Egypt’s commercial property sector resists economic woes 

Reuters

• Landlords offering flexible terms to retain occupiers, says Savills 
• Office tenants paying in USD to offset impact of currency depreciation
• Egypt’s young demographic presents opportunities for retail, F&B

Demand for commercial property in Egypt remains buoyant despite the fragile economy, as retail and office landlords offer “flexible and generous” terms until the market stabilises, according to a report.

Landlords are resorting to making changes to retail and office lease terms in response to “challenges stemming from the current local and global economic volatility”, according to a report by real estate consultancy Savills.

The Egyptian pound has lost more than half of its value against the US dollar since February 2022, inflation is soaring and millions of people are living in poverty. 

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Among the changes being made in Egypt’s commercial property sector is a rise in landlords leasing office space in US dollars, rather than the Egyptian pound, to counteract the effect of monetary depreciation. 

Before the pound’s spiralling devaluation since 2016, many prominent landlords in Egypt used to quote their lease rates in dollars, according to Savills’ report.

However, to control a resulting surge in rental rates and to retain tenants, many reverted to quoting in the pound. Now, the situation is reversing again, and quotes in US dollars are more common.

Retail tactics

In the retail sector, landlords have been offering incentives such as contributions towards shop fit-outs, rental discounts, marketing and events support, and temporary suspension of base rent in favour of a turnover-based approach, to maintain occupancy levels. 

Retail occupancy rates reached a robust 85 percent in the Greater Cairo region in the first quarter of this year, and as much as 90 percent in Central Cairo, according to Savills.

Average rents in Greater Cairo stood at EGP940 ($30) per square metre per month.  

“The current market dynamics are favouring retailers and F&B [food and beverage] operators, allowing them more room for negotiations with landlords,” the report said.

“This is strengthened by the influx of new retail development, particularly in East Cairo and the New Administrative Capital.”

The industry remains at an early developmental stage, and the market is “highly underserved” in terms of experiential retail concepts, entertainment options and presence of international brands. “There are clear opportunities for the sector due to Egypt’s young demographic and growing middle class.”

Despite the odds, the report added, the F&B segment is performing especially well, and is experiencing an influx of new local businesses and rising interest from international brands.

Established players, however, have found it difficult to expand their operations as a result of import restrictions on equipment and staple ingredients, and rising fit-out costs. 

Demand has been weaker in the office sector, as the currency depreciation and inflation rises have negatively impacted take-up in the past year, according to Savills.

However, in the last two quarters of 2022 there was “an influx of newly completed and operational space as tenants rushed to complete fit-out work” before prices went up and raw materials became scarce. 

This has forced landlords to become more flexible – offering fully fitted and serviced units at favourable rents to attract tenants, the report added.

Office rental rates in Greater Cairo reached an average of EGP760 per square metre per month in Q1, with an 81 percent occupancy rate. 

The average occupancy rate in central Cairo was lower – 68 percent – reflecting the fact that most upcoming commercial developments are being built on the outskirts of the city, the report said.