Cairo Real Estate Market Overview

Cairo

Cairo One year after the Revolution

In a report entitled Revolution and Real Estate, released last April, Jones Lang LaSalle predicted that the Egyptian revolution would result in 2011 being something of a lost year for the Cairo real estate market. This has proved to be the case with:- Many corporates adopting a wait and see approach towards Egypt effectively freezing their previous expansion plans. - A large number of announced and already commenced projects being placed on hold. - Virtually no new project launches, as funding for the real estate sector dried up - The Closure of many factories and the scaling back of industrial operations due to an inability to retain staff, strikes, security concerns and continuous disruptions to utilities and logistics. - Dramatic decline in tourist numbers to Cairo in 2011. - Uncertainties surrounding legal title have further reduced sales levels in the residential market. As we move into 2012, the dust is now beginning to settle and more clarity is returning to the market. This is resulting in increased levels of confidence and activity. Evidence of this includes:- Current and active demand for between 5,000 and 15,000 sq m of office space from a number of international FMCG and petrochemical occupiers. - Retailers continue to open new stores with recent examples including American Eagle and Pinkberry opening their first stores in Egypt at City Stars and LC Waikiki (a Turkish retailer) opening their first store in December 2011 at Sun City mall in Heliopolis. - Some real estate projects will continue towards completion in 2012. Cairo Festival City will deliver its first office phase in mid-2012 and Damac is looking to open its retail and office project opposite Dandy Mall before the end of the year. The market is witnessing a revival of other mixed use projects driven mainly by UAE and Qatari developers. The prospects for the Cairo real estate market for the remainder of 2012 and beyond will be largely dependent upon the ability of the new government to address many of the challenges that have been left largely unresolved over the past year.

Talking Points
Economy remains fragile. Political uncertainties continue to impact on the Egyptian economy with the latest forecasts for real GDP growth for 2012 down to just 1.9%. The January 2012 announcement that the interim government had approached the IMF for a US$ 3.2bn loan is likely to be positive for the economy (and therefore the real estate market), but this decision still needs to be approved by the newly elected government. Consumer Sentiment Declines. The Nielsen Companies quarterly survey of Consumer Confidence and Spending Intentions showed a dip in sentiment, with the index for Egypt dropping from 97 in Q3 to 92 in Q4 2011. The major concern among respondents across the Middle East was job security (cited by 20%) followed by concerns about political stability and the economy, both mentioned by 12% of respondents. Tourism numbers witness fall in early 2012. While tourist arrivals to Egypt began to recover in the later months of 2011, further demonstrations and increased security concerns in early 2012 have again impacted arrivals and negatively impacted the tourism market. Tourist arrivals in 2011 decreased by approximately 33% compared to 2010. Law suits for Madinaty are over. The decision of the court in late 2011 that the Mostafa Group (TMG) had legal title to land in its Madinaty project represents a major positive for the residential market. This decision eases uncertainty and should result in increased sales activity in this and other projects that were previously facing legal challenges. Electrolux completes the acquisition of Olympic Electric group. Electrolux has successfully completed the Mandatory Tender Offer to acquire Paradise Capitals 52% majority stake in Olympic Group. Olympic Group will be consolidated in the Electrolux Group with its shares delisted from the Egyptian Exchange during the first quarter of 2012. Property tax to be postponed. Egypt's Supreme Council of Military Forces (SCAF) has postponed the introduction of the proposed property tax from January 2012 to January 2013. They have also increased the proposed exemption limit for individual homes from EGP 500,000 to EGP 1 million for single-unit owners and EGP 2 million for owners of more than one residential unit. The tax was expected to generate some EGP 1.3 billion but alternatives were being studied that would not cause damage to the investment climate. Release of housing land. The Ministry of Housing has announced the release of 8,000 land plots in new cities around Cairo for Egyptian citizens living abroad. The average plot size is 800 sq m with an average price of US$ 500 per sq m in New Cairo and US$ 675 per sq m in Sheikh Zayed. This program aims to generate around US$ 3.5 billion in foreign currency.

Cairo Office Market

Office Supply
The current Grade A office stock is approximately 700,000 sq m from across the Cairo metro area. The vast majority of this space is in the new urban cities (New Cairo & Sixth of October), with just one building, Nile City Tower (108,000 sq m), providing Grade A quality space in Central Cairo. Due to the instability and consequent construction delays, no new Grade A supply was completed in 2011. Although the events of 2011 reduced previous levels of planned future supply by at least 25%, there remains over 120,000 sq m of additional office space that could still be delivered to the market by the end of 2012. However, the expected materialisation rate (actual delivery) of office space is expected to be significantly lower (approximately 60,000 sq m) with many of the planned projects experiencing extended delays. Several large-scale office projects are expected to be delivered in the first half of 2012, including Cairo Festival City which offers approximately 20,000 sq m of Grade A office GLA alongside Mivida by Emaar Misr and Citadel Plaza by Alkan Holding. Recent completions of Grade B space and the upcoming supply of Grade A space are providing tenants with an improving standard and range of options to consider as well as leading to generally more tenant favourable market conditions in the office sector.
Source: Jones Lang LaSalle, Q4 2011 Note: GLA of Grade A Office Space

Predicting supply levels beyond 2012 remains difficult. While there is potential for the current market to increase to around 1.3 million sq m by the end of 2015, much of this space is only likely to be constructed once tenant commitments can be achieved. These are proving difficult to secure as many occupiers are currently adopting a wait and see approach and placing their expansion plans on hold. Grade A vacancies have increased to approximately 35% following recent completions of Grade B and C buildings in New Cairo and elsewhere. The vacancy rate is expected to increase further as further new supply is delivered in 2012. Office Supply (2011 2015)

Major Existing & Future Office in Greater Cairo

Smart Village CityStars

Cairo Festival City Nile City Towers

To Alexandria

Downtown

Mivida

6 Oct City & Sheikh Zayed

Citadel Plaza New Cairo

Maadi

Helwan
Future Supply Existing

Office Rental Performance

Peaking at US$ 55 per sq m per month in 2010, average effective rents for prime Grade A space declined by around 20% during 2011 to finish the year at US$ 45 per sq m per month. The major reason for this decline in rentals has been the increase in Grade B space entering the market during a period of limited new tenant demand. Grade A rents are likely to decline further in 2012 in line with upcoming supply. Asking rents for Grade B space in Central Cairo currently range from US$ 20 - US$ 36 per sq m per month, which are more in line with Grade A space in New Cairo. Prime Office Rents * (Q4 2010 Q4 2011) Asking rentals for Grade A space in New Cairo and West Cairo are currently around US$ 24 and US$ 21 per sq m per month respectively. Leasing incentives, that include rent free periods and the offer of additional parking slots, are expected to increase across all building grades. Net effective rents are expected to decline. It is anticipated that secondary / lower quality buildings will be hardest hit when forced to compete with the new better quality product that is introduced to this market. There has been an increase in the leasing fees being offered by landlords as the market becomes more competitive. Office Property Clock

Source: Jones Lang LaSalle * Prime office rents in Central Cairo

Source: Jones Lang LaSalle

Office Market Summary

Indicator Level Comment / Outlook

Current Grade A Office Stock

700,000 sq m

Most Grade A supply outside of Central Cairo with Grade A supply in CBD limited to one building Nile City Tower

Future Grade A Supply (2012)

60,000 sq m

Further construction delays and cancellations could reduce this supply pipeline.

Greater Cairo Grade A Vacancy

35%

Grade A rents in Central Cairo New Cairo West Cairo

US$ 45 / sq m / month US$ 24 / sq m / month US$ 21 / sq m / month

Cairo Retail Market

Retail Supply
At of the end of 2011, the total retail space in the Greater Cairo reached approximately 786,000 sq m. 2011 witnessed the opening of phase 1 of Mall of Arabia located in Sheikh Zayed offering 70,000 sq m GLA. 2012 should witness additional supply of 200,000 sq m including Emerald Centre and Capital Mall and Damacs Park Avenue. The major completion during 2011 was the Sun City Mall in Heliopolis which is currently 40% operational. It added a total of 24,000 sq m to the total retail GLA. The anchor, Carrefour, took 3,700 sq m. There have been major delays in the scheduled openings of retail centres but a possible additional 260,000 sq m of retail GLA could enter the market before the end of 2013. In addition to new major malls, a number of other retail projects (including retail offerings within mixed-use projects and community retail) are expected to enter the market, adding more high quality retail space. This includes Emaar Square at Uptown Cairo and Cairo Festival City. The major mall scheduled for delivery in 2013 is Cairo Festival City offering 160,000 sq m of quality GLA. By the end of 2014 total retail GLA could reach 1.8 million sq m.
Source: Jones Lang LaSalle

Retail Supply (2009 2015 )

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Major Existing & Future Malls in Greater Cairo

Sun City Mall

Dandy Mall CityStars Cairo Festival City

To Alexandria
Mall of Arabia Maadi City Centre

Future Supply Existing

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Composition of Retail Supply

Super Regional and Regional Malls will account for 29% of total mall based retail stock in Cairo by 2015. In future, the proportion of mall based retail space will increase as multiple community and regional malls are delivered. Retail Supply (by type in 2015) Major Retail Centres in Greater Cairo
Name CityStars Mall of Arabia Maadi City Center Dandy Mall Golf City Mall Sun City Mall Katameya Downtown Source: Jones Lang LaSalle Type of Centre Convenience Neighbourhood Community Regional Super Regional Source: ULI Source: Jones Lang LaSalle Range of GLA (sq m) Less than 3,000 3,000-10,000 10,000-30,000 30,000-90,000 90,000-150,000 Type of Retail Centre Super Regional Super Regional Regional Regional Regional Regional Community GLA (sq m) 150,000 180,000 33,500 65,000 40,000 60,000 30,000

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Retail Rentals
Although the limited supply of good quality retail space in Greater Cairo should have resulted in strong competition and rental growth, the economic and security concerns stemming from the recent instability have had a negative impact on retail spending and have resulted in average asking rents for Regional and Super Regional malls declining by 20% - 30% over the past year. Average asking rents for prime line stores in Regional & Super Regional malls in Greater Cairo currently range from US$ 450 to US$ 900 per sq m per annum. With signs that retail trade is now improving and many retailers now looking to expand, average rental rates are expected to remain stable in the short term before possibly softening further again in 2013 and beyond in the face of additional levels of new supply. The increased choice of units available to retailers has caused centre managers to compete more aggressively for tenants and make increased efforts to attract and retain retailers. With the market transitioning in the occupiers favour, rental discounts are now being offered more frequently, as landlords strive to fill vacant space. The exact level of downward pressure upon retail rents is difficult to quantify but it is clear that previous rental values are no longer being achieved on new deals or renewals. Larger franchisors and shrewd retailers are securing discounts within retail malls where they have a number of brands, thus taking advantage of the increased strength of the tenant and partially offsetting the impact of reducing sales turnovers.

Rental Rates: Regional / Super Regional Centres in Greater Cairo Casual Dining: US$ 750 - US$ 1,000 Indoor Food Court: US$ 350 - US$ 500 Line Shops (US$ / sq m / per annum) Anchor (US$ / sq m / per annum) Kiosk (US$) Source: Jones Lang LaSalle US$ 450 - US$ 900 US$ 200 US$ 1,300 - US$ 3,500 monthly contract

F&B (US$ / sq m / per annum)

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Retail Sector Summary

Indicator Level Comment / Outlook
The total GLA of good quality retail is increasing as a percentage of total GLA.

Current Retail Space (GLA)

780,000 sq m

Future Supply (by end 2014)

1.8 million sq m

There is a substantial future supply to be added to the retail sector by the end of 2014.

Current Vacancy Level

30%

The vacancy rates represents the Operational Super Regional malls in Cairo.

Retail Rents (line stores in regional / sub regional malls)

US$ 450 - US$ 900 sq m per annum

Rents are expected to remain stable in short term before declining in longer term due to increased competition.

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Contacts:
Ayman Sami Head of Egypt Office ayman.sami@jll.com Robin Pugh Head of Agency, MENA robin.pugh@jll.com David Macadam Head of Retail, MENA david.macadam@jll.com

Marwan Sery Research Manager, Egypt marwan.sery@jll.com

Craig Plumb Head of Research, MENA craig.plumb@jll.com

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