Although the office market has seen an increase in supply, rents have reduced by 1% on an annual basis due to currency depreciation.

The residential market is facing construction delays and rising costs, putting pressure on sales demand, while the rental market is experiencing an acceleration in activity.

The retail sector is hopeful, despite construction suspensions and postponements, and the hospitality sector is set to benefit from new hotel openings and government initiatives to boost tourism.

Invest-Gate sheds light on the findings and data of the Cairo Real Estate Market overview for the first quarter of 2023 by JLL.

“The anticipated FDI inflow is fueling optimism and is expected to relieve pressure on real estate activities across the country, particularly in Cairo,” said Ayman Sami, Country Head, Egypt at JLL.

Office

In the first quarter of 2023, almost 21,000 sqm of office gross leasable area (GLA) was delivered in Cairo, bringing the total office stock to around 1.9 mn sqm However, the following nine months of the year are expected to see the completion of another 310,000 sqm of office floorspace.

Despite the increase in office supply, the city’s average rents were reduced by 1% on an annual basis, with a current rate of $358 per sqm annually. The reality is different when rents are converted to the local currency due to the continued depreciation of the Egyptian pound.

Consequently, market-wide vacancy rates have increased to 13% in Q1 2023, with activity from multinationals and new market entrants remaining weak. Call centers continue to drive the majority of demand for smaller grade B office units.

As a result of the current inflated rents in Egypt’s volatile currency situation, the hype surrounding flexible offices is back in Cairo, with more tenants resorting to signing short-term flexible leases of fitted office units. The increase in demand for flexible office units has led to flexible office operators planning to expand in the capital.

Residential

Cairo’s residential market continues to face economic headwinds, with construction delays and rising costs hindering developers’ timelines. According to JLL’s report, approximately 4,000 residential units were delivered in the first quarter of 2023, increasing the existing stock to around 249,000 units.

Over 29,000 units are expected to be completed during the remaining nine months of the year, though delays are anticipated due to increases in construction costs.

The report notes that key interest rates rose by 2%, and further currency devaluations took place last quarter, with inflation rates continuing to soar by double digits.

This has put pressure on Cairo’s residential sales market, which saw a curbed demand. Despite this, annual sale prices across both 6th October and New Cairo increased by an average of 25%, while homeowners were offering discounts in their final offerings.

On the other hand, activity in the rental market continued to accelerate, resulting in rents increasing annually at a faster pace of 11% in the 6th of October and 8% in New Cairo.

The report expects the situation to improve once the economy stabilizes, and the government has responded to the real estate developers’ demands for state support.

Among the initiatives, the government has extended deadlines for existing projects by 20% and is now considering projects complete once they have reached 85% of construction – down from 90% previously. This is intended to allow developers to complete their projects at their own pace without risking fines.

Emaar Misr has become the first developer in Cairo to start selling units of one of its projects at the current USD exchange rate with a cap on exchange. This move is meant to mitigate the current currency crisis, hedge against rising construction costs, and safeguard the continuity of its projects.

The new contract requires the buyer to cover any increase in the USD rate if the local currency falls between EGP 35 and EGP 40. The report notes that more will be learned about the full ramifications of this choice and if others will follow.

Retail

In Q1 2023, Cairo saw the completion of around 19,000 sqm of retail space, bringing the total inventory to approximately 2.9 mn sqm However, there were suspensions of several retail projects and postponements of others due to an increase in construction prices and leasing challenges.

In spite of the suppressed purchasing power of consumers, the retail sector remains hopeful due to Egypt’s large population and its culture of embracing retail shopping and outings. The strip retail and community centers fared better than regional and super-regional malls due to being relatively more accessible and supported by the slightly stronger performance of the F&B segment.

In Q1 2023, average rental rates of primary malls remained stable, while secondary retail malls saw an average growth rate of 4%, and the average vacancy rate slightly reduced to 9%.

Some landlords have decided to sell less than 50% ownership of retail units to potential investors to generate short-term revenue while maintaining control over their tenant mix.

Hospitality

The current hotel stock in Cairo remained stable at 28,000 keys, and approximately 900 keys are expected to be completed in the next nine months of the year.

Hilton Worldwide plans to almost double its project portfolio in Egypt over the next three to five years, and it is set to open two of its hotels, including the first “Waldorf Astoria” luxury brand in Egypt in Cairo – Heliopolis this year.

The government is also working to boost the tourism sector by expanding and renewing its various tourist attractions, improving the country’s infrastructure, and enhancing its connectivity with multiple projects in the pipeline.

In addition, Egypt has announced a five-year tourist visa for over 180 nationalities to support its 2028 goal of reaching 30 mn tourists and boosting tourism in the country. The currency devaluation in Cairo is also attracting tourists to the country as they find it a relatively cheaper option compared to other destinations.

In February 2023, the occupancy levels in the capital registered at 74%, which is an increase from 62% during the same period last year, while average daily rates (ADRs) and revenue per available room (RevPar’s) jumped by almost 19% and 40% respectively, recording $135 and $100 over the same period.