Office rents in Egypt will fall by 30% this year in USD terms as challenging economic conditions sap demand for office space, Fitch Solutions says in a report picked up by Zawya.

Tl;dr: The country’s commercial real estate sector will face pressure this year as higher borrowing costs, soaring inflation, and slowing economic growth weigh on businesses.

Hardest hit: Average monthly rents in Alexandria will fall almost 36% y-o-y to USD 8.20 per sqm.

In the capital: Monthly rents in Cairo — where demand is greatest and rents are highest — are expected to drop more than 30% y-o-y to USD 17.40 per sqm. Rents in Giza will fall almost 32% y-o-y to USD 9.30 per sqm.

Lower rent ≠ lower yield: Despite falling rents, returns on investment in the commercial real estate sector will remain roughly the same. Yields will remain at 8-10% in Cairo and Giza and 6-7% in Alexandria.

Driving the trend:High interest rates will dampen private investment and weigh on the construction sector, Fitch Solutions says. The Central Bank of Egypt has raised rates by 1k bps since March 2022 — including a 200-bps hike last month — in a bid to offset the impact of multiple currency devaluations triggered by the war in Ukraine. The spillover effects from the conflict have caused inflation to surge to near-record highs

The medium-term outlook isn’t so bad: Fitch Solutions’ medium-term forecast period holds a more positive outlook with real GDP increasing to 5.1% in 2024, weaker inflation, and lower borrowing costs. “In the longer term, a stabilization in GDP growth as well as in the growth of tertiary services output should provide some support for office space demand,” the report says.

Demand for residential housing is also expected to increase in the long-term owing to economic diversification, population growth and growing urbanization.

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