Why Do Investors Prefer NAC’s Mixed-Use Projects?

Why Do Investors Prefer NAC’s Mixed-Use Projects?

Translation: Muhammad Khalid

The New Administrative Capital (NAC) represents a glimpse of hope for the Egyptian real estate sector. Therefore, the new capital projects shouldn’t be overlooked in any discussion regarding the performance of the sector. NAC’s projects have adopted many new real estate strategies, including sustainability, modern technologies, and mixed-use projects. Mixed-use buildings are not a modern-day invention, but the launch of the new capital gave it a second life, as real estate development companies increased the volume of their investments in them. Mixed-use projects are also popular among customers due to their high ROI.

During interviews with Invest-Gate, experts agreed on the advantages granted by investing in mixed-use buildings, whether for the client or the real estate developer, including lower costs and higher demand from a larger segment for customers. Experts explained that building entire districts in NAC based on that type of buildings prompted developers to pump more investments into them, in addition to the level of facilities provided, and the desire of customers to hoard a long-term investment in an area that constitutes the future of the urban renaissance in Egypt, and attracts major global companies.

Not a Recent Phenomenon

In this regard, Jasser Bahgat, a member of the Board of Directors of the Real Estate Development Chamber, says that mixed-use properties existed in Egypt for about 50 years, but they have gained interest about 5 years ago with the launch of projects in NAC and new cities, which resulted in mixed-use projects doubling in volume.

For his part, Hassan Ibrahim, a real estate developer, states that mixed-use properties have existed for a long time in Egypt, but they were not gaining momentum, as customers tended to use residential properties for administrative and commercial activities. However, the commercial and administrative segments have become popular, Ibrahim noted, adding that many projects have been launched to tap into this market, with a focus on administrative purposes.

Muhammad Masoud, a board member at Menassat Developments, agrees with Bahgat and Ibrahim, highlighting that diversity in real estate projects has existed in the past years, in districts such as Abbasiya, which has multi-use buildings, serving commercial, administrative, and residential purposes, but the product itself differed and developed in the new capital, with the introduction of a new product such as towers.

Drivers of Higher Demand

Bahgat explained that the reason for investors’ increasing interest in mixed-use real estate lies in considering it a long-term investment, unlike residential properties, which don’t generate similar returns, whether on the medium or long-term level, despite having momentum.

Bahgat elaborates: “Mixed-use units have higher rent. Therefore, the investor tends to buy a clinic or an office, for example, and profit from it through leasing, and the price of that unit continues to rise depending on its location, and accordingly, the customer will be able to resell it at a greater profit. The sale price of mixed-use properties is higher than that of residential properties, despite having similar costs.”

In the same context, Ibrahim states: “The existence of a real demand from clients towards these properties urged developers to adopt projects that focus on them, especially with the need for many large companies to build headquarters in newer areas with developed utilities. The inauguration of new cities, including the new capital, contributed to increasing the demand for mixed-use properties by customers, who use it for investment or otherwise, and developers, who seek to target a wider segment of customers.”

Ibrahim adds: “These properties are better investments for development companies, as they are delivered semi-finished, which means that the total cost on the developer is much lower than in the residential sector. Recently, companies have been finishing mixed-use units in tandem with the increase in rents and sale prices, which makes them a good investment for the client and the developer.”

Furthermore, Masoud stresses that the state’s plan to build mixed-use projects in new cities supported companies to increase their investments in them, noting that the launch of fourth-generation cities prompted developers to implement a mixed-use real estate product that integrates services in those cities, which is beneficial to both customers and investors.

Masoud explaines that these cities do not only attract local investments, but also investment from foreign entities and individuals, due to the smart features of such developments. He remarked that the volume of investments of Menassat in NAC amounts to about EGP 4.5 bn, while its investments in the Fifth Settlement total EGP 5 bn.

Potential Expansion

Ibrahim says: “The current implementation rate for mixed-use properties is not sufficient for the demand, but developers have begun to expand and inject larger investments into that sector. Mixed-use buildings fall into a group of categories based on the type of service provided, available facilities, finishing, and locaiton, and each category has a target customer. In addition, developers launch such projects after studying the market to identify the needs of each district and estimate production costs, which differ from one city to another.”

The developer adds: “Companies also take the decision to invest in that sector after studying risks of shifting from a residential sector with constant demand and a permanent customer, to mixed-use real estate. Not all companies of all sizes would risk entering a new market which is considered by customers as a long-term investment.”

In conclusion, real estate development experts emphasized the advantages of investing in mixed-use buildings for customers and developers alike, in terms of ROI, explaining that they are currently due to a shortage in supply, in addition to their greater return. They stressed that the decision to expand in the mixed-use market depends on the ability of each developer to take risks in that sector, along with market needs and demand by customers.


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