According to Statista, tourism’s contribution to GDP in 2022 increased to 6.35 percent of total GDP versus 3.8 percent during the global pandemic year. It is also forecasted to reach 11 percent by 2028.
According to our in-house database Egypt’s hospitality market recorded a significant growth in revenue per available room (RevPAR) FY 2022 compared to the pre-Covid era, equivalent to USD 116 versus USD 55 in 2019. This increase in RevPAR was on the back of 66 percentage market-wide occupancy and a market-wide average rate of USD 175.
Furthermore, our market intelligence suggests that the rise in occupancy can be attributed to an extent to the return of Eastern European guests to Hurghada, British and Italian tourists to Sharm El Sheikh in addition to the emergence of new source markets such as Uzbekistan. In comparison, the Capital City of Cairo has witnessed increased visitations, particularly from GCC tourists. Average rates, however, grew on account of factors such as inflation and unrealized FX gains led by the recent currency devaluation in Q3 2022.
Evidently, Egypt has been on the investors’ radar for a few years due to the government’s recent trials to attract direct foreign investment in general and across the hospitality space. The total net foreign direct investments have recorded USD 8.9 Billion in 2022 and are expected to reach USD 10 Billion in the current fiscal year (FY) 2022/2023, according to Egypt Central Bank.
Furthermore, the IMF forecasts a 65 percent growth in net foreign direct investments by year-end 2025 versus 2023 or USD 16.5 billion as an absolute value.
Like foreign direct investment, there have been several announcements for new supplies entering the market between 2023 and 2026. Management companies such as Rotana, Four Seasons and InterContinental Hotels Group have announced their plans to expand their operations across Egypt with approximately 12 properties in total.
Hotel valuation index
As per HVS’ Hotel Valuation Index (HVI) 2023, value per key in dollar terms appears to be attractive to foreign investors on account of currency fluctuations. Our data show that the average value per key for four-star properties ranges from USD 150,000 – 250,000, while five-star properties vary between USD 350,000 – 500,000 per key.
We specifically note that factors such as size, quality, branding, location and most importantly historical/anticipated cashflows have a direct impact on the concluded values.
Egypt’s hospitality market has shown a strong recovery in its tourism sector despite the current economical unrest. Our forecast for major cities/markets shows resilience and stability toward maturity. On the investment front and in line with announcements from the government; there has been a notable appetite from international investors during the last quarter of 2022 and year-to-date 2023. Evidently, the majority of interested parties are from the GCC and notably, Saudi Arabia, United Arab Emirates and Qatar. We forecast that such appetite is predominantly driven by the local currency devaluation, which in return creates an opportunity for foreign investors to leverage quality assets at an affordable price.
Ahmad Yousry Elbeheiry
MRICS, associate director of HVS Middle East & Africa