A flight by foreign companies from violent unrest in Egypt threatens to drive up vacancy rates at offices and malls, and prompt international investors to shift funds to sub-Saharan real estate.
The army overthrew and imprisoned President Mohamed Mursi in July and the ensuing crackdown on his Muslim Brotherhood movement has killed about 900 people. This has prompted many multinational companies to scale down their operations or pull out staff, particularly from central areas of the capital, Cairo.
Weaker demand means property investors, who had been lured by Cairo’s established business district, could swop what was north Africa’s only viable property investment market for comparatively stable cities in sub-Saharan Africa, property experts said.
“The demand for Class A office space has almost disappeared overnight,” said Ahmed Badrawi, managing director of SODIC, one of Egypt’s biggest developers and behind the Eastown scheme in New Cairo, a development of offices, shops and homes twice the size of London’s 39ha Canary Wharf district.
The list of firms that have cut or suspended operations in Egypt, sold off businesses or pulled out staff in recent months includes Apache Corp, Chevron, General Motors, Electrolux, BASF, BG Group and BP.
A series of developments that tried to capitalise on a shortage of high-quality offices in Cairo have recently been completed while others are under construction, but there are doubts over whether they will fill up.
About 25 percent of the best office space in Cairo is vacant, property consultant Jones Lang LaSalle said in June, a figure that it said would grow by an unspecified amount. It compares with 7 or 8 percent in central Paris or London.
Rents for the best Cairo offices have fallen to $40 (about R400) a square metre a month from $50 since 2009 while retail rents have plunged to $100 a square metre per month from $150, data from real estate consultant Knight Frank shows.
There is no data for overseas investment into Egyptian property, but the flow of recent years has ground to a halt since the military crackdown, property experts said.
South African funds led the charge buying existing buildings in Egypt, attracted by yields, or rent as a percentage of the property’s value, of about 7 percent versus about 5 percent in the United Arab Emirates. Buyers included funds linked to Rand Merchant Bank and Stanbic Bank, a division of Standard Bank.
Meanwhile, Gulf developers sought to capitalise on a lack of high-quality offices and malls, and now risk getting their fingers burned by an excess of supply, said Habiba Hegab, an analyst at Cairo-based Beltone Financial. They include Dubai’s largest developer, Emaar Properties, which is building the Uptown Cairo scheme, a luxury development of homes, hotels and golf courses in Mukkattam Hills, overlooking the sprawling capital.
Others include Dubai mall developer Majid Al Futtaim, privately held Dubai firm Damac and state-owned Qatari Diar.
Emaar said Egypt remained a core market and its operations were “ongoing, as scheduled”.
Al Futtaim and Damac declined to comment, and Qatari Diar was not available for comment.
It is a far cry from several years ago, when retailers and mall developers were eager to tap into Egypt’s 85 million-plus predominantly-young population, many of who aspire to Western shopping habits by building Dubai-style mega-malls. Military curfews in a city that revels in late-night shopping means many retailers are revising plans and JLL estimates the current mall vacancy rate of 25 percent will rise as more developments complete.
Talks to bring luxury brands like Harrods, Gucci and Prada to Egypt are also on hold. Egypt’s loss could be sub-Saharan Africa’s gain, Knight Frank’s Welborn said, citing cities like Lusaka, Accra, Lagos and Nairobi.
Egypt’s housing sector could soften the blow for developers able to convert schemes. Helped by a weak currency and a volatile stock market, people are investing in housing to preserve wealth, bank HSBC said earlier this year. – Praveen Menon and Tom Bill Dubai and London from Reuters