-Successful developers adapt to reflect changes in society and sentiment to be competitive
Egypt, Cairo - Colliers International ('Colliers'), a global leader in real estate advisory services, today released its latest analysis on the Cairo real estate market. The publication, which examines the latest trends in Cairo's residential, retail, hospitality, healthcare and office segments, indicates that real estate remains resilient as an investment but new developments must reflect changes in society and sentiment to be competitive.
Against the backdrop of a slowly improving economic landscape, the recent devaluation of the Egyptian Pound has sparked concerns amongst price sensitive middle class residents, anxious about higher development costs feeding through into higher prices. On the other hand, the devaluation makes real estate investment a more attractive hedge against inflation for high income households, and has improved the purchasing power of foreign investors and Egyptians earning foreign income.
Commenting on the report, Ian Albert, Regional Director at Colliers International said: "The overall real estate landscape in Cairo is continuing to mature. An educated consumer base in a price sensitive market is demanding functional and efficient products. Converting an empty plot of land into either a residential or commercial or a mix of asset classes will no longer sell for a profit, despite an undersupplied market. What is needed are successful mixed-use developments that are area-specific and reflect their local, unique environment while incorporating the social infrastructure and facilities demanded by residents. Developers that recognise these factors can expect quicker sales and higher price points."
Key findings:
Residential
Approximately 50% of Cairo's population is between 15 and 40 years of age, a major demographic group that are driving demand for new housing in Egypt's capital city. At the same time, 52% of Cairo residents can afford residential units priced between $26,000 and $35,000. However, there is next to no new residential developments by the private sector being offered at these prices.
Affordability has become a major trend within the residential market. Developers who are able to offer affordable units, either through lower prices or extended payment plans, will be targeting end-users, more than investors, for whom qualitative elements, such as efficient floor plans and community feel, are important. Ultimately, developing more 'affordable' units is likely to translate into faster sales in a market that remains under supplied. While there is demand for affordable housing, there is also demand for efficient master planned communities/ livable communities that combine real estate asset classes at supportable ratios. The market is becoming more mature with an educated customer base seeking a live, work and play environment. Incorporating social infrastructure such as education and healthcare facilities are important as well.
· Cairo's population is increasing at 2% annually while housing supply is growing at 1%. In an already undersupplied market, demand for housing units continues to rise
· Cairo is traditionally a market consisting of larger (3/4 bedroom) units with limited smaller units. New developments should consider offering smaller units within the overall master plan to meet demand
· Colliers regional experience as consultants for a number of large scale mixed used masterplan projects suggests that a 25% price premium is the minimum that can be achieved by developing market driven asset classes coordinated at ratios supportable by the community/ area-specific.
Retail
The rise to prominence of Generations X & Y continues, with the retail sector's offering evolving to meet their needs. This means a greater lifestyle element to the retail offering, combining products and facilities such as cinemas, larger children play areas and family restaurants.
In the current environment consumers are looking for convenience, security and value for money, creating an opportunity for new retail formats in Cairo. Price sensitivities, the growth of small households, longer working hours and security concerns all play to the strengths of local convenience stores. Location remains key to the success of this offering.
In the high street space, the growth of local artisanal brands is a notable trend. These brands are highly prized by younger and more affluent residents and do not necessarily fit in with larger traditional shopping mall format, that relies on more established brands and outlets.
· 50% of Cairo's population are Generations X & Y, for whom shopping is a main entertainment activity
· Retail remains the 'glue' that holds mixed-use developments together. Together with, live, work and play elements of a mixed-use development, retail remains critical to building a community
Hospitality
There is an immediate opportunity for branded 3 star hotels in Cairo. The age and lack of refurbishment to the existing stock of 3 star hotels means that there is already a strong demand for new offerings from international brands, especially those familiar to visitors from the GCC. These 3 star hotels will be able to undercut existing 4 star hotels on price and drive higher volumes and occupancy. Lower costs, both investment and operating, make 3 star hotels a more attractive investment option, able to benefit from up turns as well as being more resilient to down turns.
There is also significant scope for an increase in service apartments in Cairo. Sitting between residential and hospitality segments, this accommodation type proves popular with larger groups of visitors, especially families, and relies on a base of long-term corporate tenants. Developers can look to combine these units with hotels to benefit from the shared back of house, facilities and management.
· 91% of Cairo's population is Generations X, Y & Z. These younger residents will demand a greater choice of lifestyle hotel options with modern designs, strong F&B concepts but at an affordable price
· 55% of Cairo's hotel visitors come from the GCC
· Currently only 500 high quality serviced apartments in Cairo compared to 30,000 in Dubai
Commercial
In the current environment, being flexible and tenant centric is important as a number of international tenants are increasingly looking to rent or sell existing offices in order to be able to shrink or expand their operations quickly. This includes the ability to efficiently change offering in the offices to suit the changing needs of businesses, as well as keep a tight grip on management costs.
While build quality remains a primary issue for decision makers, the availability of convenience F&B and good utilities management services are also important as landlords compete aggressively to target tenants.
· 350,000 m² of new commercial space is expected in the next 5 years
· Commercial developments combining international standard build quality, parking provisions, utilities and amenities including convenience retail with the development can achieve a 25-30% rental premium
Healthcare
The healthcare market of Egypt is struggling to keep pace with current domestic demand which is being further augmented as Egypt, more specifically Cairo has become a medical tourist hub for most of Africa and GCC countries. From a real estate perspective, demand and supply gap is clearly evidenced as healthcare operators and practitioners are converting residential and commercial buildings into healthcare facilities to meet market requirements and expand their operations.
Keeping in view the current healthcare offerings and projected population growth it is estimated that in the next 10 years Egypt would require 4.4 million m² of hospital space and 2.7 million m² of clinics space. This represents an investment of approximately EGP 40.5 billion in hospital space and EGP 17.8 billion in clinics space of the next decade (all costs are based in current market prices).
The market conditions present a unique proposition for investors seeking stable returns whist maintaining a low risk profile as hospital buildings are pre-let and clinics can be sold off plan.
-Ends-
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CONTACTS
Asia Hildebrand, Marketing & Communications Manager, +44 7481 606 767 asia.hildebrand@colliers.com
Inci Gecekusu, Associate Marketing & Communications Manager +971 55 763 3737 Inci.Gecekusu@colliers.com
© Press Release 2016
