Egypt’s hotel fundamentals are recovering as tourists return, but interest rates remain high, and while the building blocks are in place, an analysis of performance data shows wildly different outcomes depending on the currency in question.
REPORT FROM EGYPT—As a destination for both hoteliers and owners, Egypt is back, according to sources.
The Egyptian Revolution, which started in January 2011 and ended in June 2014 with the election of current president Abdel Fattah el-Sisi, “was a once-in-a-lifetime scenario. That could not happen again, and Egypt has gone back to what it was,” said Ahmed Shalaby, founder, CEO and managing director of Cairo-based hotel and real estate management firm Tatweer Misr.
Sources said a number of factors have strengthened Egypt’s recovery and increased hotel development, including:
- hotel firms domestic and international now can own 100% of a hotel’s operation and real estate;
- return on investment can be repatriated effortlessly;
- new investment laws passed in 2017 have settled nerves;
- a growing Egyptian middle class; and
- the return of international travelers following terrorist incidents, including the October 2015 attack on a Russian aircraft over the Sinai Peninsula.
“It is possible to own properties 100%, and there are no restrictions for ROI, which was the main barrier,” said Karl Lerner, founder and chairman of Cairo-based hotel consultancy Impact.
Shalaby said foreign investors and operators do not require local representation and agreed they have no problems exiting capital. The one exclusion to this rule is in the politically strategic Sinai Peninsula, which joins Egypt to Israel, and its eastern edge is extremely close to both Jordan and Saudi Arabia.
Lerner, an Austrian who has lived in Egypt since 1989, said the main obstacle is Egypt’s high interest rate.
“If you are working with local currency, that makes it a little difficult, but of course you do not have to do that,” he said. “Egypt has more transparency, and administrational barriers have been streamlined. There are open minds here, and the government understands how important the need is to grow the economy.”
Lerner added that another plus is the recent investment in education, important in a nation of approximately 100 million Egyptians and where more than 50% are 25 years old or younger.
In Europe that would be nothing new, but in Egypt the importance of education cannot be underestimated, he said.
New investors, new demand
Shalaby said demand is increasing both inside and outside the country.
“Egyptians are not big fans of traveling internationally and often are prepared to pay more to stay in Egypt,” he said. “There are no special domestic rates at hotels. Another opportunity is that only 7% of Egypt’s 1 million or so square miles of land is developed.
“What Egypt needs is more 3- and 4-star hotels.”
The largest Egyptian operator is Pickalbatros Hotels & Resorts, which owns and operates 14 hotels, all in Egypt and mostly under its Albatros and Aqua brands.
Two other sizable domestic operators and owners are Tirana Egypt Hotels & Resorts and the Egyptian General Company for Tourism & Hotels. The latter is known by its initials as EGOTH, which owns 14 hotels, all located in Egypt and including the Cairo Marriott, Sofitel Winter Palace and famed Shepheard Hotel, which opened in 1841.
The choices of markets in Egypt are increasing for both domestic hoteliers and international players. Shalaby said one exciting market is the Mediterranean coastline west of the port city of Alexandria.
“There are (100 miles) of resorts where currently only Egyptians go, and the rates are very expensive in summer, but it is dead in winter when northern Europeans might very well like to go,” he said. “Such markets are putting Egypt back on the map of tourism, and adding to the interest is that they are hot for real estate. There is a lot of development in the pipeline. That has to do with the new government and president.”
Lerner said international tour operators also are back, and hoteliers are developing concepts to extend the season and adding niches such as wellness.
Russian sanctions following the Sinai terrorist attack have been lifted, and that has helped tourism tremendously, Lerner said.
“Rates are back to the best years of 2009 and 2010,” he said. “Russians are part of that, but before their return, Egypt needed to discover to get new markets, such as China, even India, Eastern Europe and, of course, the Middle East. This was the main feeder market, and the base now is much bigger than before.”
Ownership has reverted back to those pre-revolutionary times, with the exception of investors from Qatar, Shalaby said, which has been the subject of economic boycotts from several other Middle Eastern and African countries—including Egypt and Saudi Arabia—since the summer of 2017.
“There has been huge renewed investment interest from the Gulf due to Egypt’s strong business fundamentals,” he said.
Lerner said he’s seeing similar investor activity.
“Everywhere interest is back,” he said. “If you look at Cairo, all the international chains are there, all of them, and they are working well. Marriott has, if I am not mistaken, 30 properties, with 10 in the pipeline, and they know what they are doing.”
The investor profile in Egypt has also changed.
“Traditionally 90% of investors in Egypt derived from Middle East and Africa family ownership, which faced problems with the (Egyptian) government after the revolution,” Shalaby said. “Many contracts were canceled.”
He added most of these investors had since been awarded back their land via the Egyptian court system.
“Contracts are being respected,” Shalaby said.
What the numbers say
Data from STR, the parent company of Hotel News Now, shows Egyptian hotel performance increased in all three major metrics.
In October 2018, hotel occupancy for all of Egypt increased 17.3% year over year to 63.6%, while average daily rate has jumped 14.5% to 1,328.91 Egyptian pounds ($74.09) and revenue per available room grew 34.3% to 844.93 Egyptian pounds ($47.11).
In Cairo, occupancy increased 10.1% in October to 71.2%, while ADR rose 7.9% to 1,671.10 Egyptian pounds ($93.17) and RevPAR grew 18.7% to 1,189.22 Egyptian pounds ($66.30). In Red Sea resort-package destination of Hurghada, occupancy increased 25.6% to 68.6%, while ADR rose 29.5% to 940.26 Egyptian pounds ($52.42) and RevPAR soared 62.7% to 644.58 Egyptian pounds ($35.94).
STR analysts said these increases must be seen in light of fluctuations in the Egyptian currency as an analysis in U.S. dollars reveal more muted increases. Hurghada provides a good example of that.
In local currency terms, ADR in Hurghada during the revolution (2011-2014) averaged 354.36 Egyptian pounds, while in a rolling 12-month period through October 2018 ADR was 918.79 Egyptian pounds, a 159.3% increase. In U.S. dollar terms, Hurghada ADR during the revolution was $54.14 and $51.60 in a rolling 12-month period through October 2018, which is a 4.7% decrease.