_Covid-19 IN AFRICA: Focus on Northern Africa

Whilst the rate of Covid-19 cases has stabilised in Egypt and Algeria during Q3 2020, the number of new cases in Morocco has continued to grow. The impact of the pandemic across the region varied depending on each country’s ability to cope with the crisis. Initial indicators of a recovery have been observed across the board, although these could be hampered by a second wave and any resultant measures which may be enacted to control its spread.

October 22, 2020

The International Monetary Fund (IMF) has projected Egypt’s economic recovery to be rapid in the medium term. Through adoption of its proactive policy, which allocated 2% of the country’s GDP to support the most impacted sectors such as tourism, the country has been able to mitigate the initial economic shock imparted by the pandemic and support the national economy. As a result, Egypt is set to be the only country in the Middle East and North Africa to record a positive real GDP growth in 2020, with growth expected to reach 3.5%. However, in 2021 Egypt’s GDP growth rate is forecast to slow to 2.7% in 2021 before rebounding to 4.9% in 2022.

Morocco’s economy contracted by 8.7% in the year to Q3 2020 according to the country’s central bank. The country’s recession is expected to be more severe than the IMF had forecast in April 2020, where it expected GDP to contract by 3.7%. In its latest October 2020 outlook, the IMF now forecasts for the economy to contract by 7.0% in 2020. As a result of a series of recently launched economic and social reforms, which aim to soften the impact of the pandemic, Morocco’s GDP is expected to return to growth in 2021 with growth forecast at 4.9%. Finally, the IMF estimates that Algeria’s economy will contract by 5.5% in 2020 amidst scaled back investment budgets and low oil prices. Whilst the economy is set to rebound to 3.2% growth in 2021, continued dependency on the hydrocarbon sector and lack of diversification present major downside risks to the outlook.

Mobility data from Google’s mobility index indicates that in the last month, activity across retail, workplaces, and transit stations has receded towards its pre-Covid baseline across Egypt and Morocco. However, these trends are not uniform across countries and are reflective of the severity of government interventions. Whilst activity has been quicker to bounce back in Egypt, in Morocco activity level remains well below the baseline showing the impact of the severity of government restrictions imposed in the country.

While these trends indicate the early signs of a recovery, risks associated with a second wave of the virus remain substantial. Therefore, they command a prudent approach from governments and public institutions in order to avoid a second round of stringent lockdowns, which would inevitably bring further economic and social distress to these countries and their economies.

Real Estate Activity

Algeria’s real estate market has slowed substantially and is yet to recover. Across the prime office and retail sectors, limited activity was observed in the first half of the year, with a majority of tenants either postponing or renegotiating deals. Average prices in the mainstream residential sector were already softening prior to the pandemic due to increased supply in the market, primarily as a result of the completion of government-backed social housing schemes. This trend now extends to the prime residential sector due to limited levels of demand. Furthermore, as a result of the pandemic, considerable rental discounts have been granted across all sectors, the residential sector saw the greatest level of concessions on offer with rents being reduced by up to 30%.

Morocco’s real estate market remained subdued despite resumption in notary activity, which has underpinned some level of recovery in the residential sector. However, activity has remained limited across the commercial and retail sectors with most tenants in the commercial sector seeking to renegotiate their contracts to increase flexibility and consolidate space. Overall, real estate transaction volumes fell by 56.1% in the year toQ3 2020. Whilst all sectors have seen material declines in activity, the commercial properties and land transactions were most impacted with declines of 57.2% and 59.1% respectively over this period. Compared to same period in 2019, residential prices are estimated to have decreased by 4.0%, urban land prices by 2.7%, and commercial offices by 1.3%.In the residential sector, the decrease in prices was most prevalent for houses (-6.7%) compared to a 3.7% and 3.1% decline for apartments and villas respectively, while transaction volumes fell by 55.3%.

Cairo’s commerical real estate market has seen a resumption in business activity, with an increase in leasing enquiries stemming particularly from e-commerce and pharmaceutical companies. The prime office sector remained stable, both in terms of average rents which were recorded at US$30/sqm/month and vacancy rates which were recorded at 11%, a trend is expected to continue in the short to medium term. In line with other markets in the region, demand remains focused on smaller, high-quality requirements as companies re-assess their budgets and needs for the upcoming months. In Cairo’s residential market, we have seen performance diverge with quoted prime rental rates increasing by up to 20% in the year to Q3 2020, whilst the mainstream residential market recorded declines of up to 10% over the same period. The retail sector has continued to bounce back with increased demand from food and beverage tenants, with retail rents recording an increase of up to 10% in prime areas.

For further information, please do not hesitate to get in touch via the contact details below:

Tilda Mwai

Researcher for Africa

tilda.mwai@me.knightfrank.com

Arturo Pavani

Head of Research

Knight Frank-EMC

Arturo.Pavani@knightfrank-emc.com