Daily News Egypt interviewed Ayman Sami, JLL’s Egypt director, to talk about the real estate market and the tenants’ tendencies in light of the current economic conditions.
OLX Properties Egypt recently published its first annual property report, focusing on user behaviour trends. The report has identified that the top 5 locations searched for on OLX are Nasr City, Maadi, Sheikh Zayed, Heliopolis, and Fifth Settlement. Can you explain us the clients’ demand for these areas?
The data indicates that there is migration from central Cairo and Giza to the outskirts, such as the Fifth Settlement and Sheikh Zayed, with residential supply there growing from 113,000 to 126,000 units between 2015 and 2016. There is still demand for areas like Heliopolis, Nasr City, and Maadi, as all those districts continue to host many multinational corporations.
What does the flotation of the pound mean for the office market?
The current market supply of administrative offices stands at 1,028 million square metres of grade A with an additional 70,000 square metres expected to be delivered during the other three quarters of 2017. 60,000 square metres out of those 70,000 square metres are supplied by Cairo Festival City.
Most of the grade A administrative offices are rented with dollars, and after the liberalisation of the exchange rate, the rent has doubled. Therefore, there are negotiations between tenants and owners to decrease the rent or put a limit to rent costs.q
What is the percentage of price increases for renting?
For example in central Cairo, rents per square metre decreased by 5.7%, but there were no shifts in West Cairo and New Cairo. I think the decrease is due to some attempts to stablise rent prices, such as putting limits to the dollar value, the current value, and other developers or owners decreasing the rent, as well as other ways, such as extending payment periods. However, some developers and tenants are in the stage of negotiations and the vision may be clear in the second quarter report. Due to the high value of the dollar, some tenants redirected their demand from grade A to grade B. Furthermore, some clients tended to buy buildings to equip administrative offices in these buildings.
What is the percentage of occupancy of administrative offices?
The percent of occupancy of grade A administrative offices is 73%, while it is expected to decrease in the coming period. We don’t have a 100% occupancy, which means that there is a sequential request on administrative offices and this happened in downtown and central Cairo.
What is the demand on the residential market?
The demand is still strong on residential units. The supply is 126,000 square metres with an expected 11,000 square metres to be added during 2017.
The secondary market was strong in the last period but it dropped for some time because people tended to trade in foreign currency. After that, primary sales witnessed a strong demand as clients preferred to invest their money.
What is the size of growth in the residential market?
The growth rate in residential is very high. From 2015 to 2016, the supply reached 13,000 units [113,000 square metres] with an 11% growth.
In the light of the dollar appreciation: what is the size of foreign demand on property?
After the EGP flotation, unit prices decreased by 50% if calculated in dollars, however, local prices increased by 30%. This explains the increase in demand by foreigners. Currently, real estate prices decreased by 35% to 45% according to dollar value.
What is the expected increase in unit prices?
It is about 25% to 30% y-o-y.
What is the supply of retail in the Egyptian market?
The retail supply in Q1 2017 is 1.6 million square metres, the occupancy rate is about 83% grade A. The most important event is the inauguration of Mall of Egypt. Last year, there was a problem in availability of foreign currency, but this year there is a problem related to increases in costs: sales decreased and there is great competition between local products and imported products, which may affect the retail market.
After the great demand that the Cityscape exhibition witnessed in late March, do you expect an increase in supply in residential units?
I expect an increase of 10% in supply.
Which sector is benefiting from the stablisation of the pound?
The residential and the hospitality sector are the ones that benefited the most from the stability of the pound. Therefore, hotel occupancy is close to 70% in Greater Cairo. Egypt is one of the cheapest tourism destinations, as the average daily rate is $89.
What is the most attractive area for offices?
New Cairo is still the most attractive areas for administrative offices.
Is there an imminent real estate bubble?
There is no bubble because the developer always reacts to the market and always reads the market needs.
What is your opinion regarding the New Administrative Capital project?
The New Administrative Capital is the natural extension for New Cairo, as there is no availability of lands in the latter. Besides that, launching projects in El Mostakbal City, which is the area closest to the New Administrative Capital, and demand on AinSokhna revives the demand on the New Administrative Capital.
What are the areas most in demand for second homes?
North Coast is more in demand than AinSokhna because Sokhna still needs development and more services, so prices at North Coast are increasing.
In your opinion, what are possible incentives to attract other Arab and foreign investments to the sector?
Dollar value in the country is an incentive besides other factors, such as the facilities provided by the government to start businesses and how easy it is to transfer profits outside of the country. And of course risk assessment.
What is your expectation for the real estate sector?
We will see a revival in the hotel sector in Greater Cairo. Retail will be the last sector to return to its real growth percentage due to the current economic circumstances. The office market will keep stable and will then start growing again.