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Cairo real estate witnesses mixed performance

CAIRO, February 16, 2016

The real estate market in Cairo, Egypt, has witnessed mixed performance across various segments in 2015 which was impacted by currency devaluation, restrictions on capital outflows, construction delays, occupier vacancies and security concerns, said a report.

The residential completions remained somewhat lower than in recent years, on the back of continued construction delays across a number of developments, stated leading real estate firm JLL in its 2015 annual review.

The delays in project handover reflect both over-optimistic assumptions by developers and the slowdown in the level of pre-sales, it stated.

Ayman Sami, the head of Egypt Office at JLL Mena, said: "While the Cairo real estate market experienced robust growth over the first half of 2015, a combination of economic, political and security uncertainties have taken some of the steam out of this growth and the market has generally cooled over the past few months."

"As a result, we witnessed mixed performance across the office, residential, retail and hotel sectors during 2015," observed Sami.

"It is encouraging to note that the Egyptian government is proposing structural reforms, state incentives and major infrastructure spending to attract much needed foreign investment, which will eventually trickle down to the real estate market," he added.

According to JLL, the government support is contributing to a continuation of positive sentiment which is leading some developers to announce new projects.

Continued delays are expected in 2016 due to the unforeseen rise in construction costs as a result of the devaluation of the local currency and the restrictions imposed on the importing of construction materials, said the report.

The residential market in Cairo exhibited very mixed conditions during 2015. In general terms the sale market outperformed rentals but the pace of growth in both markets slowed in the final quarter, probably as a result of continued uncertainties around the value of the EGP, said JLL in the report.

The demand continues to be driven by families moving from central areas to less crowded satellite cities, it added.

On the retail market, JLL said it continues to transform, reflecting the changing society and continued positive sentiment.

Greater Cairo has witnessed a rapid growth in international standard shopping malls and more recently a focus towards high-end retailing, it stated.

Rentals in the retail market continued to increase throughout 2015, despite vacancies remaining fairly stable. This is due to the limited current availability of space in high quality super-regional and regional malls.

The prospects for continued rental growth are however diminishing as the market approaches a peak in its cycle. Factors combining to restrict future rental growth include the high level of additional supply, increasing inflation, a weaker Egyptian Pound, the shortage of FX reserves and restrictions on imported goods, it added.

Sami said he expects Greater Cairo’s organised retail market to remain undersupplied over the short to medium term.

On the hotel market, the expert said the occupancy rates increased by nione per cent compared to 2014, whilst ADR’s remained more constant throughout the year, increasing by just two per cent.

The key to the future performance of the hotel market will be continued security and the extent to which confidence around security issues returns following earlier incidents.  

"Maintaining security and allaying safety fears is therefore critical to the success of the recent campaigns by the Ministry of tourism to increase foreign visitation to Egypt," stated Sami.

On the office market scenario, JLL said the Central Cairo area saw relatively little activity during 2015 as most demand remained focused on the new satellite cities to the East and West.

The currency devaluation experienced over the second half of 2015, coupled with continued restrictions on capital outflows saw the office market turn more tenant favourable, with tenants negotiating rents down to counter the effects of the currency devaluation.

As a result, rents fell during the final quarter in New Cairo, by seven per cent in Sector 1 and four per cent in Sector 2 respectively, it stated.

According to JLL, the vacancy rates remained stable during 2015, finishing the year at around 26 per cent.
"Uncertainties regarding currency stability and the potential of stricter capital controls will probably limit new entrants to the market in 2016," he added.-TradeArabia News Service

 




Tags: real estate | Cairo |

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