We have been very lucky here in Egypt and I would say that we have performed much better than the rest of the Middle East. The economy was predicted to grow at 5.5% per annum prior to COVID-19 and now it is forecasted to grow by 2%. Most countries would still love to see this growth during a normal year and I believe that it is the only country in the Middle East that is not furcated to go into recession this year.
What we also see here is that the real estate market is actually seen as a safe haven in times of uncertainty and a hedge against inflation. It behaves here more like a commodity than other more mature real estate markets where investors seek yield.
What’s your forecast for the sector performance in the short to medium term?
We expect all sectors to continue to perform strongly in the short to medium term. In the short-term retail, and particularly the food and beverage industry, will continue to be under some pressure but we expect this to alleviate by the fourth quarter of 2020. Residential price growth had already started to slow pre-COVID-19 but we expect prices will continue to grow this year and in 2021, in line with inflation. As mentioned previously, real estate in Egypt is actually viewed as a safe haven in times of uncertainty.
In the medium to long term, I am excited to see what will happen when the New Administrative Capital comes online fully and also if we will see renewed interest in Central Cairo once the ministries and embassies move out.
What do you think the Egyptian government should do to limit the economic impact of the virus on the sector?
I think that the government has already done a fantastic job in what has been incredibly difficult circumstances. The measures that they have taken to date, in particular the 3% reduction in interest rates, have given a boost to the real estate sector and their current efforts to reopen all sectors of the economy bode well for Egypt’s performance in the second half of the year.
How do you think COVID-19 will change consumers’ behavior?
We have seen a large increase in the time people spend online in Egypt which was something that we also witnessed during the 2011 and 2013 revolutions. With the lockdowns and curfews in place, this has become a refuge for most Egyptians, which has led to a dramatic increase in online purchases.
There is also a renewed interest in national travel destinations. With the airports shut, local tourism and local seafront real estate are seeing their own spike in sales. Areas such as the North Coast, Sharm el Sheikh, and Hurghada have always been popular destinations for tourism in the past, and now more consumers are looking at these areas for second homes.
Working from home (WFH) turned out not to be as bad as employers were afraid of, and some big multinationals may continue this trend to cut their office expenses. We have seen in other markets that this has already resulted in an increased demand for workspaces within residential properties.
Last but not the least, sustainability, experience, family, health, and living for the moment are all likely to become far more important to consumers and affect their life decisions moving forward.
What is the impact of COVID-19 on new real estate trends?
COVID-19 may just accelerate changes that we were witnessing previously at a slower rate such as increased flexibility in the workplace and WFH. Online retail is now expected to increase at an even greater rate than before. We will see even more of a focus on the customer experience as malls engage in creative activities to encourage footfall.
As highlighted in our recent “Impacts” global study examining key trends that will shape the future of the real estate, modern methods of construction and the adoption of smart building technologies will also play a key role in improving building performance in the COVID-19 era and also mitigate and help fight climate change impacts.
What do you advise developers in the upcoming period?
I would advise them to remain flexible and focus on quality and customer experience. The best developments will always be in high demand. In the office sector, fitted-out space will be in high demand as companies look to keep up-front capital expenditure to a minimum. We expect the logistics sector to take off over the next couple of years, just as it already has in Europe and the US, due to increased volumes of online shopping. I do worry that some retail developments may struggle due to poor management and lack of a cohesive strategy by the owners. Developers of retail projects must not underestimate the importance of marketing, events, and enhancing the overall experience that is required to make a destination successful and to continue to attract customers year after year.
How would you evaluate your experience in the Egyptian market so far?
It has honestly been a fantastic experience. The Egyptian real estate market operates very differently from its peers in the GCC, so it has been a steep learning curve for us. What is so exciting is that the scale of development here is something that we rarely see in the Middle East. It is indeed rare to find new cities being built to eventually be home to 6.5 million people or a single developer building a gated community for 800,000 residents.
Furthermore, the Savills Egypt office is our fastest growing business in the region, and you can see why, as the underlying demographics are so compelling. The country has a population of over 100 million and growing at 2% per annum, which means an additional 2 million people every single year. Prior to COVID-19, the economy was growing at 5.5% per annum, and even during these times, it is the only country in the region that is expected to see growth this year.
What’s Savills’ edge?
Savills has been around for over 150 years and is now one of the largest real estate companies in the world. We are able to draw from our experience in many other markets across a diverse range of assets and service lines to introduce our international best practices and processes.
Developers here want to attract international investors, tenants, and brands. Having Savills associated with a project strengthens its credibility and builds confidence that it will be professionally managed in a transparent manner while applying international best practices, policies, and procedures.
We are also able to draw on the expertise of our 39,000 employees operating from 600 offices around the world to give our clients creative solutions and advice that may have not been seen in Egypt previously.
What do you have in the pipeline?
It is difficult to say too much about what we have in the pipeline without speaking about contracts that are currently being negotiated and projects that have yet to be announced. What I can say is that we will be announcing some significant new property management instructions in the near future. We will also be announcing a master sales agreement with one of the largest developers in Egypt. We are in the process of recruiting some of the leading talents in Egypt in the areas of consultancy, project management, and residential agency.
In the next 12 months, we expect to double in size in terms of turnover and number of employees which is incredible if you think about what is going on in the rest of the world at the moment.
The novel coronavirus might have an inevitable direct impact on the real estate market yet it is likely to be short term, thanks to all the precautionary measures and the structural approach the Egyptian government is taking in facing the crisis.
By Julian Nabil
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