Market Update: Cairo

Desperate times have called for desperate measures with Cairo hotels slashing rates to attract a handful of guests, but an underlying buzz of activity provides hope for the city’s tourism industry as investors and operators look past the unrest

On the surface, downtrodden Cairo hotels are stooping to their lowest levels yet to attract a handful of extreme tourists and brave businessmen in an attempt to keep their skeletal operations alive.

But underneath the surface, a flurry of international consultants, bargain-hunting investors and hospitality optimists are at work planning a new future for the city, home of one of the seven Wonders of the Ancient World, The Great Pyramids of Giza, and a wealth of other attractions.

The level of Cairo hoteliers’ current state of desperation varies depending on the area. While occupancy levels were up across the whole of Cairo in 2012 on 2011, the occupancy levels were still meagre.

TRI Hospitality Consulting results show an average occupancy of 40.5% in the month of December 2012, compared to 36.3% in December 2011. Furthermore, this increase in occupancy came at a price, with most areas seeing reduced average daily rates in 2012 on the year before.

Downtown, not all dull
Looking at Downtown Cairo and the famed Tahrir Square — recognisable from the disturbing images of violent uprisings frequently broadcast in the media — the area surprisingly received the biggest hike in occupancy seen across Cairo in 2012, up by a considerable 30.1% on 2011.

This increase is perhaps less surprising when you look at the 11.7% slump in average daily rates in 2012 compared to 2011, according to Colliers International statistics, which highlights the extent to which hoteliers have cut rates to lure tourists.

A quick search on Expedia exposes luxury five-star hotel bargains such as Conrad Cairo and InterContinental Cairo Semiramis going at under US $110 per room night due to their rather hairy locations.

The InterContinental Semiramis, located close to Tahrir Square and the US Embassy, was forced to close down completely at the end of January after masked gunmen stormed the building. Panic-stricken staff called for help on the hotel’s Twitter page.

“A group of people forced their way into the property and caused significant damage to the reception and ground floor areas of the hotel. We secured our guests and colleagues during this time and no-one was hurt in the incident,” IHG VP of operations for the UAE, Near East and Africa Ignace Bauwens told Hotelier at the time. 

“The situation unfolded rapidly and the hotel used all means at their disposal to ask for the help of police and security forces to ensure the safety and security of our guests, colleagues and the property,” he added.

Fortunately there were no reported injuries and the hotel has since reopened, but it’s fair to suspect the incident failed to instill confidence in potential visitors to the area.

“Downtown Cairo used to be the main attraction for tourists, but it’s been affected dramatically by what’s happening as most of the hotels are close to Tahrir Square. The Ritz-Carlton, next door to the Semiramis, is closed for renovation,” says Jones Lang LaSalle Misr LLC head of Egypt Ayman Sami.

“The Fairmont Nile City Cairo nearby is still operating but has also had certain events that have reduced occupancy dramatically. You also have the Conrad and Four Seasons further south, which continue to operate,” he adds.

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Giza, a no-go
Just across the Nile is Giza, where you will find the pyramids and other luxury hotel rooms on the cheap. Occupancy increased 19.1% in 2012 on 2011, but average daily rates slumped 10%, a report by Colliers International shows.

“To get to Giza you have to go very close to Downtown and Tahrir Square. [Pre-revolution] Giza had the highest amount of leisure travellers in the whole of Cairo because that’s where everyone wanted to go. So the leisure travellers panicked and so did the hotels which have had to sell very cheap packages or lower their rates for FITs on sites like Booking.com,” says Colliers International head of hotels and resorts – MENA Filippo Sona.

Heliopolis, the perfect getaway
On the other hand, hotels in the Heliopolis area, close to the airport — providing an easy escape for visitors — are rather hopeful. In fact, Heliopolis is the only area of the city that has managed to significantly increase occupancy in 2012 without slashing rates.

The area, which is home to hotel brands including Fairmont, Le Meridien, Radisson Blu and Novotel, received an increase of 0.4% on average daily rate to around $100 in 2012 compared to 2011, according to statistics compiled by Colliers International. Occupancy increased a significant 21.4%.

“Heliopolis is characterised by the corporate business. The business of Cairo Downtown has almost shifted to the Heliopolis area, which is seen as a safer place to be,” explains Sona, adding that he too now chooses to stay in Heliopolis when visiting the city.

Jones Lang LaSalle Misr’s Sami, who is based in the firm’s Heliopolis office, said he has also observed that the area “seems to be maintaining its rates and doing better”.

“Actually when the Cairo Downtown hotels had little or zero occupancy, those nearer the airport were overbooked,” he recalls.

Bargain-hungry
clients & investors While slashing hotel rates to bring occupancy up has proven to be an effective strategy for most hotels, not all visitors to Cairo are in search of a bargain hotel room — for some it’s business as usual.

“The professional segment is still very much present with telecommunications business a primary reason for many who are travelling in and out of Cairo; you have the headquarters for Microsoft, Vodaphone MEA and a number of banks. Telecommunications, government and professional services are still very active,” reveals Sona.

Others are looking for much bigger deals in the city. Governmental turbulence has called for the services of international consultants, while investors looking beyond the current unrest are visiting the city to seek out opportunities.

“There is a lot of interest from Arab investors and other people looking into the market. So while there aren’t a lot of tourists coming in, these are business people,” says Sami.
Just last month, Hilton Worldwide signed a management contract with Saudi Egyptian Real Estate Development for its sixth property in Cairo, due to open in 2016.

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Up and coming cairo
The 257-room Hilton Cairo Nile Maadi overlooks the Nile in the upscale residential and diplomatic district of Maadi. It is the first hotel in Egypt to be owned by both the Egyptian and Saudi governments and is “set to become one of the flagships of the joint investments between both countries”, according to Saudi Egyptian Real Estate Development chief executive officer engineer Darwish Ahmed Hassnin.

In addition to the latest signing, Hilton Worldwide also has the 635-key Hilton Heliopolis and the 390-room Hilton Giza Pyramids coming up in Cairo.

Hilton Worldwide, Middle East & Africa president Rudi Jagersbacher told Hotelier Middle East he believes “the market is coming back”.

“The rates are still a bit low but we need that so Cairo can fill [the hotels]. We have a big business in Egypt with key hotels there.”

In addition to Cairo, the group already operates hotels in Alexandria, Hurghada, Sharm El Sheikh, Taba, Nuweiba, Marsa Alam and Luxor. Its Egypt pipeline also includes the coastal 660-room Hilton Makadi Resort, the 158-room Hilton Alexandria Corniche and the 195-room Hilton King’s Ranch Resort in Alexandria.

“Our Egyptian expansion strategy and determined pipeline growth reflects our unwavering faith in the viability of Egypt, its people, business and its community,” comments Hilton’s Jagersbacher.

Sofitel is also confident in Cairo’s ability to rebuild itself as a major tourism destination. In the midst of the unrest, CEO Robert Gaymer-Jones told Hotelier that the city was among those pinpointed for the expansion of its fashionable ‘So by Sofitel’ brand within the next five to seven years.

Other operators and developers that have publicly backed Cairo’s comeback in the past 12 months include Mövenpick Hotels & Resorts, which added four new Nile cruisers last October as “testament to its belief in Egypt’s tourism sector”. The group has also added a 134-key extension to its existing Mövenpick Giza, Cairo Pyramids property.

Other notable projects coming up within the next five years include Royal Maxim Hotel Kempinski, Renaissance Cairo Mirage City and Shaza Cairo Nile, among others.

Then there is the return of the hotels that used the lull in tourists as an opportunity to renovate their offerings, including the conversion of The Nile Ritz-Carlton, Cairo and the opening of Sheraton Cairo — both scheduled to relaunch this year.

Meanwhile, the Grand Egyptian Museum in Cairo is expected to provide 15,000 new jobs in the tourism sector when it opens in 2015.

The project, which has just entered its final phase of construction, already employs 5000 people. In total, the new museum will cost EGP 5 billion ($829 million), with a large part of funding provided by the Japanese government in the form of a soft loan to be repaid within 10 years of inauguration, according to Egypt’s Minister of State for Antiquities Dr. Mohamed Ibrahim.

Furthermore, one of Saudi Arabia’s largest hotel and amusement park developers, Al Hokair Group, recently announced that it was looking to raise up to $570 million to fund commercial projects in Cairo, as well as in Alexandria.

Some of the most significant projects in Cairo, however, have been undertaken by Emaar Misr, the Egyptian arm of UAE-based Emaar. These include the 48 million m² Uptown Cairo development comprising multiple hotels, residences, an 18-hole golf course, as well as business and retail space. Hotels also form part of the 3 million m² Cairo Festival City mixed-use project close to the airport, and the most recently announced $80 million Cairo Gate retail project.

“There are a lot of schemes ongoing… all these companies are still working in the background,” reveals Colliers International’s Sona.

“They’re not making public announcements, but they’re doing their homework and all the professional teams are still travelling there.”

What lies ahead?
Looking too far into Cairo’s future may be risky, but for those risk-takers that do, Colliers International suggests the biggest opportunities could lie in the segments neglected by many of the luxury operators active in the city.

According to Colliers International, the supply of budget brands and serviced apartments in Cairo is scarce; these are typically small, locally-branded, low-quality properties with limited facilities.

“The opportunity is clearly in internationally-branded economy hotels and serviced apartments. This new wave of budget travellers attracted by low rates is creating a new profile of tourists in Cairo; those that visit for leisure are looking for alternatives to the luxury five-star properties,” he concludes.