The announcements for a number of multi-billion dollar projects are indicative of rising confidence in Egypt’s retailing sector, bolstered by the economy’s favourable long-term fundamentals, although there is still a certain wariness over the country’s macroeconomic performance.
Dubai-based retail group Majid Al Futtaim (MAF) has plans to invest around $2.3bn in Egypt over the coming years, its chief executive Iyad Malas told Reuters at the World Economic Forum in Davos. Malas said the plans were indicative of growing interest in the country from Gulf investors.
MAF, which already operates more than 20 large-scale supermarkets in the country, has planned investments in Egypt that include an EGP 3.2bn ($458.4m) expansion of its Maadi City Centre Mall, which opened in 2002 and has just over 30,000 sq metres of gross leasable area (GLA).
The developer also announced that it would soon commence work on the Mall of Egypt, a massive “supra-regional” shopping centre with 162,500 sq metres of GLA located at the Sixth of October City in the west of Cairo. The project has been valued at more than $800m, with $450m in financing secured from two local banks.
Gulf investors have had a sizable presence in Egypt’s property market over the past decade, with a number of large developments in the 11m-person Cairo area. UAE-based Al Futtaim Group, for example, in November opened the $1.45bn Cairo Festival City, a mixed-use project in New Cairo that includes 160,000 sq metres of GLA.
In late 2012 Al Futtaim and Dubai’s Emaar announced plans to develop the EGP 5bn ($711.5m) Cairo Gate as a joint venture. The first phase of the project will include a mall with 120,000 sq metres of GLA. Emaar is separately developing Emaar Square, which will host a 250,000-sq-metre outdoor mall, within its larger Uptown Cairo mixed-use real estate development.
Nor are foreign investors the only ones erecting scaffolding these days. Egyptian property developers, including listed firms like Talaat Mostafa Group, Sixth of October Development and Investment Company (SODIC) and Palm Hills Development, have also been working on a number of large projects of their own. SODIC, for example, began construction on its 860,000 sq metre mixed-use Eastown project in the middle of last year, having sold EGP 1.6bn ($229m) worth of units on the site over the first half of 2013.
Long-term growth potential
The flurry of construction is in part a response to the long-term upsides for the Egyptian retail sector, which include a favourable trade profile, a growing middle class and at 85m people, the largest population in the Arab world, with nearly a third of them under the age of 25. Although foreign visitor numbers have dropped from 2009 levels, the country still attracts more than 9m per year, which also contributes to a high level of overall spending.
As a result, in recent years, even amidst the turbulence of the global slowdown and the Arab Spring, a number of firms have entered the country seeking to tap into household spending, ranging from Marks & Spencer’s and H & M to Ikea and Turkish discount chain BIM.
According to Mohamed Abo El Yazid, the managing director of Citystars Properties, a local developer, luxury stores are performing well. “Despite the political challenges in 2013, our business continued to grow. High-end brands, especially multinationals, were our most successful retailers,” he told OBG.
Navigating the waters
There are still a number of complicating factors which will give more risk-averse investors pause for thought.
Although it still is higher than in the eurozone countries, GDP growth – which retail activity tends to track – remains sluggish by historical standards. A Reuters survey of analysts in January suggested expansion of 2% in fiscal year 2013/14, followed by 3.3% in 2014/15, below the government targets of 3.5% and 4.5% respectively. Meanwhile, inflation, which erodes spending power and price predictability and thus has a significant effect on the retail sector, remains high, reaching 12.5% year-on-year in December. Consumer confidence also fell significantly last year, with 64% of respondents surveyed by Nielsen saying they would limit their discretionary purchases over the coming 12 months.
As recently as September, the international press reported that mall vacancies were expected to rise. Retail rents fell to $100 per sq metre per month from $150 in 2009, according to Knight Frank, a real estate company.
There’s no doubt that retailers around the globe are having to work ever harder to open consumers’ wallets, but as indicated by the large-scale planned new investments from both Gulf and local investors, many are betting that Egypt’s appealing long-term fundamentals will outweigh the retail sector’s short-term concerns.
