Cairo Real Estate Market Overview - Q3 2013

Cairo Real Estate Market Overview
Q3 2013
Macroeconomic overview
Indicator
2010
2011
2012
2013 (f)
Population (millions)
81.1
82.5
84
85.4
Real GDP Growth (Y-o-Y)
5.1%
1.8%
2.2%
2.3%
Consumer Price Index (% change)
11.3%
10.1%
7.1%
11.1%
19.5
20.0
20.7
20.8
Egypt
Greater Cairo
Population (millions)
Sources: IHS Global Insights, July 2013; CAPMAS, August 2013;
Cairo Statistics Center, 2013
2
Cairo – the revolution continues
Political unrest continues to inhibit economic recovery.
Q3 saw continued political unrest and street
protests with the overthrow of the Morsi
government and the subsequent crackdown
by the security forces to end the two 48 day
long Muslim Brotherhood sit-ins, in Cairo’s
Nasr City and Giza’s El-Nahda square.
It remains unclear whether the new interim
government will succeed in its objectives of
creating greater political consensus and
stimulating the Egyptian economy.
The ongoing uncertainty continues to hamper
activity in the real estate market. While day to
day security has improved and most
businesses in Cairo are open for business,
there remains little clarity around the term
political or economic outlook.
The short term economic outlook has stabilised
during Q3, with the value of the Egyptian
pound remaining largely unchanged and the
value of foreign reserves increasing (to USD
18.7 billion at the end of September) due in
part to aid from Gulf nations.
The IMF has placed discussions of the
requested USD 4.8 billion loan on hold, due to
recent events.
This has placed further dependency on support
from fellow Arab countries, with significant
levels of new funding being provided to the
interim government from GCC nations
Conversely, the US has placed $1.3 billion of
military aid to Egypt on hold.
As with Q2, activity in the real estate market
has been relatively slow in Q3, as investors
and occupiers remain cautious until further
clarity emerges around the political situation in
Egypt.
• A total of USD 12 billion of additional
The limited construction activity seen during
financial aid has been provided to the new Q3 is a result of the overflow of projects that
interim government from Saudi Arabia, the
were not completed in the first half of the year.
United Arab Emirates and Kuwait during Q3.
• Qatar has provided additional non financial
assistance to Egypt by donating a tanker of
Liquefied Natural Gas (LNG), to help ease
Egypt’s short term energy shortage.
• 6 Arabian Gulf companies have announced
their intentions to list on the Cairo stock
exchange.
• Saudi Arabia has offered to invest a total of
US$5 billion in e-trade, financial services,
justice and education in Egypt.
Talking points – Q3 2013
• Despite some signs of stabilisation during
Q3, the Egyptian economy remains under
pressure from the continued political
instability.
• The interim government has made
progress on a number of the key reforms
required to stimulate the Egyptian
economy.:
• IHS Global Insights has reduced its
forecast of real GDP growth for 2013 from
2.7% in January to just 2.1% in September.
- A committee has been put in place to
implement minimum wages across
Egypt.
• Debt levels have continued to increase,
with Egypt currently having USD 45 billion
of foreign debt, which the interim prime
minister has referred to as safe. The
Central Bank estimates Egypt’s domestic
debt has increased in Q3 to around USD
208 billion.
- The interim government is planning to
extend the current real estate tax to the
industrial and hospitality sectors (it
currently only applies to the residential
sector. 25% of the revenue received
from this tax will be used for urban
renovation projects with a further 25%
allocated for the improvement and
development of slum areas.
• More encouragingly, Foreign Direct
Investment (FDI) has increased to USD
1.074 billion in Q3, up from less than USD
195 million in Q2. The European Union
(EU) invested a total of USD 955 million of
which the United Kingdom contributed
USD 586 million. The increase in FDI
represents a vote of confidence in the
interim government from overseas
investors.
• TUI (a German travel agency) have
resumed their trips to Egypt, indicating a
return of confidence in the tourism industry.
• The New Urban Communities Authority
continues to implement a USD 2.85 billion
project to build 1 million homes on 250,000
land plots. These apartments will be priced
between EGP 250 and 350 per sq m, a lot
lower than other social housing units
available at the moment. Work has already
started on about 30,000 of these land plots.
• The government continues to support the
expansion of the industrial sector of the
economy, providing USD 428 million to
investors to develop industrial projects
across 36 regions.
• Two new electrical power plants in the city
of Banha will commence operation at the
beginning of November , producing around
750 megawatts of energy. This represents
the next stage of the USD 635 million
project to increase Egypt’s power
production.
4
Cairo prime rental clock
Q3 2012
Q3 2013
Rental Growth
Slowing
Rents
Falling
Rental Growth
Slowing
Rents
Falling
Rental Growth
Accelerating
Rents
Bottoming Out
Rental Growth
Accelerating
Rents
Bottoming Out
Retail
Residential
Office
Hotel*
*Hotel clock reflects the movement of RevPAR.
Note: The property clock illustrates where Jones Lang LaSalle estimates each prime market is within its individual rental cycle as at end of the relevant quarter.
Source: Jones Lang LaSalle
5
Cairo Office Market Overview
Office supply and demand
• Total Grade A office space in Greater Cairo remains unchanged at
approximately 819,000 sq m, with no new office stock completed in
Q3.
• The majority of recent office development has been focused in urban
settlements like New Cairo and 6th of October, with both of these
areas witnessing continued construction activity.
• Despite the current political unrest, a number of global corporates are
proceeding with their acquisitions and expansion plans. The timeline
for these plans is however being extended or delayed in many
instances.
• Jones Lang LaSalle is aware of approximately 90,000 sq m of
potential demand for new office space. The majority of this current
demand emanates from companies in the ITC and banking sectors.
• All of the current projects are experiencing construction delays with
most of the 127,000 sq m predicted for completion this year now likely • The largest active enquiry is from an ITC company looking to acquire
to be held over to 2014 or beyond.
12,000 sq m in Smart Village. There are also two FMCG companies
with significant active enquiries for space in New Cairo, and an Oil &
• With no new completions over the quarter, there has been little
Gas company seeking around 3,000 sq m in Maadi.
change in vacancies, which edged up slightly to 26% of all completed
office stock.
• The major transaction over Q3 was in Lake Plaza, New Cairo, where
a banking company acquired 3,000 sq m of space for its own
occupation.
Office Stock (2010 – 2014)
Completed Stock
Total Stock (`000 sq m)
1,200
127
1,000
Future Supply
50
800
6%
7%
Oil & Gas
15%
22%
2%
711
711
784
819
5%
947
0
36%
2011
2012
2013
Insurance
Pharmaceutical
Others
FMCG
200
2010
Banking
ITC
7%
600
400
Office Space Demand by Sector
Construction
2014
Source: Jones Lang LaSalle, Q3 2013; Note: GLA of Grade A Office Space
Source: Jones Lang LaSalle, Q3 2013
7
Major office projects in Greater Cairo
Smart Village
CityStars
Cairo Festival City
Nile City Towers
Downtown
Mivida
Capital Business Park
Citadel Plaza
New Cairo
6th of October City
Future Supply
Existing
8
Office rental performance
• With the continuing political instability several multinational companies
have decided to relocate to new urban settlements that benefit from
better security and accessibility. This has caused prime rental rates
in central Cairo to decrease by 12% during Q3.
• Nile City Towers remains the city’s prime office location. Asking rents
in this project have decreased to USD 35 per sq m. Effective rents
are somewhat lower still, with significant rent free periods being
offered, depending on the space required.
Prime Office Rents* (Q3 2012 – Q3 2013)
30
25
20
15
10
5
New Cairo Sector 1
New Cairo Sector 2
West Cairo
Source: Jones Lang LaSalle, Q3 2013
• Providing there is no deterioration in the political situation, prime rents
are expected to remain stable over the coming quarter, as there
remains sufficient active demand to offset potential new supply.
45
40
(USD / sq m / pm)
Office Rents in New Urban Areas (Q3 2013)
35
• The ample supply of Grade B buildings may also contribute to the
decline in the asking rents of Grade A buildings over the coming
months. Many occupiers are now considering Grade B buildings to
reduce their real estate costs.
30
25
20
15
10
5
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
Source: Jones Lang LaSalle, Q3 2013
• Similar to previous quarters, prime office rents have remained stable,
in New Cairo Sector 1 and Sector 2 at USD 25 and USD 18 per sq m
respectively. Asking rents are somewhat higher for Cairo Festival City
(which falls within Sector 1) at USD 33 per sq m. Rents in West Cairo
have also remained unchanged and are similar to those in New Cairo
sector 2, standing at USD 18 per sq m.
• Leasing incentives such as rent free periods, landlord contributions to
fit out and the provision of additional parking are expected to increase
across all building grades in light of the limited tenant demand.
Common Market Practices
Parking
1 slot per 100 sq m
Service Charge
USD 3 (Could go up to USD 8)
Lease Terms
3 years, 5 years or 7 years
Escalation Rate
5%, 7% Per cent or 10%
9
Office market summary
Indicator
Level
Comment / Outlook
Current Grade A Office
Stock
819,000 sq m
Most Grade A supply outside of Central Cairo with Grade A
supply in CBD limited to one building – Nile City Tower.
Future Grade A Supply
(2013)
127,000 sq m
Further construction delays and cancellations could reduce
this supply pipeline.
Greater Cairo Grade A
Vacancy
Grade A rents in:
Central Cairo
New Cairo, Sector 1
New Cairo, Sector 2
West Cairo
26%
USD 35 / sq m / month
USD 25 / sq m / month
USD 18 / sq m / month
USD 18 / sq m / month
Increased during Q3 and likely to
increase further during the remainder
of 2013.
Prime rents have declined in Q3 but
are expected to remain stable over the
remainder of 2013.
10
Cairo Residential Market Overview
Residential supply and demand
• The completion of around 3,000 units in this quarter brings the total
• SODIC have announced new phases in both its Eastown and
stock of residential units in areas monitored by Jones Lang LaSalle to
Westown projects (including 200 apartment and duplex units in
approximately 81,300 units.
Eastown (phase 4), but no timings or prices have yet been set for
most of the new projects.
• The largest portion of these deliveries has been in New Cairo (2,100),
where Madinaty (Talaat Mostafa Group), has delivered nearly 1,000
• 100 units had been planned to complete in the Algeria project this
apartment units in the third phase of the project.
quarter, but none of these were delivered, with these units now
scheduled to complete in Q4..
• Other deliveries in New Cairo included Lake View (100 villas in the
projects fourth phase and 96 villas in phase five), Rehab 2 (500 villa
unit), Bellagio (335 villas) and High Land (60 apartments).
• In 6th of October, the quarter has witnessed the delivery of 300
apartments in Orascom’s Haram City 3 project and 80 apartments in
New Giza 2.
• Other completions in 6th October have included Pyramids Walk (220
villas). Palm Hills Development and SODIC have also contributed to
the delivery of units in this quarter, with Casa delivering 78 apartment
units and Forty West (17 apartments). Dar Al Handasar plan to
release the rest of the Forty West project between Q4 2013 until Q4
2014.
Residential Stock (2011 – 2015)
160
19
140
No . of units ('000)
• Deliveries in New Cairo this quarter have been equally split between
villa units and apartments. There were a total of 1,031 villa’s and
1,060 apartments delivered.
27
120
17
100
80
60
40
20
67
74
81
2011
2012
2013
98
125
0
Completed Stock
2014
2015
Future Supply
Source: Jones Lang LaSalle, Q3 2013
12
Major residential projects in Greater Cairo
Mivida
Westown
Cairo Festival City
Katameya Heights
New Giza
Palm Hills October
New Cairo
DreamLand
Kenana
6th of October City
Future Supply
Existing
13
Residential performance
• Average asking prices across the Cairo residential market have
remained largely unchanged during Q3. The average sales price for
apartments in New Cairo has remained stable, while villa prices have
decrease by 5% (from USD 1,741 per sq m in Q2 to USD 1,659 per
sq m in Q3) due to the current political unrest in Egypt.
Sales Price (Q1– Q2 2013)
USD per sq m
Sale Prices
• A similar trend was witnessed in 6th of October with very little change
in the sale price of either apartments or villas in Q3.
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
Apartment
Rental Performance
6th of October
• Apartment rents have now stabilised as landlords have accepted they
can not keep increasing rentals when the demand is no longer
increasing.
• The average asking rents for apartments in 6th of October has not
changed, while villa rents have increased by 6% to USD 3,167 per
month during Q3.
Apartment
Villa
New Cairo
Source: Jones Lang LaSalle Q3 2013
• Sale prices USD per sq m
• Dollar Value calculated at EGP 6.97
Rental Rates (Q1-Q2 2013)
USD per sq m
• Asking rents for villas in selected projects in New Cairo have
increased significantly during Q3, reflecting a growing preference
from some families to rent rather than purchase larger homes until the
political situation stabilises.
Villa
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
Apartment
Villa
6th of October
Apartment
Villa
New Cairo
Source: Jones Lang LaSalle Q3 2013
* Rentals relate to a basket of two bedroom apartment and three bedroom villas in each location.
14
Residential market summary
Indicator
Level
Comment / Outlook
Current Stock
81,300 units
Based on a sample of 100 gated compound projects in New
Cairo and 6th of October
Future Supply (2013)
16,900 Units
Further construction delays and cancellations could reduce
this supply pipeline.
Sales Performance (USD / SQ M)
New Cairo
Villa
Apartment
6th of October
Villa
Apartment
Rental Performance (USD / Month)
New Cairo
3 bedrooms Villa
2 bedrooms Apartment
6th of October
3 bedrooms Villa
2 bedrooms Apartment
1,659
1,125
1,111
897
4,047
1,109
Rentals are increasing for villas in New Cairo
while apartment rents remain largely
unchanged.
3,167
867
15
Cairo Retail Market Overview
Retail supply and demand
• Cairo Festival City and The District were both due to open by the end of
Q3 2013, but due to the current situation in Egypt they have been
delayed to Q4 2013.
• The KidZania outlet in Cairo Festival City is now open, with the rest of
the mall scheduled to open its doors in the last week of November.
• Other projects currently scheduled for 2013, including Emerald Mall and
Porto Cairo Mall, are likely to be delayed until 2014.
• International retail brands have not retreated from the Egyptian market
as a result of the current situation and are still willing to open more
stores, as evidenced by Victoria’s Secret entrance into the market in Q3.
• Food and beverage brands have reported normal trading conditions,
while fashion and apparel stores have seen a sharp decline in sales in
Q3.
Retail Stock (2010 –2014)
1,600
291
1,400
GLA in ('000 sqm)
• The current political unrest has caused delays in the opening of any
new malls. As with the first half of 2013, there were no deliveries
witnessed in Q3, leaving stock stable at 773,000 sq m.
1,200
271
1,000
800
600
400
200
1,044
578
761
773
773
2011
2012
2013
0
2010
Completed Stock
2014
Future Supply
Source: Jones Lang LaSalle, Q3 2013
17
Major malls in Greater Cairo
Sun City Mall
Dandy Mall
CityStars
Cairo Festival City
New Cairo
Mall of Arabia
Maadi City Centre
Mall of Egypt
6th of October City
Future Supply
Existing
18
Composition of retail supply
•
•
Cairo currently has just 773,000 sq m of space in organized retail malls.
Major Retail Centres in Greater Cairo
The proportion of total retail space in malls will increase in the future as
new community and regional malls are delivered. At the moment, the retail
Name
Type of Retail Centre
market of Greater Cairo is considered undersupplied. With the significant
CityStars
Super Regional
pipeline of projects being delivered over the next few years, it is however
foreseen that future supply will more closely match demand.
Mall of Arabia
Super Regional
Around 58% of the total mall based retail stock in Cairo is in centres over
30,000 sq m (regional and super regional malls), with the remaining 42%
spread across numerous smaller centres.
Breakdown of GLA by Type
4% 3%
150,000
180,000
Maadi City Centre
Regional
33,500
Dandy Mall
Regional
65,000
Golf City Mall
Regional
40,000
Sun City Mall
Regional
60,000
Community
30,000
Katameya Downtown
9%
GLA (sq m)
Source: Jones Lang LaSalle
28%
26%
30%
Source: Jones Lang LaSalle Q3, 2013
Neighbourhood
Community
Regional
Super Regional
Boutique
Power Centre
Type of Centre
Convenience
Range of GLA (sq m)
Less than 3,000
Neighbourhood
3,000–10,000
Community
10,000–30,000
Regional
30,000–90,000
Super Regional
90,000–150,000
Source: Urban Land Institute (ULI)
19
Retail rentals
• Average quoting rents for prime line stores in regional & super
regional malls in Greater Cairo have decreased by between 7% and
15% over the past quarter and currently range from USD 780 to USD
1,320 per sq m per annum.
Average Quoting Rental Rates: Regional / Super Regional Centres in
Greater Cairo
Line Shops (USD / sq m / per annum)
• As base rentals remain lower than pre–revolution levels, some
centres have been able to achieve higher returns through turnover
rentals over and above base rental levels.
• While there is continued interest from both international and local
market entrants, this is unlikely to convert into pressure for rental
increases during 2013.
USD 780 – USD 1,320
Source: Jones Lang LaSalle
• Retail rental rates have decreased as owners have applied more
aggressive strategies to retain existing tenants and attract new ones
in the face of soft demand and increasing supply.
• A number of landlords have converted their rental leases from US$
into EGP’s, or have agreed to cap the US Dollar for new leases to
attract and retain tenants. To ensure demand is maintained as high
as possible, a variety of incentives are also being offered, but this
may soon change as the EGP begins to stabilise.
20
Retail sector summary
Indicator
Current Retail Space (GLA)
Future Supply 2013 / 2014
Level
Comment / Outlook
773,000 sq m
With no new space completed in 2013, there remains a shortage of good
quality retail space in Cairo.
522,000 sq m
There is a substantial supply which could potentially be added to the retail
sector by the end of 2014, but not all of the proposed supply is expected
to complete within this timeframe.
Current Vacancy Level
26%
Average quoting rents
(line stores in regional /
super regional malls)
USD 780 – USD 1,320
sq m per annum
Little change in Q3 but vacancies could rise later in
the year due to the opening of new supply.
Retail rents have decreased as owners have taken
measures to assist and support tenants.
21
Cairo Hotel Market Overview
Hotel supply and demand
Supply
Demand
• Late last quarter, Renaissance opened its first property in Egypt in New
Cairo. This added a further 333 rooms, bringing the total to around
27,000 rooms across 160 properties.
• Despite recent political events, tourist arrivals have remained
relatively stable compared to last year, remaining at around 7.2
million in the year to August.
• Le Merdien at Cairo Airport is expected to introduce a further 350 rooms • Arrival levels have however been significantly down in both July and
to the supply in Q4.
August compared to 2012.
•
According to the Egyptian Hotel Association, there are a further 29
hotels offering 7,995 rooms currently under construction in Cairo. This
data only includes projects with approved construction licences.
• Despite similar levels of tourist arrivals, the following graph shows
that total room night demand has increased significantly compared
to previous years, as the average length of stay has increased.
Current Hotel Supply
10,000
8,000
6,000
4,000
2,000
0
5 Stars
4 Stars
3 Stars
Rooms
Sources: Egyptian Hotel Association
2 Stars
1 Star
Unclassified
160
8
140
7
120
6
100
5
80
4
60
3
40
2
20
1
0
Millions of tourists
No. of rooms
12,000
Current Hotel Demand (July 2013 YTD)
Millions of hotel nights
14,000
50
45
40
35
30
25
20
15
10
5
0
No. of Hotels
16,000
0
2011 YTD
Hotels
2012 YTD
No. of Nights
2013 YTD
No. of tourists
Sources: CAPMAS
23
Major hotels in Greater Cairo
InterContinental City
Stars
Marriott
St. Regis Cairo
New Cairo
Nile Ritz Carlton
6th of October City
Dusit Thani
Four Seasons
Hilton Dreams
Future Supply
Existing
24
Hotel performance
• Tourist arrivals remained relatively unchanged in the year to August
(Jan to Aug 2013), despite the continued instability.
• Occupancy rates have started to recover and currently stand at
56% (YT August), recording an improvement on the 53% witnessed
during the same period in 2012.
• Despite improving occupancies, average daily rates remain below
levels seen before the revolution. Average daily rates in the year to
August stand at USD 50, recording a marginal increase by 2% (from
the same period in 2012).
• The growth in occupancies has resulted in a 7% increase in
RevPAR levels in the year to August 2013, compared to the same
period in 2012. Despite this improvement, RevPAR in Cairo hotels
remains very low at just USD 28 in the year to August 2013.
Hotel Performance (YT August 2011 – 2013)
54
60
53
50
52
40
30
%
USD
51
50
20
49
10
48
47
0
YTD 2011
YTD 2012
ADR
YTD 2013
Occupancy
Source: STR Global
25
Hotel market summary
Indicator
Level
Comment / Outlook
Total number of Hotels
160
Includes all Hotels ( 5,4,3,2,1 Stars and Unclassified)
Total number of rooms
27,333
Includes all Hotels ( 5,4,3,2,1 Stars and Unclassified)
Occupancy
(Year to August 2013)
56%
Average Daily Rate (ADR)
(Year to August 2013)
USD 50
Revenue per room
(RevPAR)
(Year to August 2013 )
USD 28
Market is recovering from a very low base in
2011 and 2012
26
Definitions and methodology
Residential:
Office:
• The supply data is based on our quarterly survey of 100 projects
located in New Cairo and 6th of October, starting from 2011.
• The supply data is based on our quarterly survey of the Grade A
office space located in Downtown, New Cairo and West Cairo.
• Completed building refers to a building that is handed over for
immediate occupation.
• Completed building refers to a building that is handed over for
immediate occupation.
• Residential performance data is based on two separate baskets of
• Prime Office Rent represents the top open–market rent that could
projects, one for rentals and the other for sales of villas and
be expected for a notional office unit of the highest quality and
apartments. The sales data relates to fully finished units, rather than
specification in the best location in a market, as at the survey date
those handed over in a shell and core condition.
(normally at the end of each quarter period). The Prime Rent reflects
an occupational lease that is standard for the local market. It is a
• The two baskets cover projects in both New Cairo and 6th of
face rent that does not reflect the financial impact of tenant
October.
incentives, and excludes service charges and local taxes.
Retail:
• Classification of Retail Centres is based upon the ULI definition as
published in Retail Development, 4th Edition published by ULI.
Hotels:
• Prime Rent represents the quoted average rent for the top 5
shopping malls in greater Cairo.
• Hotel room supply is based on existing supply figures provided by
Egyptian Hotel Association as well as future hotel development data
tracked by Jones Lang LaSalle Hotels. Room supply includes all
graded hotel supply but excludes serviced apartments.
• Retail supply relates to the Gross Lettable Area (GLA) within retail
malls.
• STR performance data is based on a sample of internationally
branded midscale and upscale hotel properties.
27
Contacts:
Ayman Sami
Head
Egypt
ayman.sami@jll.com
Dana Williamson
Head of Agency
MENA
dana.williamson@jll.com
Andrew Williamson
Head of Retail
MENA
andrew.williamson@jll.com
Chiheb Ben-Mahmoud
Head of Hotels & Hospitality
MENA
chiheb.ben-mahmoud@jll.com
Marwan Sery
Research Manager
Egypt
marwan.sery@jll.com
Craig Plumb
Head of Research
MENA
craig.plumb@jll.com
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