Egypt’s retail sector will become increasingly formalized over the medium term (2021-2025), driven by an emerging mall culture, according to Fitch Solutions.

Already, Egypt’s largest cities, such as Cairo and Alexandria, are home to large shopping malls, including the Mall of Arabia, City stars and Cairo Festival City Mall. As such, Fitch Solutions believes that as the economy and consumer spending rises, this will lead to an acceleration in shopping mall investment over the coming years. Also, this is expected to bolster international retail giants seeking to open new stores in Egypt’s shopping centres.

Consumer spending remained resilient over the course of the pandemic last year, despite the slump in international tourism. Thus, Fitch Solutions projects that total household spending will expand at a real rate of 3.7 percent over 2021, while averaging 4.2 percent per annum over the period.

“We highlight that strong growth in consumer spending and favourable macro-economic conditions over the coming years will create an attractive environment for mall and retail investment.”
Fitch Solutions

At this rate, Egypt will become second fastest-growing consumer market in the MENA region after Qatar, which will attract investment from retailers and developers, Fitch Solutions indicates. In turn, favourable macroeconomic conditions will drive solid growth in households spending in Egypt.

For example, this is likely to reflect in high remittance inflows to Egyptian households over the coming years. And this will be driven by higher global oil prices and an economic recovery in the Gulf Cooperation Council, which is a major source of remittances to Egypt.

Furthermore, with labour market conditions improving, Fitch Solutions projects unemployment as a percentage of the total labour force. Percentage-wise, this will fall to 6.7 percent in 2025, from 7.5 percent in 2021. Also, this will boost purchasing power and lift consumer confidence over the medium-term.

Consumer spending to rise over the medium term

According to the research firm, the size of Egypt’s middle class will be one of the fastest globally over the medium term. Thus, this is likely to expand at a compound annual growth rate of 23.2 per cent. As such, the number of middle to high-income households will reach 2.72 million by 2025, up from 1.22 million in 2021.

Accordingly, Fitch Solutions also notes that income growth will consistently be above consumer price inflation (CPI) over the coming years, signalling real wage gains for Egyptian consumers. Also, Fitch Solutions project CPI to average 5.9 per cent over 2021-2025. More so, disposable income growth will reach an annual average of 8.5 per cent over same period.

In addition, middle to high-income consumers are more likely to seek branded consumers items and have the disposable income to purchase items in shopping malls.

“We also highlight that rising incomes and a growing middle class in Egypt will boost mall traffic and increase demand for branded consumer products.”
Fitch Solutions

More to point, Fitch Solutions forecasts that Egypt’s favourable real estate dynamics will attract mall and retail investment over the medium-term. This will further bolster the growing mall culture amongst country’s consumer base, Fitch Solutions predicts.

Retail rents in Egypt are amongst the lowest in the MENA region, limiting costs for retailers that seek to establish or expand their presence in the country.

Also, Fitch Solutions note that Cairo, Giza and Alexandria’s retail real estate markets offer investors healthy net yield ranges of 5-10 per cent, in line with other regional urban centres.

According to Fitch Solutions, the construction of new cities, including a new capital, will also draw interest from both domestic and international mall developers and retailers over the medium-term.