Ambitious plans are afoot in Egypt as the government expedites real estate construction in new cities to increase the country’s livable area from 7% in 2015 to 14% in 2030. “Our current [project pipeline] will make 12% of Egypt’s land livable,” Khaled Abbas, deputy minister of the Housing, Utilities and Urban Development Ministry, told AmCham in December.
Beyond 2030, Abbas said, the government plans to build 37 new cities by 2052. “Our population grows by 2.6 million a year. By 2052, we will be between 150 million and 180 million,” he stressed.
New construction will need to cater to the different lifestyles and routines of a post-pandemic world. And while many in Egypt have returned to their pre-COVID-19 life, the PricewaterhouseCoopers (PwC) report stresses the importance of having homes ready for possible future pandemics and lockdowns. “History tells us that [COVID-19] will not be the last pandemic,” said World Health Organization Chief Tedros Adhanom Ghebreyesus in December 2020.
Additionally, builders should take into account the effects of climate change. “The increasing frequency of natural disasters … is raising the alarm for greater action,” said the PricewaterhouseCoopers (PwC) report titled “Emerging Trends in Real Estate 2022.” “The preference is [to adapt] newer properties until owners can better understand the cost of retrofitting properties.”
COVID aftermath
Throughout the turbulent past two and a half years, the residential, retail and office real estate sectors had to adjust their business models. “It would be vastly overstating the situation to say the property market pivoted without skipping a beat,” said the PwC report. “Nearly every property sector was forced into urgent changes.”
Food and beverage establishments shut down dine-in facilities, focusing on expanding online operations and home delivery. Shopping and retail outlets did the same. Businesses reviewed their need for physical office space to accommodate all employees and extra capacity for new hires, as working at home proved successful, if challenging. Meanwhile, residential units took on the added role of being offices, as more employees chose to work at home, the PwC report said.
Egypt and many other countries are returning to pre-pandemic life, quickly making some trends obsolete, as others seem likely to remain. “The property sector ultimately ended up looking much like it did before the pandemic … [but] the simplicity of that conclusion masks some genuine and fundamental shifts,” the report said.
A PwC survey cited in the report found that 55% of respondents said they would not return to pre-pandemic activity, while 16% were unsure. The report noted employees with the option to work remotely are more likely to continue to do so most of the time. “Having tested the flexibility and convenience of working from home, workers will not be eager to relinquish those benefits,” the document said.
That ultimately could result in many leaving crowded cities. “Freed of the requirement to come into the office every day, many households are willing to live farther from downtown office nodes,” said the PwC report.
That should encourage the relocation of Egypt’s big-city dwellers to new metropolises and suburbs under construction, including New Alamein City and Mostakbal City. That could be a boon for the government’s plans to double Egypt’s livable area.
Home, sweet home
One of the most prominent trends is the need for more flexibility and convenience in homes. The report noted that “by forcing people to work and live differently, the pandemic revealed a hitherto unknown reservoir of flexibility in how property sectors could function — and how people will use properties in the future.”
Having the option to choose where and when to work and shop made more people reassess their work/life balance, prioritize convenience and choose the best way to remain productive. Spending more time at home became increasingly important as online shopping resulted in more deliveries, requiring someone present to receive them. “Homes suddenly became the center of all activities in both people’s personal and professional lives.” It is as if “2030 arrived early.”
To meet those needs, residential real estate developers need to offer dedicated spaces within each unit for work, exercise, entertainment and study. “These multiple uses often conflict with one another — and put a lot more demands on the humble residence.”
Bigger kitchens could be another primary requirement for those buying a new property as “people began to prepare almost all their meals at home” during lockdowns.
Homes with gardens also could become a preferred option for buyers, as families saw the benefits of having a private outdoor green space during lockdowns. Garden Pals, an internet platform, said global online sales of gardening tools have doubled since the pandemic. “The pandemic created 18.3 million new gardeners, most of whom are millennials,” according to Garden Pals.
Accommodating all those needs in existing residences may not be essential in the short term as “families just made do, carving out spaces as they could,” said the PwC report. However, an increasing number of new home buyers might want such facilities.
The PwC report noted this trend could create new demand for property in less expensive areas, allowing buyers to purchase bigger properties. “With lower costs in these more distant locations, buyers can afford homes that can better accommodate all the new functional demand in the post-COVID … world.”
Online world
The lockdowns since 2020 made people more comfortable with online shopping and home delivery. During the height of COVID-19, it was the safest way to buy goods. The PwC report said this trend pushed more retailers to invest in e-commerce platforms to compete with the likes of Amazon. “Major retail chains scaled up their online divisions while small retailers established delivery services or turned to third-party platforms for transactions or delivery.”
That fast transition could start an eventual decline in demand for more brick-and-mortar space. Meanwhile, the increased difficulty of importing goods and inflation will reduce consumers’ disposable incomes. Retail landlords are “generally showing flexibility during negotiations to maintain their occupancy rates and footfall,” said Jones Lang LaSalle Inc.’s second-quarter real estate report on Cairo. “Other strategies owners employ to prop up earnings include revenue sharing, attracting strong brands and expansion of [food and beverage] offerings.”
Accordingly, commercial real estate developers should focus on increasing outdoor areas, especially if they involve restaurants and cafes, said the PwC report.
To keep renters and maintain foot traffic, “malls need to keep changing,” noted the report, adding, “Temporary outdoor dining will become a permanent feature.” Additionally, commercial properties should include ample pickup areas for customers who buy online. “Retail stores, as configured today, aren’t great for fulfillment,” the PwC report noted. “The retail sector may never be the same.”
Meanwhile, mixed-use malls and business parks will likely see a noticeable drop in demand for large areas as more employees continue to work remotely. “Under almost any conceivable scenario, firms will be leasing less space in the future,” the PwC report said. “New hires and added space required for social distancing are unlikely to fill the resulting vacancies.”
The hardest hit will be top-tier office spaces that charge a premium for amenities and location. “Offices in pricey central business districts are likely to experience greater hits to demand than suburban counterparts,” said the report.
However, businesses should still have “enough space for remote workers to collaborate in person, at least occasionally.” Office developers must redesign facilities to meet that demand to remain relevant for their clients.
Retail developers also should revisit their financial agreements with renters to accommodate the increasing popularity of temporary use of facilities versus permanent use pre-pandemic.
Climate dimension
Aside from the aesthetic and functional requirements, another factor that could attract future tenants and environmentally conscious investors is a project’s environmental credentials. “A growing consensus sees the property sector as bearing much of the responsibility for climate change — and uniquely positioned to institute improvements to … mitigate impacts and increase resilience to environmental risks,” according to the report.
However, few developers focus on integrating the climate dimension in their projects. “Despite broad industry participation in environmental accreditation programs and … climate mitigation initiatives,” said the report, “evidence of investors incorporating future climate risks into underwriting has been difficult to quantify.”
The PwC report says the situation could change soon, as climate change is already having an impact. A case in point is shoreline erosion along Egypt’s Mediterranean coast and flooding of others due to unexpected downpours.
Addressing such risks in new developments is urgent and increasingly essential for international investors. According to a ULI and Heitman LLC January report titled “Climate Risk and Real Estate,” natural disasters more than doubled from 1980 to 2016. “Market-level climate risk will drive future investment decisions,” the PwC report said. That is because current government promises and efforts to stave off climate risk are insufficient to protect those in high climate-risk areas.
One effective way to ensure a project’s climate resilience is to get certified by an international organization. The PwC report mentions the Global Real Estate Sustainability Benchmark, the U.N.’s Sustainable Development Goals, and the Task Force on Climate-related Financial Disclosures.
Environmental, social, and governance (ESG) reporting is an ideal global platform to showcase a company’s efforts to environmentally conscious investors and buyers. “Some larger real estate companies are assessing the climate risk of their portfolios using climate-risk analytics consultants,” noted the report. “They are starting to work this risk into their investment decisions mainly by discontinuing the cash flow … of assets they see as being exposed to greater long-term climate risks.”
The PwC report said many developers do not adopt those standards because “investors tend to have short memories, with climate-related events typically having little long-term impact on value.” Some published research from think tanks and lobbying groups take the shortsighted view that “value impacts on commercial real estate from major storms are temporary.”
The PwC report stresses the best way to ensure climate adoption among real estate developers is to write compliance into law, mainly ESG reporting. Egypt plans to impose it on listed real estate companies next year.
ESG reporting will be easily visible and have an immediate impact. It will reveal the truth behind each developer’s efforts to build climate-resilient property. “Because the industry anticipates additional regulations in the future, with potentially high compliance costs or fees for noncompliance, the financial risks of not addressing [those regulations] will only increase,” noted a January report from the ULI Greenprint Center for Building Performance, a global alliance of real estate owners, investors and other stakeholders.
