The sales market in Cairo witnessed higher levels of activity in the third quarter (Q3) of 2022 as buyers looked to hedge against inflation and currency devaluation by investing in real estate.
This positive sentiment was noted across most developments in Cairo, however, it is important to highlight that buyers were being selective and mainly opted to purchase property from well-reputed developers with strong balance sheets, according to JLL.
Despite the prevailing economic conditions and the overall slowdown of the office sector, Cairo has been witnessing an upsurge in enquiries for office spaces.
This comes on the heels of ICT outsourcing companies seeking to operate in Cairo. This segment typically requires small office spaces ranging from 100 to 600 sqm. Additionally, interest in larger offices from new market entrants has also increased compared to three months earlier.
In terms of leasing, while the flotation of the EGP has caused many landlords to lease their office spaces in USD rather than the local currency, occupiers are looking for more flexible landlords who are willing to accept EGP.
Furthermore, due to import restrictions, the limited availability of materials required for fit-out work has resulted in an overall increase in the cost of fitting out office spaces. As a result, many local tenants are avoiding leasing shell and core units due to the higher associated costs.
“With both landlords and occupiers unwilling to bear the full cost of office fitouts, the market is experiencing a trend upturn, creating an opportunity for operators who are now opting to lease-out whole buildings at a discount, undertake fit-out work, furnish them, and then re-lease units to prospective tenants. However, unlike flexible offices, these are typically rented to tenants on a long-term basis,” said Ayman Sami — JLL’s Country Head at Egypt.
Overall, Q3 saw the average asking price for renting office spaces in the capital rise by 5% y-o-y to around USD 347 per sqm per annum, and over the same period, Cairo’s office vacancy rate increased to 10%, marking a slight increase from Q3 2021’s 8%.
Around 95,000 sqm of office gross leasable area (GLA) was delivered in Q3 2022, bringing Cairo’s total office stock to almost 1.9 million sqm. In addition to this, the last quarter is expected to see the completion of around 38,000 sqm of floor space.
Meanwhile, in the residential sector, over 5,000 residential units were handed over in the capital. This brought the total stock to around 242,000 units. Going into Q4, nearly 7,000 units are scheduled for completion.
A combination of rising inflation and currency devaluation in Egypt has led to the prices of some construction materials to more than double in Q3 2022, compared to the corresponding period last year. Although this is causing delays to deliveries, many developers have ensured the continuation of construction work onsite regardless of such pressures.
That said, many developers have raised the prices by double digits in Q3 on both off-plan and completed properties. This is largely due to their effort to maximise returns in light of the current successive economic crises. Despite this, it is worth noting that developers continued to offer incentives to entice prospective buyers and investors.
When it comes to the secondary segment, much like the off-plan market, prices and rents remained on an upward course. Annually, sales prices increased by 7% in Sixth of October City and 13% in New Cairo, respectively, while annual average rents increased by 7% in Sixth of October City and 3% in New Cairo.
Additionally, the hospitality sector turned corners with many developers and operators eyeing the segment for opportunities to develop and operate new hotels despite the future pipeline of hotel keys in Cairo being currently limited,
While there were no new hotel completions in Q3, almost 450 keys are expected to be delivered in the final three months of the year. Moreover, the North Coast served as a hub for new hotels throughout the quarter as owners and operators looked to capitalise on higher tourist visitations to the area during the summer months.
Owing to the lifting of COVID-19-related restrictions, Cairo’s occupancy rate saw a notable recovery in Q3, jumping to 61% between January and August 2022 from 41% in the corresponding part of last year. Over the same period, average daily rates (ADR) also soared by 69% to USD 144, which further helped revenue per available room (RevPar) to more than double to USD 88.
From the perspective of the retail sector, the rising cost of goods and services has impacted consumers’ purchasing power and, in turn, retail sales. However, the current situation has unlocked a plethora of new opportunities in the fields of fintech and proptech, propelling the emergence of start-up companies that offer online financial solutions to buyers.
In terms of performance, the vacancy rate in Q3 remained stable at 11% when compared to Q3 2021, and average retail rents increased slightly by 1% for both primary and secondary malls.
Rent prices broadly remained stable this year as landlords worked on re-evaluating their market and pricing strategies in the context of the major reforms which have been implemented and have impacted the economy. Meanwhile, mall owners continue to offer CAPEX contributions and other incentives to retain and attract tenants.
With respect to projects, nearly 40,000 sqm of retail space was delivered in Q3, bringing the total stock to approximately 2.9 million sqm, with the completion of some developments pushed to next year. Moreover, nearly 116,000 sqm of GLA is expected to be completed by the end of 2022.
Furthermore, the majority of the city’s upcoming regional and super-regional malls will be in New Cairo, while most of its strip and community malls will be in West Cairo.
