2007 Egypt Country Snapshot Hadrien Pujol, Associate Director Bernard Forster, Director HVS INTERNATIONAL LONDON 7-10 Chandos Street London W1G 9DQ +44 20 7878 7700 +44 20 7878 7799 (Fax) April 2007 New York San Francisco Boulder Denver Miami Dallas Chicago Washington, D.C. Weston, CT Phoenix Mt. Lakes, NJ Vancouver Toronto London Madrid New Delhi Singapore Hong Kong Sydney São Paulo Buenos Aires Newport, RI
Egypt Economics and Politics Egypt remains the favourite destination for foreign direct investment in the region. In 2006, these investments were mainly geared toward the banking, construction and textile sectors. It is estimated that the total FDI amounted to US$6 billion and originated from the other Arab countries with particularly significant investments from the Gulf states. According to the EIU, GDP grew by 6.8% in 2006. The government is pushing ahead with reforms to ease capital investments in the country by offering incentives and reducing the time to set up companies. On the international scene, Egypt has initiated new partnerships with global giants such as China and India. In general, the country s economic performance was strong in 2006 and is expected to remain the same for 2007. Developments and Initiatives Private and public sector projects in the country include the following. Egypt is in the midst of a tourism boom with developers busy planning major resorts along the Mediterranean and Red Sea coastlines. The North coast is now firmly on the tourism radar following the opening of Al Alamein International Airport; Emaar Misr for Development S.A.E, a subsidiary of UAE real estate giant Emaar, and Artoc Group for Investment and Development have signed an Memorandum of Understanding with Egypt s Bibliotheca Alexandria for a major waterfront redevelopment project; West of Alexandria, Porto Marina will be the first international marina on Egypt s Mediterranean coast with a mixed of hotels, golf, recreation and residential developments; The multi-billion dollar international destination resort community of 'Port Ghalib' being developed on Egypt's Red Sea 'Coral Coast' by the M.A Kharafi Group of Kuwait is taking shape; Finally, investments in airport infrastructure amount for US$550 million with the opening of a new terminal at Cairo International Airport boosting capacity to 21 million passengers, a new terminal at Sharm El Sheikh International Airport (capacity of 6.5 million), an expansion of the current facilities at Luxor International Airport (capacity of seven million) and the expansion of the capacity of Hurghada International Airport to 12 million.
Visitation and the Hotel Market Despite the tourism attacks in Dahab in April 2006, tourist arrivals in 2006 increased to 9.1 million in 2006 with the ministry of tourism projecting visitors growth to 16 million tourists a year by 2014; Europe remains the main feeder market in terms of demand. However, GCC s visitation is increasing and UAE posted a 12% increase between January and June 2006. Further encouraging this growth in Arab visitors, the marketing campaign entitled 'Nawart Masr' (You Light Up Egypt!) is expected to contribute to more than 30% growth among Middle Eastern holidaymakers visiting Egypt each year on short break; A growing threat for Egypt tourism is the poor quality of the services derived from a lack of investment in human resources. The tourism minister, Mr Zoheir Garranah has recently been saying that poor service is a bigger threat to Egypt s tourism sector than the bombs of religious militants. Cairo City Centre In 2006, marketwide occupancy for Cairo City Centre hotels experienced a slight decline of one percentage point to 78%. The increased visitation and limited supply (closure of El Gezirah hotel for refurbishment and renovation programmes at Marriott Hotel and Omar Khayyan Casino and Hilton Ramses) is certainly benefiting the hoteliers. As a result, average room rate has increased by a healthy 12% to US$90 (an all time high in our benchmark) which translated in 9% growth of RevPAR to 70%; GOPPAR has increased by 5% to US$82. GOPPAR is higher than RevPAR for hotels in Cairo City Centre because of the predominance of non rooms revenues (notably food and casino income) and low labour costs in the market. Cairo Heliopolis Hotels in Heliopolis experienced a modest decline in occupancy rates to 74% in 2006 compared to 77% in 2005. We consider that the market has now fully absorbed the increase in new supply over the past couple of years, specifically the Citystar complex; The increase in business travellers visitation has led to an increase in average room rate of 14% to US$77. Furthermore, the appreciation of the euro against US dollar has certainly enable the hoteliers to revise their pricing policies (Europe is the main feeder market for Egypt); RevPAR across the Heliopolis market increased by approximately 11% in 2006 from US$57 to US$52. On the other hand, GOPPAR has
decreased by 4% from US$50 to US$52 which can be explained by the drop in occupancy thus reducing the non-room revenue; Fairmont has recently announced the re-branding and management of the former Sheraton Heliopolis under the name Fairmont Heliopolis Hotel. Cairo Pyramids Quality hotels at the Pyramids experienced a modest decline in occupancy to 75% in 2006 compared to 76% in 2005. For the third year in a row, the Pyramids hotel market sustains occupancy rates above the 70% mark. Average room rates increased to US$49, a 6% increase from US$46 in 2005; As a result, RevPAR rose to US$37, a 4% increase compared to 2005. GOPPAR posted an impressive 12% increase to US$30 from US$26 in 2006 which can be explained by the increase in spending power from European travellers thanks to the euro-us dollar appreciation. Sharm El Sheikh Hotel occupancy in Sharm El Sheikh has dropped to 63% in 2006 from 66% in 2005. The security issues perceived following the terrorism attacks of July 2005 have not help the resort s promotion in an increased competitive environment for tourism destinations in the region. Average room rate rose to US$50 from US$47 in 2005; The resultant RevPAR of US$31 was stagnant and GOPPAR dropped by 7% to US$31 due to a decline in non-rooms revenue explained by the drop in occupancy; The latest addition to Sharm El Sheikh hotels is the 298-room Millennium Oyoun Sharm El Sheikh Resort located in the Nabq Bay area. Hurghada Hotel occupancy in Hurghada remained at 75% in 2006 while average room rate decreased by a modest 2% to US$46 from US$47 in 2005; As a result, RevPAR decreased by 2% to US$34 in 2006 from US$35 in 2005. In the meantime GOPPAR reached US$37, a 5% increase on 2005, The Red Sea cost tourism destinations of Hurghada, El Gouna, El Quseir and Marsa Alam are increasingly welcoming new quality hotels and improved infrastructure; Known proposed hotel supply is illustrated below.
Proposed Hotels Egypt Hotel Name Number of Rooms Opening Date Location Family Holiday Inn Citystars 355 2007 Cairo - Heliopolis InterContinental F airmont Heliopolis E xtension 245 2007 Cairo - Heliopolis Staybridge Suites Citystars 140 2007 Cairo - Heliopolis InterContinental Hilton Luxor Spa & R esort 235 2007 Luxor Hilton Novotel Cairo Tower 140 2007 Cairo - City Centre Accor Sofitel E l G ezirah 436 2007 C airo - C ity C entre Accor Domina Inn Pyramids 305 2007 Cairo - Pyramids Domina Inn Cairo 90 2007 Cairo - City Centre Four Seasons Hotel Alexandria 125 2007 Alexandria Four Seasons Sheraton Dreamland 158 2008 Cairo - Pyramids Starwood Fairmont Nile City 552 2008 Cairo - City Centre Park Hyatt 245 2008 C airo - C ity C entre Hyatt Domina Inn Luxor 101 2008 Luxor Le Méridien Cairo Airport 350 2009 Cairo - Heliopolis Starwood Hotels at New cairo City 850 2009 Cairo - Heliopolis Hilton Marsa Alam 337 2009 Marsa Alama Hilton Marriott E xecutive Apartments 171 2009 C airo - C ity C e ntre Marriott Outlook and Opportunities In view of its exceptional cultural, tourism and historical resources, we expect the Egypt tourism market to continue growing in the mediumterm. New mixed-use resorts are being developed in the North coast and the already existing destinations are gradually improving their quality hotel stock and infrastructure. Generally, tourism in Egypt will remain dependent to the global economy and with the positive prospects of general increase in tourism and travel economy, we remain confident of the potential of the country in terms on hotel investment. We reckon that average room rates are lower than those in other destinations in the Mediterranean sea; however, with a potential liberalisation of the sky and upgrade of the airport infrastructure, growth target set by the Ministry of Tourism could be achieved. In terms of hotel investment, Cairo has the potential to absorb the development of branded midscale and limited service hotels. There are opportunities for the development of condominiums and branded residences in the tourism resorts in the North Coast, Red Sea Rim and South Sinai.
No investment decision should be made based on the information in this survey. For further advice please contact the authors. About our Team HVS International has a team of Middle East experts that conducts our operations in the MENA region. The team benefits from international and local cultural backgrounds, diverse academic and hotel-related experience, in-depth expertise in the hotel markets in the MENA region and a broad exposure to international hotel markets in Europe. Over the last 24 months, the team has advised on more than 100 hotels or projects in the region for hotel owners, lenders, investors and operators. Together, HVS has advised on more than US$10 billion worth of hotel real estate in the region. About the Authors Hadrien Pujol is an Associate Director with HVS s London office. He joined HVS in 2004 and has five years operational experience in the hospitality industry in Europe. Originally from Carcassonne, France, Hadrien holds an MBA from IMHI (Essec Business School France and Cornell University USA) and Diplomas in Hotel Operations from the Lycée Hotelier Savoie Léman, Thonon Les Bains and the Lycée Hotelier Quercy Périgord, Souillac. Hadrien is currently preparing his MSc in Corporate Real Estate Finance and Strategy at Cass Business School in London. Since joining HVS he has advised owners on many hotel and hotel-related investment projects and strategic developments in Europe, the Middle East and Africa. Bernard Forster is a Director with HVS s London office, heading the MENA region. He joined the company in 1997 from Accor Hotels & Resorts where he focussed on property management systems, yield management and guest-history systems in Europe, the Middle East and Africa. Previously, Bernard worked in various operational management roles for the Savoy Group (now Maybourne Group) in London as well as for the Dolder Grand Hotel in Zürich. Bernard holds an MSc in Property Investment from City University, London; a BSc (Hons) in Hotel Management from Oxford Brookes University; and a diploma in Hotel Administration from Institut Hotelier Cesar Ritz, Le Bouveret, Switzerland.