rates remain below
levels seen before the revolution. Average daily rates in year to
April stand at USD 51, recording a marginal decline by 4% (from the
same period in 2012).
• The growth in occupancies has resulted in a 15% increase in
RevPAR levels in the year to April 2013, compared to the same
period in 2012. Despite this improvement, RevPAR in Cairo hotels
remains very low at just USD 30 in the year to April 2013.
Hotel performance
• The number of tourist arrivals has started to recover, increasing by
11.8% in year to April 2013, despite the continued instability.
• The Ministry of Tourism is adapting a number of strategies to
support the industry, with the aim of increasing tourism numbers
back to levels seen in 2010, prior to the revolution.
• Occupancy rates have started to recover and currently stand at
58% (YT April), recording a significant improvement on the 50%
witnessed during the same period in 2012.
25
Source: STR Global
Hotel Performance (YT April 2011 – 2013)
0
10
20
30
40
50
60
70
46
48
50
52
54
56
58
60
62
YTD 2011 YTD 2012 YTD 2013
Occ
upan
cy %
US
D
ADR Occupancy
Indicator Level Comment / Outlook
Total number of Hotels 159 Includes all Hotels ( 5,4,3,2,1 Stars and Unclassified)
Total number of rooms 27,000 Includes all Hotels ( 5,4,3,2,1 Stars and Unclassified)
Occupancy
(Year to April 2013) 58%
Average Daily Rate (ADR)
(Year to April 2013) USD 51
Revenue per room
(RevPAR)
(Year to April 2013 )
USD 30
Hotel market summary
26
Market is recovering from a very low base in
2011 and 2012
Residential:
• The supply data is based on our quarterly survey of 100 projects
located in New Cairo and 6th of October, starting from 2011.
• Completed building refers to a building that is handed over for
immediate occupation.
• Residential performance data is based on two separate baskets one
for rental basket for villas and apartments and another basket for
sales performance for both villas and apartments.
• The two baskets cover projects in both New Cairo and 6th of
October.
Retail:
• Classification of Retail Centres is based upon the ULI definition as
published in Retail Development, 4th Edition published by ULI.
• Prime Rent represents the quoted average rent for the top 5
shopping malls in greater Cairo.
• Retail supply relates to the Gross Lettable Area (GLA) within retail
malls.
Office:
• The supply data is based on our quarterly survey of the Grade A
office space located in Downtown, New Cairo and West Cairo.
• Completed building refers to a building that is handed over for
immediate occupation.
• Prime Office Rent represents the top open–market rent that could
be expected for a notional office unit of the highest quality and
specification in the best location in a market, as at the survey date
(normally at the end of each quarter period). The Prime Rent reflects
an occupational lease that is standard for the local market. It is a
face rent that does not reflect the financial impact of tenant
incentives, and excludes service charges and local taxes.
Hotels:
• Hotel room supply is based on existing supply figures provided by
Egyptian Hotel Association as well as future hotel development data
tracked by Jones Lang LaSalle Hotels. Room supply includes all
graded hotel supply but excludes serviced apartments.
• STR performance data is based on a sample of internationally
branded midscale and upscale hotel properties.
27
Definitions and methodology
Ayman Sami
Head
Egypt
Robin Pugh
Head of Agency
MENA
Andrew Williamson
Head of Retail
MENA
Gabriel Matar
Director, MEA
Hotels & Hospitality Group
Marwan Sery
Research Manager
Egypt
Craig Plumb
Head of Research
MENA
www.jll–mena.com
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