The Cairo Real Estate Market - Q2 2019 JLL Research Report
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JLL Research Report
The Cairo Real Estate Market
Q2 2019
Cairo02 The Cairo Real Estate Market Q2 2019 The Cairo Real Estate Market Q2 2019 03
Cairo Market Summary
All sectors of the market remain in the upturn stage of the property cycle in Q2 2019.
Sale price performance of the residential sector indicates there has been renewed interest
in West Cairo, possibly boosted by newly announced projects by reputable developers.
However, rental rates appreciated further in the East. In turn, rents in the office market
remained flat in Q2 2019, while vacancy rates registered declines over the same period on
the back of an increase in stock. Retail rents however have increased in Q2 as the sector
remains the best performing segment of the market in Cairo. Meanwhile, the hotel sector
is witnessing a downturn as occupancy rates registered 72% in YT May 2019. The African
Cup of Nations is expected to drive tourism in the country during and following the
tournament between the months of June and July, while new projects in the pipeline are
expected to boost the industry’s momentum over the next 6-12 months.
Cairo - Prime Rental Clock
Office
Rental Rents Rental Rents
Growth Falling Hotel* Growth Falling
Slowing Residential Slowing
Residential
Hotel* Rental Rents Rental Rents
Retail
Growth Bottoming Growth Bottoming
Office
Accelerating Out Accelerating Out
Retail
Q2 2018 Q2 2019
* Hotel clock reflects the movement of RevPAR (Revenue per available room: ADR * occupancy rate)
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 recognize 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: JLL04 The Cairo Real Estate Market Q2 2019 The Cairo Real Estate Market Q2 2019 05
Office Residential
Supply Supply
No new additions were added to the office market in 1.5 Q2 2019 saw the delivery of 238 residential units in Palm 250
13
Q2 2019. This comes as the first quarter saw a limited Valley in West Cairo, with all these units being sold off- 47
delivery of just 2,800 sq m of GLA to the market. 0.16 plan. Higher levels of new supply are anticipated over
As such, the total office stock in Cairo remains at the remainder of 2019 and 2020 with 12,200 and 46,700 200
0.02
1,056,000 sq m of GLA. Supply is expected to increase, units respectively. 12
1.0
GLA (sq m million)
with the completion of nearly 23,000 sq m of office GLA
Units (thousand)
in late 2019 and a further 156,000 sq m of office space The New Urban Communities Authority is expected to 150
potentially completing next year. In reality, some of offer an 85-feddan plot that was recently reclaimed
these projects are likely to experience delays. from Al Marasem International for development in New
Cairo. The Authority has also formally given approval to 100
Parliament is planning to introduce a new rental law 0.5 the Six of October Development & Investment Company
before the parliamentary summer recess. The new law (SODIC) to convert agricultural land for housing
will amend previous legislations (particularly those of 0.94 0.97 1.0 1.05 1.06 1.08 1.24 purposes. Meanwhile, Talaat Moustafa Group (TMG) has 50 114 127 137 155 158 170 217
1977, 1981 and 1996) that govern the rental of all real unveiled a new flagship project called Privado, which is
estate asset classes across Egypt. The law is expected to located in their existing Madinaty development.
0 0
boost demand for office space in Cairo. Once caps are
2015 2016 2017 2018 Q2 2019 2020F 2021F 2015 2016 2017 2018 Q2 2019 2020F 2021F
removed with the passing of the law, existing tenants
in Central Cairo will find it more cost efficient to turn to
Current Supply Future Supply Current Supply Future Supply
grade A offices for a little more than what their current
landlords are charging.
Source: JLL Source: JLL
Performance Vacancy Rate (%) Performance Rate Index (% change)
Office rents in Central & Eastern Cairo remained stable 18% 6% Sale prices in the secondary market were relatively Rental - 6th of October
over the past year. However, rents are expected to positive during Q2 2019. On a quarterly basis, average
increase in Eastern Cairo over the next 12 months as prices of secondary properties witnessed greater Appartment Appartment Villa Villa
further progress is made in the New Administrative increases in 6th of October than those of New Cairo, 1% 6% -3% 17%
Q-o-Q Y-o-Y Q-o-Q Y-o-Y
Capital. While prime office rents in Cairo have Q2 2018 Q2 2019 although average prices remain higher in the East of the 12 month 12 month
increased by 17% over the past year, this reflects the City indicating that the former is catching up with the outlook outlook
improvements in Nile City Tower rather than a general 12 month latter due to the multiple launches which are having a Rental - New Cairo
increase in rents in Central Cairo. outlook negative impact on secondary sales.
Appartment Appartment Villa Villa
Western Cairo’s rental rates declined by 11% when Bolstered by Cairo’s shift to the East, villa rents in New -1% 28%
12 month
10% 40%
12 month
Q-o-Q Y-o-Y Q-o-Q Y-o-Y
compared to those of the same period last year, as Cairo performed strongly, increasing 40% Y-o-Y and 10% outlook outlook
businesses continue to prefer locations in Eastern Cairo Q-o-Q. While villas rents in 6th of October declined by
Average Rent (USD / sq m) Sale - 6th of October
because of the abundance of grade A buildings there, 3% Q-o-Q, they still registered annual increases of 17%.
ease of access to that part of the city, and proximity to However, apartment rentals have stagnated in both
other headquarters and educational institutions. New Cairo and 6th of October, registering 1% and -1% Appartment Appartment Villa Villa
respectively. 8% 7% 12 month 17% 21% 12 month
Q-o-Q Y-o-Y Q-o-Q Y-o-Y
We expect rents to improve in West Cairo over the outlook outlook
next 12 months, once the Grand Egyptian Museum
USD290 USD290 As sale prices reach record levels, some people have
and the Sphinx Airport are fully operational. This will shifted to the rental sector while others are moving into Sale - New Cairo
drive demand for office space from tourism service Q2 2018 Y-o-Y Q2 2019 temporary homes awaiting the delivery of their off-plan
0% Appartment
businesses in West Cairo. The average vacancy rate units—some of which are outside of Cairo (e.g. the New Appartment Villa Villa
12 month
across Cairo dropped to 6% in Q2 2019, due to high Administrative Capital). 1% -13% 12 month 4% -6% 12 month
demand amidst a shortage of new grade A supply.
outlook Q-o-Q Y-o-Y
outlook
Q-o-Q Y-o-Y
outlook
Source: JLL Source: JLL06 The Cairo Real Estate Market Q2 2019 The Cairo Real Estate Market Q2 2019 07
Retail Hotel
Supply Supply
Retail supply in Cairo witnessed one new addition in 2.5 0.01
Hotel supply in Cairo currently stands at 23,438 rooms. 25 0.14
0.21
Q2, with the completion of The Yard (15,000 sq m of The latest addition, Steigenberger Pyramids Cairo hotel
GLA) in Rehab City. Some 216,000 sq m of retail space with 138 rooms was handed over in June 2019. Two
is expected to enter the market in 2019, including the 2.0 projects of a total of 600 rooms previously announced 20
Open-Air Mall of Madinaty (which is already partially to be completed in 2019 have been put on hold.
GLA (sq m million)
open) and Almaza City Centre. Most of the future supply
Keys (thousand)
is in New Cairo, with very few announcements in 1.5 There are currently no further hotels scheduled to open 15
West Cairo. in Cairo in 2020 or 2021, although some have witnessed
construction delays and will likely be handed over in
At a time when Sheikh Zayed City’s current retail centers 1.0 those years. 10
are witnessing expansions, especially on the 26th of July
Corridor, New Cairo will still remain a prime location However, as the government targets around 40,000
for retail. As such, more developments are expected 0.5 1.48 1.62 1.90 2.10 2.13 2.34 2.35 hotel rooms in the first phase of the New Administrative 5 21.3 21.4 23.0 23.3 23.5 23.6 23.6
to shift towards the East as confidence in the New Capital (NAC), hospitality developers are expected
Administrative Capital’s success grows sturdier. to focus on establishing themselves there while
0 0
competition remains low and opportunities are wide
2015 2016 2017 2018 Q2 2019 2020F 2021F 2015 2016 2017 2018 Q2 2019 2020F 2021F
That convergence in the East has in turn provided (only one hotel is currently operating there, Al Masa
stimulus and competition for retailers as well as Royal Palace – New Capital).
Current Supply Future Supply Current Supply Future Supply
for developers and has been complemented by
appreciating retail performance and increased
consumer appetite in Cairo. Source: JLL Source: JLL
Performance Vacancy Rate (%) Performance Occupancy
Q2 2019 saw retail rents increase significantly by 7% 12% 15% Occupancy rates increased by 100 basis points to 71% 72%
versus Q2 2018. This increase is partially caused by register 72% in the YT May 2019 compared to 71% in the
increased interest in newer retail centers and strips YT May 2018. Average daily room rates (ADR’s) registered
in more prime locations, especially in East Cairo. USD 100 in the YT May 2019, which was 9% higher than
Meanwhile, retail vacancy rates increased on an annual Q2 2018 Q2 2019 that of the same period in 2018 (USD 92). As a result, YT May YT May
basis to 15% but remained stable when compared to Q1 revenue per available room (RevPAR’s) increased 2018 2019
2018. 12 month 10% over the same period. On the back of healthy 12 month
Y-o-Y
outlook performance metrics, we remain positive in our outlook outlook
100bp
Looking ahead, vacancy rates are expected to increase for the sector.
with the delivery of new supply over the remainder of
the year. This new stock will be matched with higher As Egypt will be hosting the African Cup of Nations
rental rates because those new market entrants will this year, sports tourism is expected to drive strong
Average Rent (% change) ADR (USD)
offer more luxurious, innovative and superior quality performance in the hotel sector in Q3 2019. Plans for
space in underserved locations and will be quasi Egypt to become a destination for religious tourism
monopolistic in those areas. The focus among both are gaining momentum. Arrangements to develop the
existing and new malls remains on enhancing the retail Trail of the Holy Family are under development and this
experience, with developers and mall owners continuing could possibility attract thousands of Christian pilgrims
to innovate by offering interactive concepts (such as
7% 7% to visit dozens of important Christian sites across
USD92 USD100
pop-up events and activities). Egypt. Traditional tourism is also expected to pick up
Q-o-Q Y-o-Y throughout 2020 with the simultaneous openings of the YT May Y-o-Y
9%
YT May
Grand Egyptian Museum and the nearby Sphinx Airport. 2018 2019
12 month 12 month
outlook outlook
Source: JLL Source: STR Global08 The Cairo Real Estate Market Q2 2019 The Cairo Real Estate Market Q2 2019 09
Property Clock Definitions
12 O’clock Office Residential The future supply of retail GLA is updated on
a quarterly basis and is based on primary
12 o’clock indicates a turning point towards Supply. The current supply of completed Supply. The current supply of completed research (physical inspections) and secondary
a market consolidation / slowdown. At this office GLA is based on a comprehensive list of residential buildings is based on residential research (discussions with developers).
position, the market has no further rental office buildings within certain areas in Cairo units in New Cairo and 6th of October, that
growth potential left in the current cycle, that have been handed over for immediate have been handed over for immediate The future supply of retail GLA is reflective
with the next move likely to be downward. occupation. This includes standalone office occupation. of projects actively under construction. It
buildings and office space within mixed-use excludes projects that have been announced,
buildings. Our project list excludes owner- Our definition of residential units includes where ground works have not started.
occupied and government office buildings. apartments, villas, and townhouses.
Performance. Weighted average rents (WAR)
The certain areas within Cairo we cover The future supply of residential units is are based on lease transactions from the JLL
include: Downtown Cairo, New Cairo, and West updated on a quarterly basis and is based Retail team. It reflects the rents across a basket
9 O’clock 3 O’clock Cairo. on primary research (physical inspections) of super regional and regional centres.
and secondary research (discussions with
9 o’clock indicates the market has reached 3 o’clock indicates the market has reached The future supply of office GLA is updated developers). WAR represents the top open market net rent
the rental growth peak. While rents may its point of fastest decline. While rents may on a quarterly basis and is based on primary expected for a standard in line unit shop of 100
continue to increase over coming quarters continue to decline for some time, the research (physical inspections) and secondary The future supply of residential units sq m in a basket of centers. Given the variation
the market is heading towards a period of rate of decrease is expected to slow as the research (discussions with developers). is reflective of projects actively under in rentals, we quote percentage change for
rental stabilisation. market moves towards a period of rental construction. It excludes projects that have retail rents rather than actual figures.
stabilisation. The future supply of office GLA is reflective been announced, where ground works have
of projects actively under construction. It not started. Vacancy rate is based on estimates from the
excludes projects that have been announced, JLL Retail team. It reflects the average rate
where ground works have not started. Performance. Data on residential across regional centres in Greater Cairo.
performance in Cairo is based on the asking
Performance. The weighted average rent prices and rents of a basket of selected Hotels
(WAR) is based on lease transactions from the residential units within selected areas.
6 O’clock JLL Offices and Business Space team. It reflects Supply. The current supply of hotel rooms
6 o’clock indicates a turning point towards
the average rates across a basket of Grade A Retail is based on data from the Egyptian Hotel
buildings. Association. It reflects hotel rooms that have
rental growth. At this position, we believe
Supply. The classification of retail centers been handed over for immediate occupation.
the market has reached its lowest point and
Grade A buildings are defined as high quality is based on the Urban Land Institute (ULI) Our project list includes all graded supply and
the next movement in rents is likely to be
office spaces, well located, with good access definition and based on their Gross Leasable excludes serviced apartments.
upwards.
to infrastructure and amenities including F&B Area (GLA):
and retail. The future supply of hotel rooms is updated
• Super Regional Malls have a GLA of above on a quarterly basis and is based on primary
The WAR of Grade A buildings represents the 90,000 sq m research (physical inspections) and secondary
top open-market, net rent (exclusive of service • Regional Malls have a GLA of research (discussions with developers).
charge and incentives) for a new lease that 30,000 - 90,000 sq m
could be expected for a notional office unit. • Community Malls have a GLA of The future supply of hotel rooms is reflective
10,000 - 30,000 sq m of projects actively under construction. It
Definitions
Vacancy rate is based on estimates from the • Neighborhood Malls have a GLA of 3,000 excludes projects that have been announced,
JLL Offices and Business Space team. It reflects - 10,000 sq m where ground works have not started.
the average rate across a basket of buildings. • Convenience Malls have a GLA of
This basket represents approximately 86% of less than 3,000 sq m Performance. STR performance data is
the current supply of quality office space in based on a monthly survey conducted by STR
Cairo. The current supply of completed retail GLA is Global on a sample of international standard
based on a comprehensive list of mall-based midscale and upscale hotels. Average Daily
retail in Cairo that have been handed over Rates (ADR) and Revenue Per Available Room
for immediate occupation. Our project list (Rev Par) are the key performance metrics.
excludes street retail and retail within mixed-
use buildings.Cairo Office 141, 14th Floor, Star Capital 2, Aly Rashed Street Heliopolis Cairo, Egypt Tel: +20 2 2480 1946 Fax: +20 2 2480 1950 For questions and inquiries about the Cairo real estate market, please contact: Craig Plumb Dana Salbak Mahmoud Elleissy Nassef Head of Research, MENA Research Associate, MENA Research Analyst, Egypt craig.plumb@eu.jll.com dana.salbak@eu.jll.com mahmoud.nassef@eu.jll.com With MEA offices in: Dubai, Abu Dhabi, Riyadh, Jeddah, Al Khobar, Johannesburg and Casablanca COPYRIGHT © JONES LANG LASALLE IP, INC. 2019. This report has been prepared solely for information purposes and does not necessarily purport to be a complete analysis of the topics discussed, which are inherently unpredictable. It has been based on sources we believe to be reliable, but we have not independently verified those sources and we do not guarantee that the information in the report is accurate or complete. Any views expressed in the report reflect our judgment at this date and are subject to change without notice. Statements that are forward- looking involve known and unknown risks and uncertainties that may cause future realities to be materially different from those implied by such forward-looking statements. Advice we give to clients in particular situations may differ from the views expressed in this report. No investment or other business decisions should be made based solely on the views expressed in this report.
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