Macro-Economic Overview

The Middle East and North Africa (MENA) facilities management (FM) is one of the fastest growing markets globally.  Though North Africa consists of countries such as Algeria, Egypt, Libya, Morocco, and Tunisia, this article focuses only on Egypt and explores in detail the demand drivers for Egypt’s FM market.   Egypt is the fourth largest economy in the MENA region and single largest country with population of around 91.0 million. The population growth is projected to grow at 2.3% per annum to reach 110.0 million by 2025. The economy started to recover from 2014 political and economic crisis and the country’s GDP was estimated at nearly $331 billion in 2015, growing at 4.2% over 2014. The economic growth has doubled the growth rate observed during the past few years. The government is focusing on various sectors such as agriculture, electricity, and tourism to boost the economy. It is noted that the government has scaled up infrastructure spending and is undertaking pre-emptive measures to restore macroeconomic stability in the country.

Exhibit 1: Nominal GDP of Select Top MENA Countries (2015)

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Exhibit 2: Population of Select Top MENA Countries (2015)

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The Egypt Economic Development Conference (EEDC) which took place in 2015 saw the country signing some 40 new investment agreements and Memorandum of Understanding (MoU) worth $163 billion. The foreign direct investment (FDI) was estimated at around $6.7 billion in 2015, and is gradually picking up its pace, up 56% from $4.3 billion in 2014.

Exhibit 3: GDP Growth Rate, Egypt, 2011 – 2018

 

Booming Real Estate Construction Activity Expanding the Building Stock for FM Services

The major factor influencing the growth of real estate sector in Egypt is the devaluation of the Egyptian Pound. According to Ministry of Finance, the Egypt’s construction and building sector accounted for 4.8% of the country’s GDP in 2015. The sector grew by 7.4% and 9.7% in 2014 and 2015, respectively, which is projected to grow by 8.0% in 2016, amidst strong investments from public-private partnerships (PPP) and infrastructure projects in the pipeline.

According to Central Bank Data, the value of investments in the construction and building sector rose by 33.4% in 2015 to reach $506.2 million from $379.4 million in 2014. However, in 2014 there had been a contraction in investment of 25.5% as against $509.4 million in 2013. Nonetheless, the share of the construction and building sector of the total investment value in the country rose from 1.0% in 2014 to 1.1% in 2015.

Global Integrated Facilities Management (IFM) Services Market Overview

The global market for IFM services was valued at $75.80 billion in 2015, according to Frost & Sullivan.  The global IFM market is expected to touch $98.52 billion by 2019, growing at a CAGR of 6.8%.  The Rest of the World (ROW) market accounts to 6% of the overall market ($4.5 billion) and includes countries such as Africa and Middle East.

Exhibit 4: FM Services Market – Global IFM Market Revenue by Region, 2015

 

Market Overview – Egypt FM Services

Growth in economic output and population will increase the investments in construction and building activities, thereby creating huge demand for FM services market in Egypt. The share of the private sector investments of the overall investment in the construction and building sector has moved up to 75.0% in 2015 from 70.0% in 2014. However, the major factor restraining the growth of the FM market in Egypt is the inability of the government to provide favorable investment destination to the developer, thus reducing the demand from construction sector. Growth in tourism industry and investments in hospitality, healthcare, and infrastructure segments in Egypt presents a tremendous potential for outsourcing of non-core activities. Customers are becoming increasingly aware of the benefits of outsourcing the FM services in order to reduce operating costs and to focus on the core business activities. Therefore, the willingness to outsource FM services among customers/end users is expected to have a positive impact on the growth of this market in Egypt.

Competitive Scenario

The market has a mixed presence of both international and domestic companies. Organized companies  are financially strong to harness the market potential and possess the ability to attract large and medium scale customers through their established brand image, competitive pricing, wide range of services supported by skilled technical expertise/qualified manpower, and capability to invest in training and so on in order to stay competitive.

Large FM service providers are currently offering top-notch services in both hard and soft FM. First of all, introduction of new technologies has resulted in improved delivery of services. Second, FM service providers have begun to follow stringent standards/practices to maintain consistency of operations. Third, the quality of services included in their offerings has been improved allowing them to successfully compete by identifying the specialized service requirements of the clients in different end-user segments. In order to gain strong foothold in the market, the companies have increased usage of reporting software Computer Aided Facilities Management (CAFM) and raise their standards by getting ISO certification by adhering to quality, environment, health & safety requirements and by offering professional services with availability of trained in-house manpower.

Companies operating in the FM market include but not limited to Benchmark FM, EL-OFOQ FM, Amer Group – FM Division, Egyptian Company for Entertainment and Tourist Attractions (ECETA), Delawar Facility Management Company (DFMC), LEEDS TFM, Contrack FM, Integrated Facility Management Company (IFMC), EFS Facilities Services Egypt, Key Facilities Management, G4S Egypt, Hill International (North Africa) Ltd., Kharafi National Egypt, Al Futtaim Engineering Egypt, Triangle Group, Emdad Facility Management, Emdad Home Care, Mace Egypt LLC and so on.

Key Project Opportunities in Egypt

On one hand, in the real estate sector, contracts worth $16 billion have been signed in the commercial segment. This includes a construction deal worth $4.6 billion with the local real estate developer ‘Arabia Group’ to develop a mixed-use project in Cairo which includes schools, hotels, and medical facilities.

On the other hand, the public sector investments announced during the new budget session is expected to reach $8.5 billion in 2016 (2.5% of the GDP) of which $6.2 billion is financed from the state’s resources and the rest through grants and self-financing. Several mega projects have been announced by the government, one of which is the formation of new city known as “New Cairo” which is expected to create job opportunities and housing for local residents. The new city will be built at a cost of $45 billion, covering an area of about 70,000 acres and could have a population of 5 million; the first phase alone could take up to seven years to complete throwing huge demand for FM services market in Egypt.

Residential Sector

The Ministry of Housing has approximately 500,000 new homes to be built every year for the next 5 years to keep pace with the growing population which is expanding at a rate of 2% to 2.5% per year. Signaling the demand, the UAE based ‘Arabtec Company’ has agreed to invest $36.7 billion and construct around 1.0 million homes across the country. This includes construction of 100,000 housing units to be built in Egypt’s El Obour and Badr districts. In addition to this, the Ministry of Housing signed deals worth $12.7 billion with real estate developers namely ‘Mountain View’, ‘Palm Hills’, ‘Sisban Holding’ and a consortium of Arab firms to develop New Cairo and 6th of October City.

Cairo already consists of established residential neighborhoods such as Zamalek and Maadi. The residential communities are currently moving toward the East and the West, following the development of New Cairo City, and 6th of October City owing to high density. According to Jones Lang LaSalle (JLL), Cairo’s residential supply was 113,000 square metres (sq. m.) in 2015, followed by 114,000 Sq.M. in 2016 and projected to supply 7,000 Sq.M. between 2017 and 2018.

Office Sector

The demand for new office space in Egypt expected to be delivered in the next 5 years till 2021 is 350,000 Sq.M. as per the data from Colliers International. According to Jones Lang LaSalle (JLL), Cairo’s office supply was 921,000 Sq.M. in 2015, followed by 941,000 Sq.M. in 2016 and projected to supply an incremental of 136,000 Sq.M. between 2017 and 2018, another 136,000 Sq.M. between 2019 and 2020 and finally 78,000 Sq.M. in 2021.

Retail Sector

There are number of quality local brands expanding within high street shopping nodes, such as Zamalek, Maadi, and El Korba (Heliopolis). However, the absence of this retail category within new districts such as 6th of October City, which is fast becoming a popular residential locality, is creating an opportunity for developing high street destinations. It is noted that in 2015, Saudi-based retailer Azizia Panda United announced plans to develop 16 new Panda supermarkets across Egypt, the first of which opened in 6th of October City, to be followed by five in Cairo by 2016. The remaining 10 stores are expected to be developed across the country over the next two years. More recently, the LuLu Group announced in December 2015 that it plans to invest $300m to launch 10 new hypermarkets in Egypt over the next two years.
According to JLL, Cairo’s retail supply was 1.3 Million Sq.M. in 2015, followed by 1.75 Million Sq.M. in 2016 and the projected supply is expected to reach 441,000 Sq.M. between 2017 and 2018.

Healthcare Sector

According to Colliers International, Egypt would require an additional 35,000 beds and Cairo (Giza included) would require an additional 7,000 beds by 2025. In order to meet the demand, Cairo alone requires an additional 4 to 5 hospital annually and the estimated ten year incremental demand for Cairo stands at 700,000 Sq.M. to 875,000 Sq.M. of hospital space. Moreover, the demand for hospital space for Egypt stands at 4.4 million Sq.M.

Hospitality Sector

The Egypt’s tourism sector witnessed some renewed confidence during the mid-2014, but some unfortunate security events have disrupted the already moderate tourism activity in the country. According to the Ministry of Tourism, occupancy rates in four and five star hotels have registered a moderate growth of 49% in 2015 compared to 37% in 2014. The upcoming projects are dominated by capital-intensive luxury hotel developments, such as The St. Regis (292 keys), The Address Uptown Cairo (300 keys), and JW Marriott Hotel Cairo (90 keys). According to Jones Lang LaSalle (JLL), Cairo’s hotel supply was 28,000 rooms in 2015, followed by 29,300 rooms in 2016 and projected to supply 1,000 rooms between 2017 and 2018.

Conclusion

Strong demand from public and private sector investments in sectors such as commercial, residential, industrial, Oil & gas, and infrastructure developments have been driving the growth of the construction & building sector, which reflects positive outlook for FM services market in Egypt moving forward.  The Egyptian FM services market appears to be slowly recovering, as the economy is returning to a healthy growth trend and the spending on infrastructure projects are slowly getting implemented. The FM market is expected to gain momentum and further improve in future as there are aplenty construction projects and commitments through multilateral organizations such as the United Nations (UN) and World Bank, along with the agreement and MoU signed during the EEDC enter the execution phase.

The growing demand for FM services in the Egyptian market will ensure more value-addition to the property as well as to manage the property in a more efficient and customer centric approach. The market participants with a vast pool of qualified resources and experienced personnel will excel in delivering quality services across sectors. Many market participants are gaining competencies in providing wide range of service offerings, supported by availability of sufficient manpower with dedicated training facility.  The growing use of CAFM for quality control program, clear-cut Standard Operating Procedures (SOPs) and Service Level Agreements (SLAs) will ensure consistency and standardization of services.

About Frost & Sullivan

For six decades, Frost & Sullivan has been world-renowned for its role in helping investors, corporate leaders and governments navigate economic changes and identify disruptive technologies, Mega Trends, new business models and companies to action, resulting in a continuous flow of growth opportunities to drive future success.

Frost & Sullivan

For six decades, Frost & Sullivan has been world-renowned for its role in helping investors, corporate leaders and governments navigate economic changes and identify disruptive technologies, Mega Trends, new business models and companies to action, resulting in a continuous flow of growth opportunities to drive future success.

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