Cairo’s office sector continues to see healthy levels of enquiries in Q3

Despite the prevailing economic conditions and the overall slowdown of the office sector, Cairo has been witnessing an upsurge in enquiries for office spaces.

This comes on the heels of ICT outsourcing companies seeking to operate in Cairo. This segment typically requires small office spaces ranging from 100 to 600 Sq. m. In addition to this, interest in larger offices from new market entrants has also increased compared to three months earlier.

In terms of leasing, while the flotation of the Egyptian pound has caused many landlords to lease their office spaces in USD rather than the local currency, occupiers are looking for more flexible landlords who are willing to do deals in the Egyptian pound. Furthermore, due to import restrictions, the limited availability of materials required for fit-out work has resulted in an overall increase in the cost of fitting out office spaces. As a result, many local tenants are avoiding leasing shell and core units due to the higher associated costs.

“With both landlords and occupiers unwilling to bear the full cost of office fit-outs, the market is experiencing a trend upturn, creating an opportunity for operators who are now opting to lease-out whole buildings at a discount, undertake fit-out work, furnish them, and then re-lease units to prospective tenants. However, unlike flexible offices, these are typically rented to tenants on a long-term basis,” said Ayman Sami, Country Head, Egypt at JLL.

Overall, the third quarter saw average asking office rents in the capital rising by 5% year-on-year to around USD 347 per sq. m. per annum, and over the same period, Cairo’s office vacancy rate increased to 10%, marking a slight increase from 8% in Q3 2021.

Around 95,000 sq. m. of office gross leasable area (GLA) was delivered in Q3 2022, bringing Cairo’s total office stock to almost 1.9 million sq. m. In addition to this, the last quarter is expected to see the completion of around 38,000 sq. m. of floor space.

Meanwhile, in the residential sector, over 5,000 residential units were handed over in the capital. This brought the total stock to around 242,000 units. Going into the final quarter, nearly 7,000 units are scheduled for completion.

A combination of rising inflation and currency devaluation in Egypt led to prices of some construction materials more than doubling in Q3 2022, compared to the corresponding period last year. Although this is causing delays to deliveries, many developers have ensured the continuation of construction work onsite regardless of such pressures.

That said, many developers have raised prices by double digits in the third quarter on both off-plan and completed properties. This is largely due to their effort to maximize returns in light of the recent difficult period they have been experiencing. Despite this, it is worth noting that developers continued to offer incentives to entice prospective buyers and investors.

When it comes to the secondary segment, much like the off-plan market, prices and rents remained on an upward course. Annually, sales prices increased by 7% in 6th October and 13% in New Cairo, respectively, while annual average rents increased by 7% in 6th October and 3% in New Cairo.

The sales market in the capital witnessed higher levels of activity in Q3 as buyers looked to hedge against inflation and currency devaluation by investing in real estate. This positive sentiment was noted across most developments in Cairo – however, it is important to highlight that buyers were being selective and mainly opted to purchase property from well-reputed developers with strong balance sheets.

The hospitality sector further turned corners with many developers and operators eyeing the segment for opportunities to develop and operate new hotels despite the future pipeline of hotel keys in Cairo being currently limited,

While there were no new hotel completions in Q3, almost 450 keys are expected to be delivered in the final three months of the year. North Coast served as the hub for new hotels in the quarter as owners & operators looked to capitalize on higher tourist visitations to the area during the summer months.

Owing to the lifting of COVID-19 related restrictions, Cairo’s occupancy rate saw a notable recovery in Q3, jumping to 61% between January and August 2022 from 41% in the corresponding part of last year. Over the same period, average daily rates (ADR) also soared by 69% to USD 144 – which further helped revenue per available room (RevPar) to more than double to USD 88.

Lastly, Orascom Pyramids Entertainment inaugurated the King Khufu visitor centre on the Giza plateau in September, which will be the main point of entry to the Giza Pyramids. The centre is a significant addition to the area, as it is slated to attract more tourists with its various high-end shopping and dining outlets in addition to highly trained tour guides.

From the perspective of the retail sector, the rising cost of goods & services has impacted consumers’ purchasing power and, in turn, retail sales. However, the current situation has unlocked a plethora of new opportunities in the fields of Fintech and PropTech propelling the emergence of start-up companies that offer online financial solutions to buyers.

The series of events and announcements over the year in Egypt have had a notable bearing on the sector. The new Letter of Credit (LC) on importers and the requirement to process all importing procedures solely through the Central Bank of Egypt (CBE) have made it difficult for retailers to bring in new stock to the country leading to them shelving expansion plans as they assess the direction of the market over the coming months.

In terms of performance, the vacancy rate in the third quarter remained stable at 11% when compared to Q3 2021 and average retail rents increased slightly by 1% for both primary and secondary malls.

Rents broadly remained stable this year as landlords worked on re-evaluating their market and pricing strategies in the context of the major reforms which have been implemented and have impacted the economy. Meanwhile, mall owners continue to offer CAPEX contributions and other incentives to retain and attract tenants.

With respect to projects, nearly 40,000 sq. m. of retail space was delivered in the third quarter, bringing the total stock to approximately 2.9 million sq. m. With the completion of some developments pushed to next year, nearly 116,000 Sq. m of GLA is expected to be completed by the end of 2022. The majority of the city’s upcoming regional and super-regional malls will be in New Cairo, while most of its strip and community malls will be in the west.