DUBAI/LONDON: 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 Mohammed 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 swap 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 97-acre 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 per square metre per month from $50 since 2009 while retail rents have plunged to $100 per square metre per month from $150, data from real estate consultant Knight Frank shows.
“If office leases in Cairo expire and tenants are looking to renew there are going to be some pretty frank discussions with the landlord and I’d expect a major impact on new deals,” said Peter Welborn, Knight Frank’s managing director of Africa, saying tenants may seek cuts of a third to a half.
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.
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 Emaar Properties which is building the Uptown Cairo scheme, a luxury development of homes, hotels and golf courses in Mukkattam Hills, overlooking the capital.