Cairo Real Estate Market Overview Q Cairo

Transcription

1 Cairo Real Estate Market Overview Q Cairo

2 Cairo Market Summary Investor confidence restored The Cairo real estate market has started to stabilise following a period of volatility due to the devaluation of the currency and associated economic reforms over the past year. While conditions remain challenging (particularly in the retail sector), investors and developers are responding to the countrys resilience by continuing with existing projects and launching a number of new ones. Elevated interest from major investors and developers suggests the residential sector is close to the bottom of its current cycle, indicating a potential improvement in some areas in The residential market is supported by the further expansion plans of the satellite cities as they continue to absorb population growth and reduce densities in Central Cairo. The strength of underlying demand protects the residential sector from the full force of the economic pressures impacting the commercial markets. Increased inflation has reduced the purchasing power of consumers, resulting in developers offering more flexible payment plans and smaller unit sizes. are now considered to be close the bottom of the cycle with little further fall expected over the next 12 months. The Office market has seen little further decline in face rentals in Q3 (except in West Cairo) but this disguises a continued shift in market conditions in favour of tenants as more developers are offering occupiers fixed exchange rate caps and other incentives. Construction remains subdued due to the economic pressures affecting the business environment so there is little prospect of an oversupply situation in the office market. are however expected to soften further over the next 12 months. Retail is the sector currently facing the greatest negative pressures. While major developers continue to show confidence by investing in both the extension of existing and the delivery of new projects, retailers themselves remain squeezed by increased prices and falling consumer spending power. While advertised rents remained largely unchanged over the quarter, the market continues to move in tenants favour and this is likely to be further exacerbated by future supply and increasing vacancy levels over the next 12 months. The hotel and tourism industry is witnessing restored investor confidence that has resulted in further announced projects in Cairo and elsewhere across Egypt. Occupancy rates have improved markedly over the past year on the back of more competitive room rates and further government campaigns to boost both domestic and international tourism. Cairo Prime Rental Clock * Hotel clock reflects the movement of RevPAR Note: The property clock is a graphical tool developed by JLL to illustrate where a market sits within its individual rental cycle. These positions are not necessarily representative of investment or development market prospects. It is important to recognise that markets move at different speeds depending on their maturity, size and economic conditions. Markets will not always move in a clockwise direction, they might move backwards or remain at the same point in their cycle for extended periods. Source: JLL 2 Cairo Real Estate Market Overview Q Cairo Real Estate Market Overview Q

3 Office Office Supply Cairo s Grade A office supply remained stable at 958,000 sq m, with no new space completed in Q3. Future supply levels remain modest, with most of the new space currently underway located in East Cairo with around 60,000 sq m of space expected to be delivered in Cairo Festival City during Q Hot Topic Heliopolis Development Group announced its Cairo Capital Center located in sector 1 of New Cairo. The six story development will add around 7,750 sq m of prime office spaces by the end of The announcement of new projects reflects the improved confidence in the office sector. Performance Negotiating power continues to be in favour of occupiers. While vacancy levels have remained stable during Q3 they are expected to increase with additional stock being added to the market later in the year. Developers have responded to the soft market conditions and the pressures faced by tenants by reducing rents in the first half of the year. While some developers have also offered exchange rate caps, the preference has been to decrease rents, at least Q for a short period, to attract and retain tenants. remained stable during the quarter, except for a decline in West Cairo Area. The banking sector remains the most active, with a number of banks expanding their administrative offices as well as seeking additional branches. This demand is partially due to government policies to promote financial inclusion. Given their strong balance sheets some Q banks are seeking to purchase their headquarters, while renting remains the preferred tenure for branch operations. Oil & Gas occupiers continue to expand, given increased local exploration activity. Further exploration agreements between foreign and local entities are expected to generate additional demand into % 14 % Current Supply (2014 Q3 2017) Future Supply ( ) Cairo rents / per sq m Vacancy Rate Central Cairo West Cairo New Cairo (S1) New Cairo (S2) USD 420 USD 240 USD 324 USD 276 Q Q Q Q USD 300 USD 200 USD 300 USD 264 Q Q Q Q % -17% -7.4% -4.3% 2016 / month 4 Cairo Real Estate Market Overview Q Cairo Real Estate Market Overview Q

4 Residential Residential Supply There were no new additions to the gated community residential supply in Q3 2017, but construction continues on previously announced projects. The majority of the 33,000 units scheduled for delivery over the next 3 years are located in New Cairo. An increased number of projects are expected to be launched within the New Capital City, further enhancing the easterly shift in the growth of Cairo. Hot Topic Flexibility is the new competitive edge with developers now adjusting their product base and operation plans. Among the strategies being used to attract sales in an increasingly competitive market are extended payment plans and improved community facilities as developers seek to offer more value for money. Community creation has become a key means of ensuring a competitive edge to target those consumers seeking to maintain a dynamic lifestyle. While the long term direction of growth is to the East, a number of new projects or further stages of existing projects have also been announced across West Cairo, with many of these projects seeking to target those currently living within central Cairo. Fawaz Al Hokair s Marakez are adding further supply on the West side with its latest development Aeon. The luxurious gated community will include Courtyard Homes, its first phase adding 216 semi-finished apartments and 400 units, due for completion in Performance prices have generally increased over Q3 in USD terms, as the market has stabilised following the sharp decline on the back of the EGP devaluation. In EGP terms, sale prices have increased dramatically since the devaluation, with this being further fuelled by increased construction costs and the upsurge in residential demand as a safe haven investment during times of economic turbulence. This volatile period is Apartments New Cairo 11% now reaching an end, resulting in less dramatic shifts in pricing in the coming months. The rental market has stabilized in Q3, following its noticeable decline in rents earlier in the year in both New Cairo & 6th of October. Demand for rental properties continues to include local residents who are awaiting the delivery of their own apartment or villa. In an attempt to offset the effect of increases in prices in EGP terms, developers are offering more flexible payment terms and are resorting to smaller unit sizes. While good for potential purchasers, these extended payment terms (and the increase in the cost of development) have negatively impacted the profitability of developers. -32% -26% Current Supply (2014 Q3 2017) Future Supply ( ) 6th October 1% -32% -17% Villas New Cairo 2% -43% -63% 6th October 2.2% -45% -31% Note: The sharp decline in sales and rental prices is primarily due to the devaluation of the EGP against USD. All arrows relate to 12 month outlook 6 Cairo Real Estate Market Overview Q Cairo Real Estate Market Overview Q

5 Retail Retail Supply No additional retail projects were completed during Q3 with the total stock of mall based retail remaining at around 1.46 million sq m of GLA. Construction work continues on a number of major projects including Majid Al Futtaim s Almaza City Center (103,000 sq m) which is due to complete by Q Hot Topic Refurbishment and expansion of existing malls. While most of the recent additions to supply have resulted from new developments, the expansion of existing malls also continues. The Mall of Arabia is adding a further 40,000 sq m of GLA (along with a 34,000 sq m park expansion) due to complete in The expansion is aimed at redesigning the overall consumer mall experience and introducing further areas of outdoor dining and retail space. A number of small community and neighborhood retail projects have been announced within rapidly growing residential neighborhoods. Performance The retail sector has been negatively impacted by the recent economic turmoil, causing the majority of products to increase in price to consumers. Income levels of consumers has generally been below the spike in inflation, reducing their effective purchasing power. Retailers have been left with a difficult balance between increased costs and reduced spending levels. As would be expected in such circumstances, there has been a shift towards value for money and day to day convenience sales have become an increasingly important sector. Retailers are also facing the additional burden of having to add VAT to the price of many goods, which will in turn affect the purchasing appetite of their customers. Developers have reacted to these difficult market circumstances facing their tenants. Most owners have sought to maintain average asking prices, while offering more flexible payment terms and fixed exchange rate caps to their tenants. Although asking or advertised rents have remained stable over the past quarter, this disguises a general decline in effective rents as developers have sought more ways to support the performance of retailers and the long term sustainability of their centres. Vacancy levels in the retail sector have increased over the past year (from 15% to 18%) due to soft demand and the completion of additional retail supply in Q Vacancies are expected to increase further as new supply enters the market over the next 12 months. Q Q % 18 % Current Supply (2014 Q3 2017) Future Supply ( ) Change in Average Vacancy Rate 12-month month Note: The sharp decline in rental prices is primarily due to the devaluation of the EGP against USD. 8 Cairo Real Estate Market Overview Q Cairo Real Estate Market Overview Q

6 Hotel Hotel Hot Topic Investment opportunities continue to surface on the back of the EGP devaluation, which has made Egypt a more lucrative market. The government recognises the importance of the tourism sector and has launched a number of initiatives to improve security and increase investment (with a new investment law to ease of cost of doing business in Egypt and restore investor confidence). The Ministry of Tourism continues to promote domestic travel by supporting local investment in the hospitality and leisure developments through advertising campaigns. Investors and operators have responded with increased announcements of plans to both refurbish existing properties and develop new ones. Supply No completions took place during the third quarter, with the total hotel stock remaining at approximately 22,500 rooms. The Cairo Pyramids Hotel (formerly Movenpick) has been renovated and rebranded as a Steinberger property, increasing the presence of the group in the country. The next major completion will be the Sheraton Giza, which is planning its grand opening in October The opening of the St Regis hotel has however been delayed until early Another major project due to open in 2018 is the twin tower Hilton overlooking the Nile in the residential area of Maadi. This project is being developed by SECON and is expected to add 256 hotel rooms as well as a range of serviced apartments to the market in the first half of A total of 2,700 additional hotel rooms is expected to complete within Cairo over the next three years. Talaat Mostafa Group (TMG) is currently undertaking several hospitality projects including East Cairo s Madinaty Four Seasons. Outside of Cairo, TMG is developing a project in the Alamein area and is undertaking the expansion of the existing Four Seasons resort at Sharm El Sheikh. This USD380 million expansion will add a further 800 rooms to the resort, bringing the total to 1,400 rooms. Current Supply (2014 Q3 2017) Future Supply ( ) Performance Demand continued to rise throughout Q3, resulting in occupancy rates growing from 59% last year to 71% YT August, as Egypt has become a more competitive destination. The downside of the devaluation of the EGP is that ADR levels have decreased by 11% from USD 106 in YT August 2016 to USD 95 in the same period of ADR (USD) Occupancy (%) YT August % YT August 2016 YT August 2017 USD 106 USD 95 YT August % 12-month 12-month 10 Cairo Real Estate Market Overview Q Cairo Real Estate Market Overview Q

7 Definitions 9 O clock indicates the market has reached the rental growth peak, while rents may continue to increase over coming quarters the market is heading towards a period of rental stabilisation. 12 O clock Indicates a turning point towards a market consolidation / slowdown. At this position, the market has no further rental growth potential left in the current cycle, with the next move likely to be downwards. 3 O clock indicates the market has reached its point of fastest decline. While rents may continue to decline for some time, the rate of decrease is expected to slow as the market moves towards a period of rental stabilisation. Office The supply data is based on our quarterly survey of the Grade A office space located in Downtown, New Cairo and West Cairo. The historic supply data has been revised since the Q4 report to reflect updated information. Completed building refers to a building that is handed over for immediate occupation. Prime Office Rent represents the top open-market rent (exclusive of service charge, tenant incentives & local taxes)that could be expected for a notional office unit of the highest quality and specification in the best location in a market, at the survey date. Vacancy rate is based on estimates from the JLL Agency team for a basket of leading office buildings. This basket represents around 86% of the current supply to quality office space in Cairo. Retail 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 rental performance is based on 3 bedroom villas and 2 bedroom apartments. The data relates to primary sales of units in a shell and core condition (directly from the developer) and excludes sales in the secondary market and those of units handed over in a fully fitted condition. Hotel 6 O clock indicates a turning point towards rental growth. At this position, we believe the market has reached its lowest point and the next movement in rents is likely to be upwards. Classification of Retail Centres is based upon the ULI definition and based on their GLA: - Super Regional Malls have a GLA of above 90,000 sq m - Regional Malls have a GLA of 30,000-90,000 sq m - Community Malls have a GLA of 10,000-30,000 sq m - Neighborhood Malls have a GLA of 3,000-10,000 sq m - Convenience Malls have a GLA of less than 3,000 sq m Prime Rent represents the quoted rent for top end line stores within the top 5 super regional and regional malls in greater Cairo. Vacancy rate is based on estimates from the JLL Retail team, and represents the average rate across standard in line unit shops at regional malls. Hotel room supply is based on existing supply figures provided by the Egyptian Hotel Association as well as future hotel development data tracked by JLL Hotels. Room supply includes all graded hotel supply and excludes serviced apartments. STR performance data is based on a sample of internationally branded midscale and upscale hotel properties. A lot of properties closed during the revolution, in addition to removing all the floating hotels which led to the decline in overall supply figures. 12 Cairo Real Estate Market Overview Q Cairo Real Estate Market Overview Q

8 Cairo For questions and inquires about the Cairo real estate market, please contact: Ayman Sami Dana Williamson Andrew Williamson Marko Vucinic Craig Plumb Habiba Mostafa