Is Egypt’s Retail Sector a Sound Investment Opportunity?

Is Egypt’s Retail Sector a Sound Investment Opportunity?

By Fatma Khaled

As the Egyptian population continues to rise, more investment opportunities present themselves in the country, providing ample variety and potential for successful investments. One such opportunity is the retail sector; where Egypt is considered a growing hub for retail ventures, having recorded dynamic sales growth within the past few years. The retail sector is mainly made up of food outlets and international shopping outlets; however, food outlets has proven to be the more profitable venture for investors.

Retail sales have witnessed dramatic growth in recent years, recording profits of $102.8 billion in 2011. However, a slight decline was recorded in 2012, during which profits recorded $99.3 billion; according to a report released by the American Chamber of Commerce. Non-food retail sales also fell during the same period, due to the influx of malls and other types of modern retail space, which have expanded over the years to include Mall of Arabia, Maadi City Center, Sun City Mall, Cairo Festival City, and Mall of Egypt.

Modern retail is said to have attracted foreign investments into the sector, one example being the Mall of Arabia, which was developed by the Saudi-based Al Hokair Group, as well as UAE-based Majid Al Futtaim’s Cairo Festival City.

Retail Sector Performance

The retail sector recorded positive growth in 2015, according to the Real Estate Market Overview released in the third quarter (Q3) of 2015 by Jones Lang LaSalle (JLL), stating that the vacancy rate within the retail segment fell by 5%, while average retail rents recorded a10% increase in Q3 of 2014, averaging at $1,600 per square meter for retail space in prime locations.

The retail sector has also witnessed notable expansion in 2015, not only with increasing rental rates and falling vacancy rates, but also increases in retail supply rates generally, whereby economic growth in real estate has previously remained above 5% in 2010, compared to current growth according to the World Bank, as stated in a report by Oxford Business Group.

The current retail market in Egypt has proven to have great potential with regards to increasing demand in light of the rising population.

Retailers have thrived despite the unrest since January 2011, as the American Chamber of Commerce’s report indicated that retail sales increased at a compound annual growth (CAGR) of 14.2% to record $102.8 billion between years 2007 and 2011.

Several brands are expanding in the market, including mid-size global brands and high-end brands, having expanded activity in the grocery segment in particular, according to an Oxford Business Group (OBG) report.

Although the sector is expanding in Egypt, it is also slightly affected by economic and political instability. Mohamed El Haggan a real estate expert at Hegazy Law Firm and a former construction engineer, stated that many retail businesses have been successfully growing in Egypt in various sectors, such as automobiles, clothing, electronics and hypermarkets.

“Although growing, I believe that the retail sector could be more resilient when the currency exchange issue is settled. For months, the currency instability has negatively impacted all sectors, including retail,” El Haggan told Invest-Gate.

Foreign and Local Investment in Retail

Another factor that has contributed to Egyptian retail growth is the investments that invaded the market, in particular foreign, whereby several projects were launched in recent years, such as Cairo Festival City, which brought an additional 8,000 square meters of retail space in late 2015, and Mirage Mall in New Cairo.

More new retail space is expected to come on-line, adding 444,000 square meters of gross leasable area (GLA) in 2016, and 104,000 GLA in 2017, according to the OBG report.

Foreign investments have recorded the largest profits in the retail sector, as international brands in the retail market have increased from 360 in 2010 to 430 brands in 2012, despite the impact of the political unrest since 2011, according to an online business publication “How we made it in Africa”.

Several investors have reported success in retail investment; however, a number of threats could obstruct potential growth for retail investors in the Egyptian market, including the great rise in prices, currency devaluation, VAT and inflation.

“Despite the great impact of those factors, the threat is likely to exist for retailers selling high-end quality properties,” added Al Haggan.

Successful Businesses in Retail

In most cases, the types of business determine whether retail is successful or not. For example, traditional retail outlets, such as grocery stores and kiosks, have seen a higher level of proliferation than any type of retail business in the Egyptian market, according to the OBG report, as they make up 90% of the market; nonetheless malls and brand stores continue to grow by 8% to 10% each year.

“Hypermarkets and home appliance businesses are more likely to survive, dominating the real estate sector in today’s inflationary environment, while high -grade retailers, such as high-end clothing retailers, are less likely to survive. Those types of retailers would afford losses in a high inflationary environment rather than lose market share or existence. Yet, there is still a higher survival chance for lower-grade retailers to survive,” added El Haggan.

Seizing Retail Investment Opportunity

A retail investor can select a good opportunity not only based on type of businesses but also according to budget and choice of location. The prices of retail purchase and rentals are crucially dependent on the location, as the standards of living of a certain area tend to reflect on the type of retail the investor seeks to build up.

“No one will find a Louis Vuitton store in an area where residents are of a low socio-economic class. Conversely, one cannot find a low-profile retailer in a neighborhood with high-income population,” stated El Haggan.

Aside from the price, location remains the second determinant in creating the right retail opportunity. If an investor seeks a high-end spectrum of the market, they should resort to real estate developers such as Amer, Al Futtaim, and Encon, El Haggan told Invest-Gate.

Small and medium-sized retailers could resort to individual retail space providers for even cheaper rentals, he continued, noting that this type of cheap retail space can be found in locations such as Dokki, Mohandessin, Maadi, as well as different areas with less traffic congestion.

An attractive retail investment opportunity is also determined by other factors that revolves around availability and an increase in the growth of retail space across the country.

“Retail investment opportunities are available almost any time. A large growing population creates an attractive retail investment opportunity. Availability of large retail spaces is a key contributing factor. This provides retailers with potentially successful opportunities,” added El Haggan.

Future of Retail Sector in Egypt

Several developments are expected to take off in the retail sector within the next year, including Cleopatra Mall, which will be built on 280,000 square meters and will be completed in 2017.

Other retail investors, such as Al Futtaim, will be launching Almaza City in Heliopolis, which El Haggan describes as a “replication” of Maadi City Center, in addition to Mall of Egypt, which will be launching soon.

The retail sector is poised for major expansion in the upcoming period, especially in the types of businesses that revolve around supermarket chains and hypermarket segments; as the sector achieved a promising growth previously, it is expected to continue prospering in international shopping and food outlets, which record the greater profits and economic growth.

As the economy attempts to stabilize and achieve more growth, retail sales are expected to grow much stronger, according to the American Chamber of Commerce as predicted sales record a CAGR of 16.8% in 2016.

Thus, in closing, retail investors looking to capitalize on Egypt’s momentous population growth  can ensure success by focusing on a number of factors, including market conditions, target population, and investment sector (i.e. high-end fashion or fast foods, etc.). Taking the above mentioned elements into consideration, investors can make use of the upward curve in the sector to leverage a hold on an enormous potential market, which does not look to be slowing down anytime soon.

Fatma Khaled 379 Posts

An aspiring journalist always seeking to deliver the best of everyday's news. I am a very enthusiastic Egyptian who is committed to journalism and what I could give as a journalist/ writer through reporting on business and political news.


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