JLL says Colombo city has immense potential to expand economic base

• Colombo district accommodates 12% of Sri Lanka’s total population 
• Rents in CBD sub market have increased 7% to 10% y-o-y in Grade A buildings
• Predicts retail mall stock will multiply 2.6 times in the next 4-5 years

 By Charumini de Silva

The Sri Lankan Government’s decision to place importance on upscale Western Region Megapolis project seems viable and timely with Colombo city’s immense potential for expanding its economic base, a Fortune 500 company said.

“Colombo metropolitan region accounts for nearly one fourth of the population, 50% of the GDP and 75% of the industrial establishments in the country. Future trends indicate that the demand for real estate and investments in Colombo is likely to be robust, underpinned by macro-economic factors in Sri Lanka,” John Lang Lasselle (JLL) Country Head Sunil Subramanian said.

He pointed out that the Government’s plans to make Sri Lanka the most competitive economy in South Asia will contribute to the incremental demand for housing, retail, grade A office space and hotels in the next five years as Colombo is one of the major industrial as well as trade and commerce hubs in the country.

As the country seeks to ramp up its prominence among South Asian markets, gross domestic product (GDP) growth will be paralleled with growing salaries and a consummate increase in demand for superior quality housing, he said noting that Colombo district accommodates 12% of Sri Lanka’s total population. 

With large numbers of people continuing to migrate from rural areas to urban territories, Subramanian asserted that a supply gap in affordable and middle income homes is evident.

He said the availability of housing loans, higher prevailing disposable income levels and the investments made by foreigners and non-resident Sri Lankans have all contributed to the demand for residential properties in the city.

The supply in Colombo apartment markets for completed as well as projects which are under construction from 2005 till 2017 is around 12,000 units, while majority of the supply at  42% is recorded in the middle level segment. 

Considering the demand assessment, he said the proposed apartment projects in Colombo are anticipated to primarily target mid level and premium segment to the tune of 77%. 

“A suture supply of only 23% in mid-level segment coupled with above average sales trends indicates immense potential in this segment,” he added.

 It was pointed out that during the past four quarters, due to the limited quality space availability, rents in the central business district (CBD) sub market have increased 7% to 10% y-o-y in almost all the Grade A buildings.

“The rise in rents was the result of demand from new entrants such as multinational corporations which are generally flexible with the leasing terms and ready to pay premiums for office spaces that meet their specifications,” Subramanian explained.

The Government’s plans to make Sri Lanka the most competitive economy in South Asia will contribute to the incremental demand for office space from companies in business processing outsourcing (BPO) and financial accounting outsourcing activities.

He stressed the retail mall stock will multiply 2.6 times in the next 4-5 years. “At present the retail segments are dominated on high streets such as Galle Road, Duplication Road, Pettah and High level road by super markets and mini majors.”

Furthermore, he said travel and tourism is expected to grow with the new Budget which promotes meeting incentives conferencing and exhibitions (MICE) sector in Sri Lanka.

However, he also highlighted that restricted foreign ownership of land, difficult approval processes, accelerated inflation due to commodity price shocks, slow pace of reforms, high construction cost and no clear regulations regarding taxation incentives extended to investors were outlines as major challenges in the country.

Pic by Ruwan Walpola