Cairo. Real Estate Market Overview

Transcription

1 Cairo Real Estate Market Overview Q3 2013

2 Macroeconomic overview Indicator (f) Egypt Population (millions) Real GDP Growth (Y-o-Y) 5.1% 1.8% 2.2% 2.3% Consumer Price Index (% change) 11.3% 10.1% 7.1% 11.1% Greater Cairo Population (millions) Sources: IHS Global Insights, July 2013; CAPMAS, August 2013; Cairo Statistics Center,

3 Cairo the revolution continues Political unrest continues to inhibit economic recovery. Q3 saw continued political unrest and street protests with the overthrow of the Morsi government and the subsequent crackdown by the security forces to end the two 48 day long Muslim Brotherhood sit-ins, in Cairo s Nasr City and Giza s El-Nahda square. It remains unclear whether the new interim government will succeed in its objectives of creating greater political consensus and stimulating the Egyptian economy. The ongoing uncertainty continues to hamper activity in the real estate market. While day to day security has improved and most businesses in Cairo are open for business, there remains little clarity around the term political or economic outlook. The short term economic outlook has stabilised during Q3, with the value of the Egyptian pound remaining largely unchanged and the value of foreign reserves increasing (to USD 18.7 billion at the end of September) due in part to aid from Gulf nations. The IMF has placed discussions of the requested USD 4.8 billion loan on hold, due to recent events. This has placed further dependency on support from fellow Arab countries, with significant levels of new funding being provided to the interim government from GCC nations A total of USD 12 billion of additional financial aid has been provided to the new interim government from Saudi Arabia, the United Arab Emirates and Kuwait during Q3. Qatar has provided additional non financial assistance to Egypt by donating a tanker of Liquefied Natural Gas (LNG), to help ease Egypt s short term energy shortage. 6 Arabian Gulf companies have announced their intentions to list on the Cairo stock exchange. Saudi Arabia has offered to invest a total of US$5 billion in e-trade, financial services, justice and education in Egypt. Conversely, the US has placed $1.3 billion of military aid to Egypt on hold. As with Q2, activity in the real estate market has been relatively slow in Q3, as investors and occupiers remain cautious until further clarity emerges around the political situation in Egypt. The limited construction activity seen during Q3 is a result of the overflow of projects that were not completed in the first half of the year.

4 Talking points Q Despite some signs of stabilisation during Q3, the Egyptian economy remains under pressure from the continued political instability. IHS Global Insights has reduced its forecast of real GDP growth for 2013 from 2.7% in January to just 2.1% in September. Debt levels have continued to increase, with Egypt currently having USD 45 billion of foreign debt, which the interim prime minister has referred to as safe. The Central Bank estimates Egypt s domestic debt has increased in Q3 to around USD 208 billion. More encouragingly, Foreign Direct Investment (FDI) has increased to USD billion in Q3, up from less than USD 195 million in Q2. The European Union (EU) invested a total of USD 955 million of which the United Kingdom contributed USD 586 million. The increase in FDI represents a vote of confidence in the interim government from overseas investors. The interim government has made progress on a number of the key reforms required to stimulate the Egyptian economy.: - A committee has been put in place to implement minimum wages across Egypt. - The interim government is planning to extend the current real estate tax to the industrial and hospitality sectors (it currently only applies to the residential sector. 25% of the revenue received from this tax will be used for urban renovation projects with a further 25% allocated for the improvement and development of slum areas. Two new electrical power plants in the city of Banha will commence operation at the beginning of November, producing around 750 megawatts of energy. This represents the next stage of the USD 635 million project to increase Egypt s power production. TUI (a German travel agency) have resumed their trips to Egypt, indicating a return of confidence in the tourism industry. The New Urban Communities Authority continues to implement a USD 2.85 billion project to build 1 million homes on 250,000 land plots. These apartments will be priced between EGP 250 and 350 per sq m, a lot lower than other social housing units available at the moment. Work has already started on about 30,000 of these land plots. The government continues to support the expansion of the industrial sector of the economy, providing USD 428 million to investors to develop industrial projects across 36 regions. 4

5 Cairo prime rental clock Q Q Rental Growth Slowing Rents Falling Rental Growth Slowing Rents Falling Rental Growth Accelerating Rents Bottoming Out Rental Growth Accelerating Rents Bottoming Out Retail Residential Office Hotel* *Hotel clock reflects the movement of RevPAR. Note: The property clock illustrates where Jones Lang LaSalle estimates each prime market is within its individual rental cycle as at end of the relevant quarter. Source: Jones Lang LaSalle 5

6 Cairo Office Market Overview

7 Total Stock (`000 sq m) Office supply and demand Total Grade A office space in Greater Cairo remains unchanged at approximately 819,000 sq m, with no new office stock completed in Q3. The majority of recent office development has been focused in urban settlements like New Cairo and 6 th of October, with both of these areas witnessing continued construction activity. All of the current projects are experiencing construction delays with most of the 127,000 sq m predicted for completion this year now likely to be held over to 2014 or beyond. With no new completions over the quarter, there has been little change in vacancies, which edged up slightly to 26% of all completed office stock. Despite the current political unrest, a number of global corporates are proceeding with their acquisitions and expansion plans. The timeline for these plans is however being extended or delayed in many instances. Jones Lang LaSalle is aware of approximately 90,000 sq m of potential demand for new office space. The majority of this current demand emanates from companies in the ITC and banking sectors. The largest active enquiry is from an ITC company looking to acquire 12,000 sq m in Smart Village. There are also two FMCG companies with significant active enquiries for space in New Cairo, and an Oil & Gas company seeking around 3,000 sq m in Maadi. The major transaction over Q3 was in Lake Plaza, New Cairo, where a banking company acquired 3,000 sq m of space for its own occupation. Office Stock ( ) 1,200 1, Completed Stock Future Supply 0 36% Source: Jones Lang LaSalle, Q3 2013; Note: GLA of Grade A Office Space Source: Jones Lang LaSalle, Q Office Space Demand by Sector 2% 7% 15% 6% 7% 22% 5% Oil & Gas Banking Insurance ITC Pharmaceutical Others FMCG Construction 7

8 Major office projects in Greater Cairo Smart Village CityStars Cairo Festival City Nile City Towers Downtown Mivida Capital Business Park Citadel Plaza New Cairo 6 th of October City Future Supply Existing 8

9 (USD / sq m / pm) Office rental performance With the continuing political instability several multinational companies have decided to relocate to new urban settlements that benefit from better security and accessibility. This has caused prime rental rates in central Cairo to decrease by 12% during Q3. Nile City Towers remains the city s prime office location. Asking rents in this project have decreased to USD 35 per sq m. Effective rents are somewhat lower still, with significant rent free periods being offered, depending on the space required. Prime Office Rents* (Q Q3 2013) Q Q Q Q Q Source: Jones Lang LaSalle, Q Similar to previous quarters, prime office rents have remained stable, in New Cairo Sector 1 and Sector 2 at USD 25 and USD 18 per sq m respectively. Asking rents are somewhat higher for Cairo Festival City (which falls within Sector 1) at USD 33 per sq m. Rents in West Cairo have also remained unchanged and are similar to those in New Cairo sector 2, standing at USD 18 per sq m. Office Rents in New Urban Areas (Q3 2013) Providing there is no deterioration in the political situation, prime rents are expected to remain stable over the coming quarter, as there remains sufficient active demand to offset potential new supply. The ample supply of Grade B buildings may also contribute to the decline in the asking rents of Grade A buildings over the coming months. Many occupiers are now considering Grade B buildings to reduce their real estate costs. Leasing incentives such as rent free periods, landlord contributions to fit out and the provision of additional parking are expected to increase across all building grades in light of the limited tenant demand. Common Market Practices Parking New Cairo Sector 1 New Cairo Sector 2 West Cairo Source: Jones Lang LaSalle, Q slot per 100 sq m Service Charge USD 3 (Could go up to USD 8) Lease Terms 3 years, 5 years or 7 years Escalation Rate 5%, 7% Per cent or 10% 9

10 Office market summary Indicator Level Comment / Outlook Current Grade A Office Stock 819,000 sq m Most Grade A supply outside of Central Cairo with Grade A supply in CBD limited to one building Nile City Tower. Future Grade A Supply (2013) 127,000 sq m Further construction delays and cancellations could reduce this supply pipeline. Greater Cairo Grade A Vacancy 26% Increased during Q3 and likely to increase further during the remainder of Grade A rents in: Central Cairo New Cairo, Sector 1 New Cairo, Sector 2 West Cairo USD 35 / sq m / month USD 25 / sq m / month USD 18 / sq m / month USD 18 / sq m / month Prime rents have declined in Q3 but are expected to remain stable over the remainder of

11 Cairo Residential Market Overview

12 No. of units ('000) Residential supply and demand The completion of around 3,000 units in this quarter brings the total stock of residential units in areas monitored by Jones Lang LaSalle to approximately 81,300 units. The largest portion of these deliveries has been in New Cairo (2,100), where Madinaty (Talaat Mostafa Group), has delivered nearly 1,000 apartment units in the third phase of the project. Other deliveries in New Cairo included Lake View (100 villas in the projects fourth phase and 96 villas in phase five), Rehab 2 (500 villa unit), Bellagio (335 villas) and High Land (60 apartments). Deliveries in New Cairo this quarter have been equally split between villa units and apartments. There were a total of 1,031 villa s and 1,060 apartments delivered. In 6 th of October, the quarter has witnessed the delivery of 300 apartments in Orascom s Haram City 3 project and 80 apartments in New Giza 2. Other completions in 6th October have included Pyramids Walk (220 villas). Palm Hills Development and SODIC have also contributed to the delivery of units in this quarter, with Casa delivering 78 apartment units and Forty West (17 apartments). Dar Al Handasar plan to release the rest of the Forty West project between Q until Q SODIC have announced new phases in both its Eastown and Westown projects (including 200 apartment and duplex units in Eastown (phase 4), but no timings or prices have yet been set for most of the new projects. 100 units had been planned to complete in the Algeria project this quarter, but none of these were delivered, with these units now scheduled to complete in Q4.. Residential Stock ( ) Completed Stock Future Supply Source: Jones Lang LaSalle, Q

13 Major residential projects in Greater Cairo Westown Cairo Festival City Mivida Katameya Heights Palm Hills October New Giza New Cairo DreamLand Kenana 6 th of October City Future Supply Existing 13

14 USD per sq m USD per sq m Residential performance Sale Prices Average asking prices across the Cairo residential market have remained largely unchanged during Q3. The average sales price for apartments in New Cairo has remained stable, while villa prices have decrease by 5% (from USD 1,741 per sq m in Q2 to USD 1,659 per sq m in Q3) due to the current political unrest in Egypt. A similar trend was witnessed in 6 th of October with very little change in the sale price of either apartments or villas in Q3. Rental Performance Apartment rents have now stabilised as landlords have accepted they can not keep increasing rentals when the demand is no longer increasing. Asking rents for villas in selected projects in New Cairo have increased significantly during Q3, reflecting a growing preference from some families to rent rather than purchase larger homes until the political situation stabilises. The average asking rents for apartments in 6th of October has not changed, while villa rents have increased by 6% to USD 3,167 per month during Q3. Sales Price (Q1 Q2 2013) 2,000 1,800 1,600 1,400 1,200 1, th of October Source: Jones Lang LaSalle Q Sale prices USD per sq m Dollar Value calculated at EGP 6.97 Rental Rates (Q1-Q2 2013) 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, Apartment Villa Apartment Villa New Cairo Apartment Villa Apartment Villa 6th of October New Cairo Source: Jones Lang LaSalle Q * Rentals relate to a basket of two bedroom apartment and three bedroom villas in each location. 14

15 Residential market summary Indicator Level Comment / Outlook Current Stock Future Supply (2013) Sales Performance (USD / SQ M) New Cairo Villa Apartment 6 th of October Villa Apartment Rental Performance (USD / Month) New Cairo 3 bedrooms Villa 2 bedrooms Apartment 6 th of October 3 bedrooms Villa 2 bedrooms Apartment 81,300 units 16,900 Units 1,659 1,125 1, ,047 1,109 3, Based on a sample of 100 gated compound projects in New Cairo and 6 th of October Further construction delays and cancellations could reduce this supply pipeline. Rentals are increasing for villas in New Cairo while apartment rents remain largely unchanged. 15

16 Cairo Retail Market Overview

17 GLA in ('000 sqm) Retail supply and demand The current political unrest has caused delays in the opening of any new malls. As with the first half of 2013, there were no deliveries witnessed in Q3, leaving stock stable at 773,000 sq m. Cairo Festival City and The District were both due to open by the end of Q3 2013, but due to the current situation in Egypt they have been delayed to Q The KidZania outlet in Cairo Festival City is now open, with the rest of the mall scheduled to open its doors in the last week of November. Other projects currently scheduled for 2013, including Emerald Mall and Porto Cairo Mall, are likely to be delayed until International retail brands have not retreated from the Egyptian market as a result of the current situation and are still willing to open more stores, as evidenced by Victoria s Secret entrance into the market in Q3. Food and beverage brands have reported normal trading conditions, while fashion and apparel stores have seen a sharp decline in sales in Q3. Retail Stock ( ) 1,600 1, , , , Completed Stock Future Supply Source: Jones Lang LaSalle, Q

18 Major malls in Greater Cairo Sun City Mall Dandy Mall CityStars Cairo Festival City Mall of Arabia Maadi City Centre New Cairo Mall of Egypt 6 th of October City Future Supply Existing 18

19 Composition of retail supply Cairo currently has just 773,000 sq m of space in organized retail malls. The proportion of total retail space in malls will increase in the future as new community and regional malls are delivered. At the moment, the retail market of Greater Cairo is considered undersupplied. With the significant pipeline of projects being delivered over the next few years, it is however foreseen that future supply will more closely match demand. Around 58% of the total mall based retail stock in Cairo is in centres over 30,000 sq m (regional and super regional malls), with the remaining 42% spread across numerous smaller centres. Breakdown of GLA by Type Major Retail Centres in Greater Cairo Name Type of Retail Centre GLA (sq m) CityStars Super Regional 150,000 Mall of Arabia Super Regional 180,000 Maadi City Centre Regional 33,500 Dandy Mall Regional 65,000 Golf City Mall Regional 40,000 Sun City Mall Regional 60,000 4% 3% 9% Katameya Downtown Community 30,000 Source: Jones Lang LaSalle Neighbourhood 28% 26% Community Regional Super Regional Type of Centre Range of GLA (sq m) Convenience Less than 3,000 Boutique Power Centre Neighbourhood 3,000 10,000 Community 10,000 30,000 Regional 30,000 90,000 30% Source: Jones Lang LaSalle Q3, 2013 Super Regional 90, ,000 Source: Urban Land Institute (ULI) 19

20 Retail rentals Average quoting rents for prime line stores in regional & super regional malls in Greater Cairo have decreased by between 7% and 15% over the past quarter and currently range from USD 780 to USD 1,320 per sq m per annum. Average Quoting Rental Rates: Regional / Super Regional Centres in Greater Cairo As base rentals remain lower than pre revolution levels, some centres have been able to achieve higher returns through turnover rentals over and above base rental levels. While there is continued interest from both international and local market entrants, this is unlikely to convert into pressure for rental increases during Line Shops (USD / sq m / per annum) USD 780 USD 1,320 Source: Jones Lang LaSalle Retail rental rates have decreased as owners have applied more aggressive strategies to retain existing tenants and attract new ones in the face of soft demand and increasing supply. A number of landlords have converted their rental leases from US$ into EGP s, or have agreed to cap the US Dollar for new leases to attract and retain tenants. To ensure demand is maintained as high as possible, a variety of incentives are also being offered, but this may soon change as the EGP begins to stabilise. 20

21 Retail sector summary Indicator Level Comment / Outlook Current Retail Space (GLA) 773,000 sq m With no new space completed in 2013, there remains a shortage of good quality retail space in Cairo. Future Supply 2013 / ,000 sq m There is a substantial supply which could potentially be added to the retail sector by the end of 2014, but not all of the proposed supply is expected to complete within this timeframe. Current Vacancy Level 26% Little change in Q3 but vacancies could rise later in the year due to the opening of new supply. Average quoting rents (line stores in regional / super regional malls) USD 780 USD 1,320 sq m per annum Retail rents have decreased as owners have taken measures to assist and support tenants. 21

22 Cairo Hotel Market Overview

23 No. of rooms No. of Hotels Millions of hotel nights Millions of tourists Hotel supply and demand Supply Late last quarter, Renaissance opened its first property in Egypt in New Cairo. This added a further 333 rooms, bringing the total to around 27,000 rooms across 160 properties. Le Merdien at Cairo Airport is expected to introduce a further 350 rooms to the supply in Q4. According to the Egyptian Hotel Association, there are a further 29 hotels offering 7,995 rooms currently under construction in Cairo. This data only includes projects with approved construction licences. Current Hotel Supply 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, Stars 4 Stars 3 Stars 2 Stars 1 Star Unclassified Rooms Sources: Egyptian Hotel Association Hotels Demand Despite recent political events, tourist arrivals have remained relatively stable compared to last year, remaining at around 7.2 million in the year to August. Arrival levels have however been significantly down in both July and August compared to Despite similar levels of tourist arrivals, the following graph shows that total room night demand has increased significantly compared to previous years, as the average length of stay has increased. Current Hotel Demand (July 2013 YTD) YTD 2012 YTD 2013 YTD No. of Nights No. of tourists Sources: CAPMAS

24 Major hotels in Greater Cairo Marriott InterContinental City Stars St. Regis Cairo New Cairo Nile Ritz Carlton Dusit Thani 6 th of October City Four Seasons Hilton Dreams Future Supply Existing 24

25 USD % Hotel performance Tourist arrivals remained relatively unchanged in the year to August (Jan to Aug 2013), despite the continued instability. Occupancy rates have started to recover and currently stand at 56% (YT August), recording an improvement on the 53% witnessed during the same period in Despite improving occupancies, average daily rates remain below levels seen before the revolution. Average daily rates in the year to August stand at USD 50, recording a marginal increase by 2% (from the same period in 2012). The growth in occupancies has resulted in a 7% increase in RevPAR levels in the year to August 2013, compared to the same period in Despite this improvement, RevPAR in Cairo hotels remains very low at just USD 28 in the year to August Hotel Performance (YT August ) YTD 2011 YTD 2012 YTD 2013 ADR Occupancy Source: STR Global 0 25

26 Hotel market summary Indicator Level Comment / Outlook Total number of Hotels 160 Includes all Hotels ( 5,4,3,2,1 Stars and Unclassified) Total number of rooms 27,333 Includes all Hotels ( 5,4,3,2,1 Stars and Unclassified) Occupancy (Year to August 2013) 56% Market is recovering from a very low base in 2011 and 2012 Average Daily Rate (ADR) (Year to August 2013) USD 50 Revenue per room (RevPAR) (Year to August 2013 ) USD 28 26

27 Definitions and methodology Residential: The supply data is based on our quarterly survey of 100 projects located in New Cairo and 6th of October, starting from Completed building refers to a building that is handed over for immediate occupation. Residential performance data is based on two separate baskets of projects, one for rentals and the other for sales of villas and apartments. The sales data relates to fully finished units, rather than those handed over in a shell and core condition. The two baskets cover projects in both New Cairo and 6th of October. Retail: Classification of Retail Centres is based upon the ULI definition as published in Retail Development, 4th Edition published by ULI. Prime Rent represents the quoted average rent for the top 5 shopping malls in greater Cairo. Retail supply relates to the Gross Lettable Area (GLA) within retail malls. Office: The supply data is based on our quarterly survey of the Grade A office space located in Downtown, New Cairo and West Cairo. Completed building refers to a building that is handed over for immediate occupation. Prime Office Rent represents the top open market rent that could be expected for a notional office unit of the highest quality and specification in the best location in a market, as at the survey date (normally at the end of each quarter period). The Prime Rent reflects an occupational lease that is standard for the local market. It is a face rent that does not reflect the financial impact of tenant incentives, and excludes service charges and local taxes. Hotels: Hotel room supply is based on existing supply figures provided by Egyptian Hotel Association as well as future hotel development data tracked by Jones Lang LaSalle Hotels. Room supply includes all graded hotel supply but excludes serviced apartments. STR performance data is based on a sample of internationally branded midscale and upscale hotel properties. 27

28 Contacts: Ayman Sami Head Egypt Dana Williamson Head of Agency MENA Andrew Williamson Head of Retail MENA Chiheb Ben-Mahmoud Head of Hotels & Hospitality MENA Marwan Sery Research Manager Egypt Craig Plumb Head of Research MENA twitter.com/ jllmena youtube.com/ joneslanglasalle linkedin.com/company/ jones-lang-lasalle joneslanglasalleblog.com/ EMEAResearch mena.com COPYRIGHT JONES LANG LASALLE IP, INC This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without the prior written consent of Jones Lang LaSalle IP, Inc. The information contained in this publication has been obtained from sources generally regarded to be reliable. However, no representation is made, or warranty given, in respect of the accuracy of this information. We would like to be informed of any inaccuracies so that we may correct them. Jones Lang LaSalle does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication.