IN Q3 2023, CAIRO REAL ESTATE MARKET EXPERIENCED A SIGNIFICANT SURGE IN PROPERTY PRICES AND RENTALS, DRIVEN BY HIGH DEMAND AND INFLATION.
During the Q3 2023, Cairo real estate market witnessed a remarkable upswing in both property prices and rental rates, primarily propelled by robust demand and inflationary pressures. Driven by high demand and inflation, property prices in 6th October and New Cairo soared by around 40% and 45% annually. At the same time, rental levels continued to accelerate, with annual increases of 22% in 6th October and 18% in New Cairo.
Looking forward, upcoming projects focus on offering fully integrated mixed-use developments with more green spaces. These developments aim to be comprehensive destinations for homeowners, providing both community and privacy.
Office Sector Trends and Prospects
In the Cairo office real estate sector, there were no significant office projects finalized, keeping the overall stock at approximately 1.94 million square meters of Gross Leasable Area (GLA). Delays in project completion are anticipated to result in the addition of approximately 29,000 square meters of office floor space in the last quarter of 2023.
The market is also set to see the completion of several grade-A office projects within the next two to three years, addressing the current gap between supply and demand for high-quality office space. Multinational corporations increasingly prioritize sustainability criteria when selecting office locations, and landlords who adhere to sustainability standards are expected to have a competitive advantage.
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Retail Market Dynamics and Challenges
In terms of rental rates, while many landlords initially raised them during the first half of the year in anticipation of further currency devaluation, rates stabilized in Q3, and some landlords even slightly reduced their asking rates. The average city-wide lease rates decreased by around 3% on an annual basis, settling at USD 361 per sq. m. per annum. The average city-wide vacancy rate rose to 12%, an increase from the 10% recorded during the same period last year.
With no new retail space delivered in Cairo during the third quarter of 2023, the total stock remained constant at around 2.9 million sq. m. with just about 88,000 sq.m. of GLA expected to be completed during the final quarter of the year.
Inflation in September reached a record high of 38% for the fourth consecutive month, tightening consumer spending, which significantly impacted retail sales, especially for international fashion brands. However, local fashion brands have emerged, establishing an omnichannel presence by opening physical stores alongside their online presence due to increased sales of their affordable and unique product offerings.
New family entertainment and F&B concepts demonstrated strong performance, outpacing the market. Consequently, the vacancy rate slightly decreased from 11% in Q3 2022 to 10% in Q3 2023.
CapEx contributions became more limited and were mainly offered on a case-by-case basis. Meanwhile, in contrast to international owners, local landlords of regional and super-regional malls slightly increased their asking rents and became less flexible during rental negotiations. This, combined with soaring inflation and the weakened local currency in the country, has therefore resulted in average rental rates increasing on an annual basis by around 11% and 9% in primary and secondary malls, respectively.