TEN­ANTS NE­GO­TI­ATE TO DE­CREASE RENT COST AF­TER FLOTA­TION: JLL COUN­TRY DI­REC­TOR

Res­i­den­tial sup­ply grows at a high rate of 11%, says Sami

The Daily News Egypt - - Front Page - By Shaimaa Al-Aees

Daily News Egypt in­ter­viewed Ay­man Sami, JLL’s Egypt di­rec­tor, to talk about the real es­tate mar­ket and the ten­ants’ ten­den­cies in light of the cur­rent eco­nomic con­di­tions.

OLX Prop­er­ties Egypt re­cently pub­lished its first an­nual prop­erty re­port, fo­cus­ing on user be­hav­iour trends.The re­port has iden­ti­fied that the top 5 lo­ca­tions searched for on OLX are Nasr City, Maadi, Sheikh Zayed, He­liopo­lis, and Fifth Set­tle­ment. Can you ex­plain us the clients’ de­mand for these ar­eas?

The data in­di­cates that there is mi­gra­tion from cen­tral Cairo and Giza to the out­skirts, such as the Fifth Set­tle­ment and Sheikh Zayed, with res­i­den­tial sup­ply there grow­ing from 113,000 to 126,000 units be­tween 2015 and 2016. There is still de­mand for ar­eas like He­liopo­lis, Nasr City, and Maadi, as all those dis­tricts con­tinue to host many multi­na­tional cor­po­ra­tions.

What does the flota­tion of the pound mean for the of­fice mar­ket?

The cur­rent mar­ket sup­ply of ad­min­is­tra­tive of­fices stands at 1,028 mil­lion square me­tres of grade A with an ad­di­tional 70,000 square me­tres ex­pected to be de­liv­ered dur­ing the other three quar­ters of 2017. 60,000 square me­tres out of those 70,000 square me­tres are supplied by Cairo Fes­ti­val City.

Most of the grade A ad­min­is­tra­tive of­fices are rented with dol­lars, and af­ter the lib­er­al­i­sa­tion of the ex­change rate, the rent has dou­bled. There­fore, there are ne­go­ti­a­tions be­tween ten­ants and own­ers to de­crease the rent or put a limit to rent costs.q

What is the per­cent­age of price in­creases for rent­ing?

For ex­am­ple in cen­tral Cairo, rents per square me­tre de­creased by 5.7%, but there were no shifts in West Cairo and New Cairo. I think the de­crease is due to some at­tempts to sta­b­lise rent prices, such as putting lim­its to the dol­lar value, the cur­rent value, and other de­vel­op­ers or own­ers de­creas­ing the rent, as well as other ways, such as ex­tend­ing pay­ment pe­ri­ods. How­ever, some de­vel­op­ers and ten­ants are in the stage of ne­go­ti­a­tions and the vi­sion may be clear in the sec­ond quar­ter re­port. Due to the high value of the dol­lar, some ten­ants redi­rected their de­mand from grade A to grade B. Fur­ther­more, some clients tended to buy build­ings to equip ad­min­is­tra­tive of­fices in these build­ings.

What is the per­cent­age of oc­cu­pancy of ad­min­is­tra­tive of­fices?

The per­cent of oc­cu­pancy of grade A ad­min­is­tra­tive of­fices is 73%, while it is ex­pected to de­crease in the com­ing pe­riod.We don’t have a 100% oc­cu­pancy, which means that there is a se­quen­tial re­quest on ad­min­is­tra­tive of­fices and this hap­pened in down­town and cen­tral Cairo.

What is the de­mand on the res­i­den­tial mar­ket?

The de­mand is still strong on res­i­den­tial units. The sup­ply is 126,000 square me­tres with an ex­pected 11,000 square me­tres to be added dur­ing 2017.

The sec­ondary mar­ket was strong in the last pe­riod but it dropped for some time be­cause peo­ple tended to trade in for­eign cur­rency. Af­ter that, pri­mary sales wit­nessed a strong de­mand as clients pre­ferred to in­vest their money.

What is the size of growth in the res­i­den­tial mar­ket?

The growth rate in res­i­den­tial is very high. From 2015 to 2016, the sup­ply reached 13,000 units [113,000 square me­tres] with an 11% growth.

In the light of the dol­lar ap­pre­ci­a­tion: what is the size of for­eign de­mand on prop­erty?

Af­ter the EGP flota­tion, unit prices de­creased by 50% if cal­cu­lated in dol­lars, how­ever, lo­cal prices in­creased by 30%.This ex­plains the in­crease in de­mand by for­eign­ers. Cur­rently, real es­tate prices de­creased by 35% to 45% ac­cord­ing to dol­lar value.

What is the ex­pected in­crease in unit prices?

It is about 25% to 30% y-o-y.

What is the sup­ply of re­tail in the Egyp­tian mar­ket?

The re­tail sup­ply in Q1 2017 is 1.6 mil­lion square me­tres, the oc­cu­pancy rate is about 83% grade A. The most im­por­tant event is the in­au­gu­ra­tion of Mall of Egypt. Last year, there was a prob­lem in avail­abil­ity of for­eign cur­rency, but this year there is a prob­lem re­lated to in­creases in costs: sales de­creased and there is great com­pe­ti­tion be­tween lo­cal prod­ucts and im­ported prod­ucts, which may af­fect the re­tail mar­ket.

Af­ter the great de­mand that the Cityscape ex­hi­bi­tion wit­nessed in late March, do you ex­pect an in­crease in sup­ply in res­i­den­tial units?

I ex­pect an in­crease of 10% in sup­ply.

Which sec­tor is ben­e­fit­ing from the sta­b­li­sa­tion of the pound?

The res­i­den­tial and the hospi­tal­ity sec­tor are the ones that ben­e­fited the most from the sta­bil­ity of the pound. There­fore, ho­tel oc­cu­pancy is close to 70% in Greater Cairo. Egypt is one of the cheap­est tourism des­ti­na­tions, as the av­er­age daily rate is $89.

What is the most at­trac­tive area for of­fices?

New Cairo is still the most at­trac­tive ar­eas for ad­min­is­tra­tive of­fices.

Is there an im­mi­nent real es­tate bub­ble?

There is no bub­ble be­cause the de­vel­oper al­ways re­acts to the mar­ket and al­ways reads the mar­ket needs.

What is your opin­ion re­gard­ing the New Ad­min­is­tra­tive Cap­i­tal project?

The New Ad­min­is­tra­tive Cap­i­tal is the nat­u­ral ex­ten­sion for New Cairo, as there is no avail­abil­ity of lands in the lat­ter. Be­sides that, launch­ing projects in El Mostak­bal City, which is the area clos­est to the New Ad­min­is­tra­tive Cap­i­tal, and de­mand on AinSokhna re­vives the de­mand on the New Ad­min­is­tra­tive Cap­i­tal.

What are the ar­eas most in de­mand for sec­ond homes?

North Coast is more in de­mand than AinSokhna be­cause Sokhna still needs de­vel­op­ment and more ser­vices, so prices at North Coast are in­creas­ing.

In your opin­ion, what are pos­si­ble in­cen­tives to at­tract other Arab and for­eign investments to the sec­tor?

Dol­lar value in the coun­try is an in­cen­tive be­sides other fac­tors, such as the fa­cil­i­ties pro­vided by the govern­ment to start busi­nesses and how easy it is to trans­fer prof­its out­side of the coun­try.And of course risk as­sess­ment.

What is your ex­pec­ta­tion for the real es­tate sec­tor?

We will see a re­vival in the ho­tel sec­tor in Greater Cairo. Re­tail will be the last sec­tor to re­turn to its real growth per­cent­age due to the cur­rent eco­nomic cir­cum­stances. The of­fice mar­ket will keep sta­ble and will then start grow­ing again.

Ay­man Sami, JLL’s Egypt di­rec­tor

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