The flotation of the Egyptian pound has caused challenges for real estate stakeholders throughout 2016, according to the 2016 Cairo Real Estate overview report recently released by real estate firm Jones Lang LaSalle (JLL). The report analysed the impacts of the decision made by the Central Bank of Egypt (CBE) in November 2016 to liberalise the exchange rate.
“The Egyptian pound showed signs of increased volatility following the devaluation and in December 2016, it lost 52% of its value,” the report said. The rapid devaluation has resulted in uncertainty and has delayed decisions by both investors and occupants who waited to see where the Egyptian pound will settle in value. The currency devaluation has increased costs of inputs in the construction industry, negatively impacting developers’ cash flows, the report said.
The report summarised the highlights of each sector in real estate in 2016. In terms of offices, the fourth quarter (Q4) witnessed relatively smaller companies cancelling their relocation plans to grade A office spaces. They are expected to be pushed to find spaces of lower quality in less prime areas, as New Cairo continues to be the most sought-after destination for office occupants. Office rents have remained stable over the past quarter as the market is still adjusting to current business conditions.
As for residential units, average sales prices for both apartments and villas have decreased significantly in US dollar terms in Q4, especially in New Cairo and 6th of October City. Prices of rentals, on the other hand, were more resilient towards the currency flotation than sales, as rental units are partially targeted towards foreigners.
The retail sector has not witnessed the completion of any retail development in 2016, while average rentals are expected to remain under downward pressure due to the continued decline in consumer spending and retail sales.
For hotels, the occupancy rates have increased by 5%. Improvement in airport security and development of inbound tourism from Arab countries are some of the reasons for increased occupancy rates.