Commercial property sector in Sri Lanka: Most searched locations

Tuesday, 6 February 2018 00:00 - - {{hitsCtrl.values.hits}}

As the country shows unprecedented progress in terms of economy, infrastructure and technology, Sri Lanka has been able to foster many job opportunities, especially in the service sector and the hotel industry.

The country is also giving birth to a plethora of startup companies, mostly headed by the younger generation.

As a result of this economic growth, in 2017, Sri Lanka was not only able to achieve an overall GDP of USD 81.32 billion, the overall unemployment rate too showed a reduction from 380,594 in the second quarter of 2017, to 358,350 in the third quarter of 2017. In terms of foreign direct investments, Sri Lanka was able to achieve the highest ever FDI in 2017, with USD1.63 billion, from the USD 802-million in the year 2016.

Due to this continuous economic growth as well as many private sector businesses and startups springing in the country, the need for physical workspace has increased. This has resulted in an increase in demand towards commercial properties in the recent years. In-house data from the leading property portal, Lamudi.lk, indicates that the number of people searching for commercial properties through the online property portal escalated by 49.7% from June to December 2017.

The growth in demand towards Grade A office spaces was a hot topic in 2017. Some of the contributing factors to this demand were luxury developers such as Cinnamon Life and Shangri-La, located in the CBD (Central Business District) area, coming up with mixed projects and lower grade accommodations moving up to better quality spaces. According to JLL, in 2017, about 95% of Sri Lanka’s ‘Grade A’ office space of about a million square feet was occupied, and a larger proportion of the demand was driven from Domestic firms.

Though the commercial property sector is fueled by the entering of multinational corporations, startups, foreign investment along with IT and ITeS companies, BFSI (Banking, Financial services and Insurance) companies and Garment manufacturing companies, certain challenges remain in acquisition in commercial properties. According to JLL some of these challenges are, The JLL report, Sri Lanka -Land of Real Estate Opportunities, points out some of these challengers to be inadequate parking facilities and overreliance of Colombo for growth of the market. . Moreover, Colombo is experiencing a supply demand imbalance in grade A office properties due to high office rental, forcing tenants to settle in Grade B spaces in residential areas.

Office space sector in 2018

Nevertheless, 2018 indicates positive signs towards the commercial property sector and the overall economic growth of the country. The government has steps taken to enhance entrepreneurship by providing long term loans for Small & Medium scale businesses, and 10% Interest relief for loans obtained by female entrepreneurs. Sri Lanka is expected to see an increase in FDI as a result of lifting restrictions on foreign ownership of land by listed company. Furthermore, the increasing rentals have made secondary locations like Colombo 5, 8, 9 profitable for developments.