Real Estate in Sri Lanka Prospects and Potential

Transcription

Real Estate in Sri Lanka Prospects and Potential
Translating Economic Growth into Real Developments
in Colombo
On Point • Real Estate in Sri Lanka - Prospects and Potential
Beira Lake in Colombo
On Point • Real Estate in Sri Lanka - Prospects and Potential Laden by the hope of a virtuous future, Sri Lanka
teems with infinite possibilities and is preparing
itself to become a destination of choice.
Since the end of the civil war in mid-2009,
the country’s economy has been on a strong
growth trajectory led by determined rebuilding
measures, surging tourism and increased
investor confidence. After a sharp decline in
growth during 2008-2009, it expanded rapidly
by 8% in 2010 and 2011, and a further 7-8%
is expected in 2012. This makes it the second
fastest growing economy in emerging Asia,
after China. Low interest rates and moderate
levels of inflation will boost trade and industry
in the medium term, and the government is also
placing increased emphasis on carrying out large
infrastructure projects, which will not only improve
communications in established areas, but also
unlock the hidden potential of other locations.
With several local and domestic investors looking
to capitalise on a promising economic growth
environment and improving infrastructure, real
estate has witnessed an upward trend in demand
and pricing. The recent upswing in the service
sector from finance, tourism, and the IT/ITES
industry in Colombo, has triggered a healthy
demand for residential space in the Greater
Colombo real estate market. The development
of premium condominium projects is most
prominent in the Central Business District; and
sub-divided developments, row houses and
villas in the peripheral suburbs have emerged as
the preferred choice for middle-income buyers.
However, with rising land and construction costs,
it is important to be aware of the affordability of
upcoming supply. Also, whether it is happening in
the right locations and will it be adequate to meet
the growing demand?
Retailing in the country has largely been confined
to established high streets, with domestic
retailers catering to an urban population. Lately,
Colombo has witnessed the development of some
organised retail establishments in up-market
locations. Given the current trend in organised
retail and brand presence, will there be significant
scope for enhancing targeted retail capacity in
upcoming residential locations, and will there be
an opportunity to expand retail services for food
and beverages, healthcare, personal care and
tourism?
The demand for commercial office space is driven
by growth in the banking, IT/ITES and tourism
sectors. While Banking, Financial Services and
Insurance have an established presence with
captive properties across Colombo, IT/ITES is
emerging as an attractive sector. According to
SLASSCOM, over 40,000 people are employed
in the IT and BPO industry in Colombo and
the workforce is growing at over 20% annually
with low attrition rates of 10-15%. Colombo is
comparatively cost competitive and has lower
upward wage pressure than many established
global sourcing destinations. With limited
operational Grade A office space in the city,
the demand is trickling down to inferior grade
properties. Will this dearth of quality office
space continue or will developers and investors
perceive this as an opportunity to build more and
attract global occupiers? What cost advantage
does office real estate in Colombo provide for
outsourcing?
The Sri Lanka Tourism Development Authority
figures show that tourism forms 0.6% of the
country’s total GDP, and is one of the fastest
growing sectors in the economy, growing by
39.8% in 2010. With the Government setting
the target for 2.5 million tourist arrivals by 2016,
hotels and resorts are set to mushroom in tourist
destinations. Are there enough hotels to meet
the burgeoning demand from tourism? Will Sri
Lanka remain a budget destination or transform
itself into an exotic destination for affluent global
vacationers?
We shall attempt to address some of these issues
and many more in the following sections of this
whitepaper: Real Estate in Sri Lanka – Prospects
and Potential.
2 successive years of
ECONOMY
IMF upgraded Sri Lanka to
Highest literacy rate in
South Asia at
8% growth
Middle Income
Country in 2010
94.2%
in GDP (2010-2011)
Workers’ remittances multiplied over
Per Capita Income
targeted to cross
USD 4,000
by 2016
3.5 times during the last decade
OFFICE
5th
21st
Ranked
in financial
attractiveness, ahead of India,
China, Central Europe and
Eastern Europe
Ranked
in the
AT Kearney Global Services
Location Index 2011
IT/ITES sector achieved export revenues of
Top 9 7 million sq ft
of office space required for
Included among the
in Asia Pacific Gartner’s 30
Leading Locations for Offshore
Services (2010-2011)
USD 392 million and had over 40,000 employees in 2011
Targeting to achieve export revenues of
USD 1 billion and 100,000 employees by 2015
R E TA I L
Total stock of operational
malls in Colombo -
647,000 sq ft
IT/ITES Sector by 2015
RESIDENTIAL
8,129
condominium
units have been supplied in
1.05 million
sq ft
Colombo during 2005-2011
Rental yields of
3-7%
34%theofpremium
the supply of condominium units in Colombo in
category (LKR 25-45 million)
of shopping mall supply
HOTELS
Tourist arrivals expected to grow by
24%duringannually
2011-2016
Target of
2.5
million
tourist arrivals by 2016
75-85 hotels or nearly 3.5-4.0
million
sq ft of hotel space
needs to be built annually till 2016
Top Five Destinations in Kuoni’s 2012 annual poll of where UK customers want to
spend their holidays. Sri Lanka also retained its status as Top Destination for Weddings
Sri Lanka named amongst the
On Point • Real Estate in Sri Lanka - Prospects and Potential Zoning the City: The Growth Corridors
Colombo has traditionally been the hub of economic and political activities in Sri Lanka and is divided into 15 zones for administrative
purposes (Figure 1). During the last few years, due to the increased service sector activities in the city, the city’s real estate market has
witnessed heightened activity and has drawn interest from both national and international investors. The city, including the suburban areas,
has been classified into various micro-markets based on similarity of real estate development and characteristics.
SBD area stretches to the
Colombo City Municipal
limits; a distance of 3 km
from CBD limits towards
North, East & South
Hendala, Wattala, Peliyagoda,
Kelaniya, Welisara, Ja-Ela,
Katunayake
Along A3 Highway towards
airport; stretches to a
distance of 20 km from SBD
towards North
Raja Giriya, Golf Links, Sri
Jayawardenepura Kotte,
Battarmulla, Talangama,
Malambe, Ambatale,
Zone extends to Kaduwela,
a distance of 10 km from
the SBD
Dehiwala, Mt. Lavinia,
Ratmalana, Moratuwa,
Panadura, Piliyandala
Along Galle Road; stretches
to a distance of 20 km from
SBD towards South
CBD
SBD
Colombo 05: Narahenpitiya
Colombo 06: Wellawatte
Colombo 07: Cinnamon Garden
Colombo 08: Borella
Colombo 09: Dematagoda
Colombo 10: Maradana
Colombo 12: Kochchikade
Colombo 13: Kotahena
Colombo 14: Maligawatte
Colombo 15: Mutwal
Characteristics and Land Availability
• CBD of Colombo is the financial, business and transportation
hub of Sri Lanka. Part of the CBD is upscale and modern,
especially those parts close to the Galle Face beach where
the Galadari, Intercontinental and Hilton Hotels, as well as
the World Trade Centre are located. Other parts closer to the
Pettah market cater to the mid-income segment and form the
traditional CBD core of Colombo
• Preferred by HNIs, businessmen, senior executives of
corporate houses; upper and upper middle-income earners,
except for the Pettah area
• High-end premium residential projects in the price range of
INR 20-30 million
• Capital values appreciated by more than 40% in the last
three years
• Limited Land Availability
SBD
Fort Area and localities in 3
km radius
Markets
• SBD is primarily residential with strip retail activity
along major transport corridors such as Galle Road and
Duplication Road
• Colombo 07: Cinnamon Garden – Up-scale residential
pocket. Highest concentration of HNI’s
• Colombo 09: Dematagoda – Considered more a part of
suburban than central Colombo. It has comparatively
cheaper housing options
• Colombo 15: Mutwal – Caters to port related activities warehouses, container yards, non-polluting industries, power
supply establishments and other allied activities
• Colombo 04: Bambalapitiya and Colombo 06: Wellawatte
Primarily residential areas, though the main roads are lined
with established retail and commercial activity. Majestic City
and Unity Plaza are the major shopping complexes in this
area located along Galle Road
• Limited Land Availability
PD- Northern
CBD
Colombo 01: Fort Area
Colombo 02: Slave Island
Colombo 11: Pettah
Colombo 03: Kolupittiya
Colombo 04: Bambalapitiya
PDNorthern
Extent
PDEastern
Localities
PDSouthern
Zones
• Fast developing as a middle-income residential locality with
several retail outlets (mini-majors) along the A3 Highway
connecting the City to the Airport. Area around airport has
seen small scale industrial development in addition to
already established industrial areas of Welisara and Ja-Ela
• High Land Availability
PD- Eastern
Figure 1: Zones in Colombo
• Sri Jayewardene Kotte, being the new administrative
capital of Sri Lanka, has witnessed relocation of major
administrative offices and residences which has further led
to a spurt in real estate activity in the region
• The region is fast becoming a retail and residential (high and
middle-income) destination
• Has the most diversified socio-economic mix in Colombo
PD - Northern
GAMPAHA
Kolonnawa
Fort
Baseline
COLOMBO
Slave Island
CBD
Kollupitiya
SBD
PD EASTERN
Cotta Road
Manning Town
THIMBIRIGASYAYA
Bambalapitia
KOLONNAWA
Narahenpita
Kaduw
Angoda
Talengama
SRI JAYAWARDANAPURA KOTTE
KADUWELA
Arangala
Sri Jayawardanepura
Wellawanta
Kotte
Nugegoda
DEHIWALA
MAHARAGAMA
Dehiwala
PD - SouthernBoralesgamuwa
Maharagama
Kottawa
Mt Lavinia
RATHMALANA
Ratmalana
Piliyandala
Angulana
Kesbewa
Map not to scale
Source: Jones Lang LaSalle
CBD - Central Business District, SBD - Suburban District, PD - Peripheral District
PDSouthern
Colombo Municipal
Area
• Dense residential area with retail development along Galle
Road and hospitality development along sea shore
• Primarily middle-income residents
Offices in Colombo: Putting Function
before Form
captive towers that are self-owned by banks, financial institutions,
government bodies, manufacturing firms and conglomerates.
Housing the headquarters of several national and international
banking and financial institutions, the capital city of Colombo is
the most prominent commercial office destination in the country. In
2008, the Colombo Metropolitan Region (Colombo, Gampaha and
Kalutara) accounted for over 48% of the country’s GDP. Demand
for office space is primarily driven by growth in the banking,
financial services, IT/ITES and tourism sectors. Due to a dearth of
supply of quality space, strong demand in the past 2-3 years has
trickled down to absorption of Grade B and C space. The city lacks
multi-tenanted Grade A leasable office buildings, with most of the
demand for prime space absorbed by eight major office buildings.
The nearly 765,000 sq ft of office space under construction is
scheduled for completion during 2012-2015. Over 6 million sq ft of
office space has been planned but no ground has been broken yet.
Platinum One at Bagatelle Road is expected to become operational
in 2012, while AEC Towers at Khettarama Temple Road is expected
to offer 60,000 sq ft of office space by 3Q12. Among the landmark
office projects that are planned, Havelock City Commercial Towers
and Suchir NEB are the most prominent. Orion City is expected to
deliver 200,000 sq ft of additional office space, followed by 2.1 million
sq ft more by 2015. Orion City is the only IT-centric development
in Colombo city, with the others focused on non-IT commercial
occupiers.
The Fort area has traditionally been considered the Central
Business District as it is home to the World Trade Centre, the
Ceylinco high-rise and the Bank of Ceylon buildings. The capital
has limited alternative office space, with the Access Towers and
Hatton National Bank (HNB) Towers, both located in the Colombo
02 district, providing the only other high-end purpose-built space.
Alternatively, the Wellawatte and Cinnamon Gardens (SBD) offer
office space, which is refurbished residential space and used by a
number of domestic firms, or mixed-use developments such as the
Liberty Plaza, Unity Plaza and Majestic City shopping malls that
have office space above the retail floors.
Apart from the Grade A office space detailed above, the CBD and
SBD micro-markets have stand-alone Grade B office buildings,
especially along the arterial roads of the core city in the SBD micromarket. Galle Road, RA De Mel Mawatha and Union Place have the
major share of this unorganised Grade B office space. The office
buildings in these localities are typically low rise with the total built
up areas ranging from 8,000-30,000 sq ft. Galle Road and Union
Place are the major locations for stand-alone self-owned Grade A
office buildings used primarily by the Banking, Financial Services
and Insurance sector.
Occupancy in the Grade A space segment is extremely high, with
HNB Towers, Merchant Towers and Access Towers turning away
potential customers (Figure 3). The average occupancy in Grade
A office buildings for the past year has been around 95% which is
a dramatic increase from the occupancy levels of 2006-2008 which
were around 60%. The IT Park at Orion City is over 90% occupied.
Rental Affordability
Apart from the iconic World Trade Centre (WTC), which offers office
space at LKR 260 per sq ft per month, the majority of office space
in the CBD and SBD is available in a rental range of LKR 100 - 150
per sq ft per month . Office space in WTC was being leased at LKR
135 - 150 per sq ft per month during 2009, which indicates the rapid
appreciation in rents witnessed by Colombo CBD during the last
three years. Office space at Galle Road and Union Place is available
for lease in a rental range of LKR 75 - 140 per sq ft per month.
Orion City, which is the IT/ITES campus of Colombo, offers large IT
space areas at LKR 110 per sq ft per month. In terms of real estate
affordability, Colombo real estate costs are comparable to other
outsourcing destinations (Figure 2) and with office space within the
city, travel costs are lower than in other outsourcing destinations.
Supply of Office Space in Colombo
In total, the central and secondary business districts of Colombo
(CBD and SBD) have nearly 2.5 million sq ft of Grade A multitenanted leasable office space. The total stock, including the
stand-alone self-owned office space and Grade B office space, is
estimated to be around 5 million sq ft. The majority of the stock is
contributed by Galle Road (Galle Face - Bambalapitiya - Kollupitiya
- Wellawatte) and the Union Place micro-market. There are several
From the perspective of Grade A speculative commercial development for lease,
Colombo offers limited options for prospective investors with just eight operational
office buildings.
2
Rents quoted are inclusive of maintenance charges.
1
On Point • Real Estate in Sri Lanka - Prospects and Potential Figure 2: Availability and Affordability of Office Space in Outsourcing Locations
8
7
Beijing
Average Rents (USD p sq ft pm)
6
5
Ho Chi Minh City
4
Hanoi
Guangzhou
Manila
Chengdu
Kuala Lumpur
1
Gurgaon
Colombo
Bangalore
Chennai
0
0
10
0
0
40
50
60
Office Stock (million sq ft)
Source: Jones Lang LaSalle, 4Q11 | Note: The size of the bubble indicates the office stock (Net Lettable Area) in these cities. 1 USD = 130.24 LKR (As of March 23, 2012)
Figure 3: Major Office Projects in Colombo
Subject
Property
Location
Developer
Leasable
Area
(sq ft)
Construction Completion
Availability
Status
Date
Rents3
World Trade
Centre
Bank of Ceylon
Mawatha, Fort
Overseas Realty Ceylon
750,000
Operational
1997
1%
260
Ceylinco House
Janadhipathi Mawatha,
Fort
Ceylinco Limited
175,000
Operational
2001*
6%
125
HNB Towers
T.B. Jaya Mawatha
Sithma Development
350,000
Operational
2003
0%
150
Access Tower
Dr. Colvin R. De Silva
Mawatha, Union Place
Access Realties
180,000
Operational
2004
0%
130
Aitken Spence
305, Vauxhall Street,
Colombo 02
Aitken Spence
180,000
Operational
2004
5%
130
Orion City Phase 1
Dr. Danister De Silva
Mawatha, Colombo 09
St. Anthony’s Industries
Group
700,000
Operational
2010
10%
110
Summit
Galle Road
CSEM Lanka
180,000
Under
Construction
2014
100%
140
Orion City Phase 2
Dr. Danister De Silva
Mawatha, Colombo 09
St. Anthony’s Industries
Group
200,000
Under
Construction
2014
100%
110
Source: Jones Lang LaSalle, 4Q11. Notes: 1 USD = 109.76 LKR (Average during 2011) *Refurbished in 2001. Originally completed in 1960. Rents are LKR per sq ft per month,
and inclusive of maintenance charges.
3
Rents are LKR per sq ft per month, and inclusive of maintenance charges
Demand Drivers for Office Space in
Colombo
Figure 4: Top 15 Competitive Cities in South Asia
According to the Asian Development Bank, Colombo ranked first
in the City Competitiveness Rankings among the top cities of
Sri Lanka, India and Bangladesh, and above the Indian cities of
Mumbai, Bangalore and New Delhi4 (Figure 4). For Colombo, the
most favourable sectors in the competitiveness rankings of sector
industries were Textiles and Apparel; Finance, Insurance and Real
Estate; Information and Communication Technology and Hotels and
Restaurants (Figure 5). The future demand for commercial office
space in Colombo will be closely correlated with the industries
that have the prospects of maximum growth. While growth in the
textiles and apparel industry would result in demand for retail and
industrial space; growth in finance, insurance and information and
communication technology sectors would lead directly to demand
generation for quality office space. The growth of the hotels and
restaurants sector would result in the development of hospitality
real estate. Transport, storage and communications, rubber and
plastic products, furniture, the wholesale and retail trade and others
would lead to demand for retail as well as industrial space. In this
section, we will discuss the prospects for growth in the Finance,
Insurance, Information and Communication Technology sectors,
and its impact on the demand for office space in Colombo.
City
Country
Rank
Level of
Competitiveness
Colombo
Sri Lanka
1
International
Mumbai
India
2
International
Bangalore
India
3
International
New Delhi
India
4
International
Chennai
India
5
International
Dhaka
Bangladesh
6
International
Hyderabad
India
7
International
Kolkata
India
8
National
Gampaha
Sri Lanka
9
National
Ahmedabad
India
10
National
Pune
India
11
National
Surat
India
12
National
Kalutara
Sri Lanka
13
National
Chittagong
Bangladesh
14
National
Kanpur
India
15
National
Source: City Competitiveness Ranking (39 South Asian Cities), Competitive Cities in
the 21st Century, Asian Development Bank (2011)
City Competitiveness Ranking (39 South Asian Cities), Competitive Cities in the 21st
Century, Asian Development Bank (2011)
4
Figure 5: Competitiveness Scores by Industry Sector, CMR
0.00
0.10
0.0
0.0
0.40
0.50
0.60
0.70
Textiles and Apparel
0.70
Finance, Insurance and Real Estate
0.68
Information and Communication Technology
0.66
Hotels and Restaurants
0.66
Transport, Storage and Communication
0.63
Rubber and Plastic Products
0.62
Furniture
0.60
Wholesale and Retail Trade
0.59
Electrical Machinery and Apparatus
0.57
Construction
0.5
Fabricated Metal Products
0.50
Food and Beverage
0.50
Paper and Paper Products
0.49
Publishing and Printing
Chemicals and Chemical Products
Basic Metals Fabrication
Source: Competitive Cities in the 21st Century, Asian Development Bank (2011)
0.49
0.46
0.44
0.80
On Point • Real Estate in Sri Lanka - Prospects and Potential Banking, Financial Services and Insurance
Contributing about 8-9%5 to the country’s GDP, banking and
financial services firms have an established presence in the island
nation. As of 2Q11, there were 22 banks (including 11 foreign)
operating in the Colombo Metropolitan Region (CMR), with over
632 branches and 897 banking outlets6. A majority of office space
occupied by this sector is in self-owned or single tenanted office
properties across all major locations in the city.
While the Bank of Ceylon and the People’s Bank are the two stateowned banks having a large network, several private banking firms
such as Hatton National Bank, Seylan Bank, DFCC, Commercial
Bank of Ceylon and Sampath Bank also have an established
presence in the banking and financial services sector. Among the
foreign banks that are operational in Sri Lanka are HSBC, Standard
Chartered, Citibank, Deutsche Bank, State Bank of India, ICICI
Bank, Indian Bank, Indian Overseas Bank, MCB Bank, Public Bank
Berhad and Habib Bank (Figure 7).
The number of banking branches in Sri Lanka has been increasing
at an average rate of 7% per annum since 2007. Since it has
outpaced the annual population growth of the country, which is
0.92%7, the population per bank branch is decreasing and branch
density (banking branches per 100,000 persons) is increasing.
If we linearly extrapolate these trends, nearly 1,804 more banking branches would open by 2015, increasing the branch
density from 23.5 in 2010 to 30.5 by 2015 (Figure 6). Assuming a conservative average area of bank branches to be 2,500 sq ft,
these would directly lead to demand for at least 4.5 million sq ft of office space across cities in Sri Lanka during 2011-15.
7,000
5
6,000
0
5,000
5
4,000
0
,000
15
,000
10
1,000
5
0
005
2006
007
008 009a 010b 011f 01f 01f 2014f 015f
Total Bank Branches
,716 3,749 4,007 4,19 4,533 4,858 5,180 5,504 5,872 6,256 6,66
Population per Bank Branch
5,9 5,304 4,994 4,681 4,511 4,51 4,029 ,8 3,630 ,444 3,269
Banking Branches per 100,000 Persons
18.9
18.9
0.0
1.4
2.
.5
4.8
6.1
7.5
8.9
Banking Branches per 100,000 persons
Bank Branches / Population per Branch
Figure 6: Projected Growth of Banking Branches
0
0.5
Source: 2005-2010b: Sri Lanka Socio-Economic Data 2011, Central Bank of Sri Lanka
2011f-2015f: Forecast projected by Jones Lang LaSalle based on 3 year moving average model
Notes: 1. Total Banking Branches includes main branches and other banking offices of Commercial Domestic and Foreign banks, Regional Rural and Development Banks,
National Savings Bank and Co-Operative Rural Banks.
2. 2009a: Revised and 2010b: Provisional
Banking, Financial Services and Real Estate sub-sector contributed 8.6-9.3% to Sri Lanka’s GDP during 1Q10-4Q10 (Bloomberg)
Colombo Metropolitan Region includes Colombo, Gampaha and Kalutara. Banking outlets include banking units such as Extension Offices, Pawning Centres, Student Savings
Units and Pay Offices. Data sourced from the Central Bank of Sri Lanka.
7
Population growth recorded in 2010, as per World Bank figures.
5
6
10 On Point • Real Estate in Sri Lanka - Prospects and Potential
Figure 7: Major Banking Institutions in Colombo (2010)
Licensed Commercial Banks
Type
Number of Branches
In Western Provinces
In Sri Lanka
Bank of Ceylon
State Owned
142
517
People’s Bank
State Owned
203
679
HSBC, Standard Chartered,
Citibank, Deutsche Bank, State
Bank of India, ICICI Bank, Indian
Bank, Indian Overseas Bank,
MCB Bank, Public Bank Berhad
and Habib Bank
Foreign
147
216
Commercial Bank of Ceylon
Private
99
183
Hatton National Bank
Private
89
190
DFCC Vardhana Bank
Private
38
128
Sampath Bank
Private
71
148
Seylan Bank
Private
59
114
Union Bank of Colombo
Private
10
18
Nations Trust Bank
Private
34
43
Pan Asia Banking Corporation
PLC
Private
26
45
NDB Bank
Private
31
49
National Savings Bank
Savings Bank
78
193
Regional Development Banks
Savings Bank
30
243
Source: Economic and Social Statistics of Sri Lanka 2011, Central Bank of Sri Lanka
Information Technology and Information Technology Enabled
Services
Sri Lanka has witnessed a steady upward trend in the IT/ITES sector during the past
decade, with several global firms such as WNS, HSBC, Aviva, Microsoft, Motorola,
Industrial & Financial Systems (IFS ), Amba Research, RR Donnelley, Quattro,
Virtusa, eCollege, Valista and Innodata Isogen already having off-shore centres in
the country. The Government is promoting the growth of the sector, with an aim to
make it the top revenue earner for the country within the next ten years. In 2011, the
IT/ITES sector achieved export revenues of USD 392 million8 and had over 40,000
employees. IT exports alone have more than doubled from USD 121 million in 2006
to USD 294 million in 2010.
Bank of Ceylon Headquarters
With an average floor space per employee of 127 sq ft for IT and 103 sq ft for ITES9, Sri Lanka had an estimated 4.7 million
sq ft10 of operational office space occupied by IT-ITES in 2011. The medium term goal of the industry is to achieve export
revenues of USD 1 billion and employment of 100,000 people by 2015. This would translate into a demand for nearly seven
million sq ft of additional office space for the IT/ITES sector alone
SLASSCOM (2011)
ICT Export Value 2010 – IT/ITES Export Sector by Sri Lanka Export Development Board (2010)
10
27,000 employed in the IT and 13,000 employed in the ITES industry (SLASSCOM, 2011), would require 4.7 million sq ft of office space. This includes captive offices held for
IT/ITES outsourcing.
8
9
On Point • Real Estate in Sri Lanka - Prospects and Potential 11
Key factors that will facilitate the growth of IT/ITES industry in Sri
Lanka in the coming years are:
» A skilled workforce with low attrition rates – Sri Lanka spends
nearly 5.4% of its GDP on education and boasts a 94.2 per cent
literacy rate11, the highest in South Asia. English is the primary
language of higher education and commerce. The country has
23 universities offering international degrees and agreements
with other universities including Monash, Curtin, Staffordshire,
Manchester and Metropolitan, producing 30,000 graduates
annually. Sri Lanka produces 40,000 CIMA or ACCA qualified
accountants and nearly 70 per cent of this pool is prepared for
outsourcing. As such, Colombo has the largest pool of UK certified
accountants outside the UK. This provides a talent pool prepared
for outsourcing jobs at reasonable wages. The country enjoys
a low attrition rate compared to other offshore destinations, at
10-15%12.
Figure 8: Mean Monthly Salary Compensation in the IT Sector
(in LKR pm)
» Financial attractiveness due to low compensation costs
Sri
Lanka*
– According to the AT Kearney Global Services Location Index
2011, Sri Lanka ranks in sixth position in terms of overall
financial attractiveness among off-shoring destinations. Of the
top 50 destinations, Sri Lanka is the most attractive in terms
of compensation costs, salaries being 30-40% lower than
in neighbouring India and also having a lower upward wage
pressure. The Sri Lanka IT and ITES/BPO Sector Salary and
Benefits Study 2011 carried out by SLASSCOM and PwC, entry
level IT sector positions in the field of Application Support start at
LKR 29,311 per month while those entering the Business Analysis/
Business Consulting, Software Quality Assurance and Software
Engineering areas earn salaries of LKR 41,559–50,345 per month
(Figure 8).
Difference
%
Application Support
Associate Application
Support Engineer
29,311
44,063
-33%
Application Support Engineer
53,128
83,229
-36%
Business Analysis / Consulting Business
Associate Business Analyst
41,559
78,333
-47%
Business Analyst
94,273
1,37,083
-31%
Software Quality Assurance
Associate Quality Assurance
Engineer
46,990
68,542
-31%
Software Quality Assurance
Engineer
70,406
1,07,708
-35%
Software Engineering
» Policy incentives for the Knowledge Services13 sector – To
motivate private investments, both domestic and foreign, in the
IT/ITES sector, the Government of Sri Lanka has offered several
tax incentives, including a full tax holiday of 4-12 years for the
knowledge services sector, depending on the minimum size of
the investment (categorised into small, medium or large scale
enterprises)14. The tax holidays begin for investments as low as
LKR 25 million, clearly indicating the intent of the authorities to
support small and medium scale enterprises as well. Apart from
the tax holiday, customs duty will be exempted on the import of
project related capital goods and raw materials for export oriented
projects. To reduce the initial cost incurred on account of import
of project related plant, machinery and equipment, the applicable
VAT, Customs Duty, and PAL will be deferred during the project
implementation period.
India^
Associate Software Engineer
50,345
78,333
-36%
Software Engineer
80,586
1,17,500
-31%
Source: *Sri Lanka IT and ITES/BPO Sector Salary and Benefits Study 2011, Price
Waterhouse Coopers and SLASSCOM
^Jones Lang LaSalle, Estimates for a Junior Mid-Level employee in India
Notes: Some difference between Sri Lankan and Indian salaries can also be attributed
to the sharp decline in the Sri Lankan Rupee.
1 USD = 109.76 LKR (Average during 2011)
1 USD = 46.67 INR (Average during 2011)
1 INR = 2.35 LKR (Average during 2011)
United Nations Development Programme (UNDP) Report, 2011
SLASSCOM (2011)
13
According to the Board of Investment Sri Lanka, the Knowledge Services sector
includes IT Software Development, KPO / BPO Industry, IT and IT Enabled Services
and IT Training Sectors.
14
Board of Investment, Sri Lanka (2012)
11
12
Courtesy: Rakindo Senior Living | Coimbatore
Apart from tax incentives, the Board of Investment also offers
advice in site selection and purchase of land, identification of
local partners, and facilitation of residence or work visas for
investors and expatriate staff.
With peak demand of 1955 MW, Sri Lanka has an installed
capacity of 2806 MW, 43% of which is provided by hydroelectric
plants15. There is no load shedding which ensures a reliable
transmission of power.
» Adequate telecom and power infrastructure – Sri Lanka has
» Strong protection of Intellectual Property Rights – The country
eight telecom operators and is connected with three international
submarine cables providing ample redundancies. It is connected
to the South East Asia-Middle-East-West Europe 4 (SEA-MEWE IV) project - the submarine cable system linking South East
Asia to Europe via the Indian Sub-Continent and the Middle East.
These fibre optic cables provide a bandwidth capacity of
1.28 tbps, with a 25 year guaranteed lifespan for the technology,
offering Sri Lanka an immense bandwidth advantage. Sri Lanka
was among the first South Asian countries to establish a 3G and
Next Generation telecom network.
is a signatory to international treaties on intellectual property
rights such as the Berne Convention and WTO/TRIPS and has
adopted a comprehensive IP regime. Sri Lanka has also enacted
an Electronics Transactions Act, Computer Crimes Act and is
a signatory to the latest UN e-contracting convention. A Data
Protection Code of Practice is also under preparation and the
country has a strong enforcement unit – the National Intellectual
Property Office, which ensures that all regulations are fully
adhered to.
Figure 9: Advantage Sri Lanka: IT/ITES Outsourcing
HUMAN RESOURCE
INFRASTRUCTURE
• 94.2% literacy rate and English as the primary
language of higher education and commerce
• Adequate power with 100% up-time
• Well established telecom and data network
with ample redundancies
• Low attrition rates of 10-15%
COST EFFECTIVENESS
ADVANTAGE
SRI LANKA
• Low real estate and
operational costs
INFORMATION
TECHNOLOGY
• Salaries lower than other
outsourcing destinations,
including India
POLICY SUPPORT
• Full tax holiday of 4 -12 years depending on
minimum investment size
• Custom duty exempted on the import of project
related capital goods and raw materials
Source: Jones Lang LaSalle, 2012
15
Ministry of Power and Energy, Sri Lanka
GROWING INDUSTRY
• IT/ITES sector achieved
export revenues of USD 392
million and employed over
40,000 employees
• IT exports have more than
doubled from USD 121 mn in
2006 to USD 294 mn in 2010
IP PROTECTION
• Signatory to international treaties such as the
Berne Convention and WTO/TRIPS
• Enacted an Electronics Transactions Act,
Computer Crimes Act and is a signatory to the
latest UN e-contracting convention
World Trade Centre
• Produces 30,000 graduates annually
The Retail Experience – Designing
Space for the Consumer
14
Retail establishments in Colombo are largely located along the high
streets, either in traditional retail areas like Pettah, Dematagoda
(Northern Colombo) or in upmarket established retail areas like
Kolupittiya, Bambalapittiya and Wellawatte (Southern Colombo)
(Figure 10). Given Sri Lanka’s prominence in textiles, tea, spices,
gems and jewellery, the traditional wholesale areas in Northern
Colombo are busy throughout the year with continuous patronage
from domestic as well as export oriented business units. Up-market
and branded shopping destinations are found towards the south of
the city centre along the Galle and Duplication Roads. Majestic City,
Liberty Plaza, Crescat Malls and ODEL are popular with the locals
as well as tourists.
Figure 10: Retail Micro-Markets – Traditional, Established and
Upcoming Retail Areas
PD - North
04
05
01
03
Characteristics
CBD
• High Income catchment with highest propensity to spend.
Especially attractive to tourists, though the catchment
size is limited due to limited residential localities
• Primarily dominated by high street activity on Pettah,
Galle and Duplication Road; five operational malls
(459,000 sq ft)
SBD
• Primarily middle-income catchment with a few pockets of
high-income catchment areas (Cinnamon Gardens)
10
PD- Northern
PD- Eastern
15
12
07
13
08
09
• Major retail activity in two High Streets - Galle Road and
Sri Jayawardene Mawatha
• No retail mall operational at present; with Havelock City
mall planned
PD- Southern
PD - East
CBD SBD
06
Markets
02
11
• Major retail activity found on A3 Highway (Airport Road)
in form of several mini-major retail outlets
PD - South
• Primarily catering to middle-income local residents
• Realty Plaza is the only mall operational at Ja-Ela; John
Keells Mall planned at Ja-Ela
• Retail activity restricted to Rajagiriya and Sri
Jayewardenepura Kotte in form of High Street and standalone outlets
• Fastest growing micro-market in Colombo for residential
and retail asset classes
• No malls operational at present; Fairway City Mall
planned
• The most developed suburb of Colombo with established
high street retail along Galle Road
• The consumer profile ranges from low-income to middleincome
• One Mall - K Zone operational primarily servicing the
residents of the micro-market only
LEGEND
Key Retail Districts
Established Retail Area
04
Fort
05
06
Traditional Retail Area
01
Pettah
02
Dematagoda
03
Kotahena
Upcoming Retail Area
10
Rajagiriya
Kolupittiya
11
Moratuwa
Bambalapitiya
12
Nawala
07
Wellawatte
13
Nugegoda
08
Dehiwala
14
Ja-Ela
09
Mt. Lavinia
15
Battarmulla
Shopping Malls
Colombo has eight operational shopping malls with leasable areas varying from 30,000-250,000 sq ft (Figure 11). The concept of anchors
is still in its nascent stage, and in most cases it is a supermarket or a mini-major occupying about 3-20% of the mall area. At end-2011, the
total stock of these operational malls stood at 647,000 sq ft with an average vacancy rate of 3-8%. In addition to the existing eight malls,
three more are in their planning stage and will add another 1.05 million sq ft of retail space to the Colombo retail stock by 2015.
Figure 11: Shopping Malls in Colombo
Rents
Location
Leasable
Area (sq ft)
Developer
Major Tenants
Occupancy
(LKR per sq ft per
month)
Liberty Plaza
Duplication Road,
Kolupittiya
110,000
Colombo Land
Keells Super, Abans, Sony, Premasiri,
Labelswine, Bata, Perfumerie,
Lakehouse Bookshop, DSI
89%
250
Unity Plaza
Galle Road,
Bambalapitiya
36,000
ON’ ALLY
Holdings
City Opticals, Network Communication,
PC Electronics, Leader, Photo Micro
100%
175
Majestic City
Galle Road,
Bambalapittiya
252,000
CT Properties
ODEL, Hameedias, Triumph, DSI,
KFC, Food City, Majestic Cinemas,
Wonderworld
93%
450
Crescat
Boulevard
Cinammon
Grand, Galle
Road
35,000
John Keells
Hameedias, Triumph, Levis, Reebok,
Adidas, E-Mart, Keels Super,
Perfumerie
100%
300
Realty Plaza
ColomboNegombo Road,
Ja-Ela
75,000
Ceylinco
International
Realty Group
ODEL, Cinemax Cinemas
88%
NA
Dutch Hospital
Courtyard
Bank of Ceylon
Mawatha, Fort
NA
UDA
LUV SL, Colombo Jewellery, SPA
Ceylon, Crab Ministry, Heladiv Tea
Club, WIP Bar, Barefoot
100%
NA
Shopping Mall
K-Zone
High Street Retailing
Prime high street activity in Colombo is largely restricted to Galle Road, Duplication Road and Sri Jayewardene Mawatha along with mostly
un-organised wholesale markets in North Colombo like Pettah (Figure 12).
Figure 12: High Streets in Colombo
Name and Location
Character
Consumer Profile
Major Retailers
Galle Road
(Galle Face - Bambalapitiya
- Kolupittiya - Wellawatte)
Prime High Street of Colombo with a mix of
commercial and hospitality activity
High and middleincome group,
tourists
McDonald’s, KFC, Barefoot, Shirt Works,
ODEL, Abans
Galle Road
(Wellawatte - Dehiwala
- Ratmalana - Moratuwa)
Caters to local market with highest density of
organised retail in Colombo
Middle and lowIncome group
Glitz, No Limit, DSI, Arpico, Food City, K Zone
Duplication Road
High and middlePrime High Street of Colombo with a mix of
Income group,
commercial, entertainment and institutional space
tourists
Sri Jayewardene Mawatha
Upcoming retail area (mini-majors)
High and middleincome group,
tourists
McDonald’s, Coffee Bean, Pizza Hut, Barista,
Arpico, Keells Super, Food City
Pettah
Traditional retail area of Colombo
Middle and lowincome group
Food City, Arpico, Keells Super
Fashion Bug, Liberty Plaza, Mercedes,
Softlogic, Singer
Figure 13: Supermarkets and Hypermarkets in Colombo
Retailer Name
Format Types
Cargills Food City
Food City, Food City Express, Food Big City,
Cargills Warehouse
Keells Super
Keells Super, Elephant House, Beema Best Buy
City Co Op*
City Co Op
Laughs
Laughs Sun Up Departmental Store
Premasiri
Premasiri Supermarket, Premasiri Mini Market
Arpico
Arpico Super Center, Arpico Super Store
Majestic City
Source: Jones Lang LaSalle Notes: *Formerly known as Sathosa
Figure 14: Mini-Majors in Colombo
Retailer Name
Category
ODEL
Lifestyle
Abans Abstract
Lifestyle/Electronics
Abans Elite
Electronics
Fashion Bug
Lifestyle
Hameedias
Lifestyle
Barefoot
Lifestyle
No Limit
Lifestyle
Glitz
Lifestyle
Paradise Road
Lifestyle
Laksala
Lifestyle
The Residential Sector: Housing the
Citizens
The recent upswings in the service sector including from the
finance, tourism and the IT/ITES industry in Colombo have triggered
a healthy demand for residential space in the Greater Colombo
area. The development of premium condominium projects is most
prominent in the CBD, whereas sub-divided developments, row
houses and villas in the peripheral suburbs have emerged as
preferred assets for investment amongst the middle-income group.
Easy availability of housing loans, higher prevailing disposable
incomes and investments by Non-resident Sri Lankans have all
contributed to the demand for residential properties in the city.
Colombo Residential Market - Segments
Lower Mid-Level Segment: The lower mid-level segment has the
largest supply as well as absorption share in the apartment market.
Projects are predominantly concentrated in the peripheral and
old city areas. Many of them fall into the unorganised real estate
sector with an average of 5 - 20 units each. The average unit cost is
approximately LKR 10 million with minimum specifications and unit
sizes and a clear focus on affordable pricing.
Mid-Level Segment: The mid-level segment has specifications and
product mix similar to premium segment apartments, but is located
in the suburbs. Most of the projects in this category are located in
the upcoming suburbs of Rajagiriya and Sri Jayawardenepura Kotte.
These include such as Parliament 110, Fairway Sky Garden and
Centrium amongst others. Units are available from LKR 10-25 million
and the segment has a share of 26% in the supply of condominiums
(Figure 15).
Premium Segment: This is the most popular segment within the city
limits of Colombo and is primarily in close vicinity to the CBD area,
with pricing in the range of LKR 25-45 million per unit (Figure 15).
Specifications are superior with large unit sizes ranging between
1,250-1,800 sq ft. Most projects in this category have been completed,
apart from On Three20 at Union Place and Havelock City.
Luxury Segment: The luxury segment consists primarily of already
established projects with resale values of more than LKR 45 million
per unit (Figure 15). The Emperor at Galle Road and a few units
from premium segment projects qualify for this categorisation based
primarily on their larger floor area (above 1,800 sq ft).
Ultra Luxury Segment: Colombo doesn’t have any projects with
average unit value above LKR 60 million, although every project in
the premium and luxury segments has a few units of the ultra-luxury
segment with considerably higher specifications, furnishings and
larger floor area. In most projects, these units are either penthouses
or higher floor duplex units with private terraces etc.
Figure 15: Major Residential Projects in Colombo
Project Name
Location
Developer
Current
Current
Current
Sales
(LKR per Unit) (LKR per sq ft) (USD per sq ft) (Launch Year)
Luxury Segment
The Emperor
Galle Road, Colombo 03
Asian Hotels
48,000,000
33,100
250
100% (2008)
Premium Segment
Iceland Residencies
ICC Housing
33,000,000
26,400
200
100% (2007)
Crescat Residences
Asian Hotels
34,000,000
26,200
200
100% (2006)
Empire Tower
Colombo 03
CT Properties
43,000,000
23,900
180
100% (2007)
Havelock City
Havelock Road, Colombo Mireka Capital Land
26,000,000
20,800
165
55% (2010)
On Three20
Union Place, Colombo 02 John Keells
25,000,000
22,700
170
75% (2011)
The Monarch
34,000,000
32,400
250
100% (2007)
Asian Hotels
Mid-Level Segment
Trillium Residences
Trillium Residencies
24,000,000
17,800
150
90% (2008)
2000 Plaza Residences Thalapathpitiya
Borella, Colombo 08
The 2000 Plaza
19,000,000
15,800
130
100% (2007)
The Fairway
Rajagiriya
Fairway Residencies
26,000,000
14,900
120
100% (2007)
The Fairmount
Kotuwegoda, Rajagiriya
Fairway Residencies
25,000,000
15,600
130
100% (2008)
110 Parliament
110, Parliament Road
Atlantis (ANPG
Group)
22,000,000
16,300
140
15% (2011)
Fairway Sky Garden
Rajagiriya
Fairway Residencies
27,000,000
16,400
140
12% (2011)
Source: Jones Lang LaSalle, 4Q11 Note: 1 USD = LKR 109.76 (Average during 2011)
60,000
10%
50,000
100%
40,000
80%
0,000
60%
0,000
40%
10,000
0%
0
Luxury
Segment
Premium
Segment
Mid-Level
Segment
Lower MidLevel
Segment
Avg Unit Value ('000 LKR / Unit)
48,000
28,663
19,955
10,000
Avg Capital Value (LKR / sq ft)
,100
,9
14,008
10,500
96%
75%
57%
77%
Average Absorption (%)
Average Abosprption
Value
Figure 16: Average Capital Values and Absorption Levels by Segments (2011)
0%
2000 Plaza Residencies
Source: Jones Lang LaSalle, 4Q11
1800
The average yearly supply of nearly 1,200 units, which
gradually declined during the 2007-2011 period, is
expected to resume an upward trend in 2012 (Figure
62.6%
64%
59.7%
1400
Supply and Absorption
17). Average cumulative absorption has decreased
from 2007 levels to stabilise at 65%. Due to continuous
supply of residential units, the absorption rate has
declined from 33.7% in 2008 to 14.5% in 2011. The high
absorption rates in 2006 and 2007 can be attributed
to a low base of available stock, since the information
has been tracked from 2005. The absorption rate is
expected to improve to 21.2% in 2012, with a forecasted
increase in yearly absorption from 500 units in 2011 to
900 units in 2012 (Figure 17).
1600
7%
56%
100
48%
1000
40%
.7%
800
5.5%
600
%
7.5%
14.5%
1.% 24%
400
16%
00
8%
0
005
2006
007
Yearly Supply (Units)
008
009
010
Yearly Absorption (Units)
011
01F
Absorption Rate
Supply and Absorption of Residential Units
0%
Absorption Rate
Figure 17: Supply & Absorption Trends in Colombo Condominium Market
Year
2005
2006
2007
2008
2009
2010
2011
2012F
Yearly Supply (Units)
184
1,498
1,547
1,123
1,433
1,402
942
1,300
Cumulative Supply (Units)
184
1,682
3,228
4,351
5,785
7,187
8,129
9,429
Yearly Absorption (Units)
85
1000
1280
670
700
950
500
900
Cumulative Absorption (Units)
85
1,085
2,365
3,035
3,735
4,685
5,185
6,085
Cumulative Absorption (%)
46%
65%
73%
70%
65%
65%
64%
65%
Unsold Stock
99
597
864
1,317
2,050
2,502
2,944
3,344
Available Stock
1,597
2,144
1,987
2,750
3,452
3,444
4,244
Absorption Rate
62.6% 59.7% 33.7% 25.5% 27.5% 14.5%
21.2%
Source: Jones Lang LaSalle, Condominium
Management Authority Colombo (2012)
Note: Available Stock is the sum of Unsold
Stock at the end of previous year and Yearly
Supply in the current year.
Absorption Rate for a particular year is the ratio
of Yearly Absorption to Available Stock, implying
the rate at which the unsold inventory is selling.
The supply share categorisation (2005–2011) reveals that the highest supply was in the lower mid-level segment (units below LKR 10
million) at 35%, followed by the premium segment (LKR 25–45 million per unit) at 34%. The supply share categorisation for 2012-2015
based on historical absorption trends is envisaged to be the highest in the lower mid-level segment at 42% followed by the mid-level
segment (LKR 10–25 million per unit) at 28%.
Colombo is witnessing a strong demand in the premium housing segment, driven by High Networth individuals (HNIs) and Non-resident
Sri Lankans. Colombo city has seen a supply of more than 1,500 high-end condominiums in a price range of USD 180–220 per sq ft, of
which more than 70% has been sold. The demand for premium segment housing is expected to be sustained over the medium term.
The projected shortage of housing units has encouraged developers to start developing or expanding their residential project portfolios in
Colombo. Political and economic stability, coupled with an increased thrust towards the establishment of a service-based economy, are
envisaged as the drivers of future demand.
Victoria Towers
Investing in Residential Properties in Colombo
Sri Lanka has witnessed tremendous growth in workers’
remittances, which multiplied over 3.5 times during the last decade
from USD 1.17 billion in 2001 to USD 4.12 billion in 2010 (Figure
18). Residential real estate offers an ideal investment option.
Over 70% of the 4,100 condominiums sold during 2007–2011 in
Colombo were for the purpose of investment. This figure could be
as high as 85% in some projects under the premium and luxury
apartment segments. The investment brigade spearheaded by NonResidents Sri Lankans, which is estimated to be as high as one
million in number, has a huge impact on the market. Even projects
in the mid-income category, which are primarily marketed as an
opportunity for people to move inside the city limits, have attracted
more investors than end-users. The share of non-Sri Lankan
investors is negligible as of now, but the interest among global
investors is increasing.
Rental Yields for Investors
Typically, residential yields in Colombo range from 3-7%.
Established micro-markets offer nearly 4% yield, which may go up
to 7% in premium locations. Apartments are rented to expatriates
and corporate houses on short-term leases of one to three years
as well as long-term leases of five years depending upon the profile
of tenants. Completed projects such as The Emperor, Empire
Residencies, Iceland Residencies, and Crescat Residencies quote
rents in the range of LKR 250,000-350,000 per month for a threeBHK apartment.
Restrictions on Foreign Investors
Foreign investors are liable to pay a tax of 100% of the value of
the property for buying apartments below the fourth floor (including
landed properties) in Sri Lanka. While the restriction is not
applicable on apartments above the fourth floor, certain property
developers, with the approval of the Board of Investment of Sri
Lanka (BOI), have obtained concessions for foreign investors
to invest in apartments below the fourth level (including landed
properties) without paying additional tax. A company incorporated in
Sri Lanka with less than 25% foreign participation in equity is also
exempt from the above.
Figure 18: Workers’ Remittances to Sri Lanka
5,000
23.6%
22.6%
4,500
16.6%
,500
15.8%
,000
1,165
1,564
1,000
1,414
1,500
1,918
9.9%
,0
1.7%
10.6%
,50
10.5%
2,161
,500
15%
,918
,000
500
14.1%
4,116
0%
1,87
Workers' Remittances (in USD million)
4,000
10%
5%
-
0%
001
00
00
2004
005
Workers' Remittances
Source: Central Bank of Sri Lanka
Notes: 2010a – Provisional figures
5%
2006
007
008
Annual Change
009
010a
Assessing Housing Affordability – The Three
Dimensions
There are three dimensions to affordability in housing – the price
of the house, the income level of the buyer and the mortgage
rate. Sri Lanka’s per capita income in 2010 was nearly USD 2,400
or LKR 271,259 and is forecast to cross the USD 4,000 level by
2016 (Figure 20). Although income levels are rising, home loan
interest rates in Sri Lanka are very high at 15-17%, which effects
affordability. Hence, affordability is assessed at only 3-3.5 times the
annual household income.
Engineering Services, Housing and Common Amenities (MCEHC),
nearly 54% of the population of Colombo lives in huts or slums.
Sri Lanka’s high-rise low income housing programme - Relocation
of Underserved Settlements - which began in 2001 with the
construction of the Sahaspura project, has already completed
the construction of nearly 12,000 units in the last decade. The
government has announced an ambitious plan to construct 35,000
houses during 2012-2014 for the re-housing of slum dwellers.
Private players, both domestic and foreign, can participate in the
low-income relocation housing programs.
Figure 20: Growth in Per Capita Income (At Current Market Prices)
From the Household Income and Expenditure Survey 2009-10,
released by the Department of Census and Statistics, Colombo
residents had a mean household income of LKR 51,070 per month
(or LKR 612,840 per annum) in 2009-10. Assuming a growth rate
equal to the Per Capita Income growth rate at the national level,
the current mean household income for Colombo can be estimated
as LKR 800,000–900,000 per annum. Hence, an average Colombo
citizen could afford a housing unit costing LKR 2.8–3.2 million.
1,000
500
-
,057
1,500
1,617
3,556
,119
2,736
2,600
,000
2,014
CAGR 14%
(005-010)
,500
,99
,000
1,421
To afford a housing unit costing LKR 10 million or more, the annual
household income should be above LKR 2.86 million. As a result,
a major share of the buyers of Colombo condominiums are either
Non-Resident Sri Lankans investing in Colombo or expatriates
working in Colombo.
CAGR 11%
(010-015)
,500
1,241
Per Capita Income (in USD)
4,000
4,018
4,500
005 2006 007 008 009a010b011e01F01F2014F015F
Source: Department of Census and Statistics, Central Bank of Sri Lanka and
Jones Lang LaSalle
2009a: Revised; 2010b: Provisional; 2011e: Estimated; 2012F-2015F: Forecast
There is another dimension to the demand and supply gap due to
mismatch of affordability. According to the Ministry of Construction,
Figure 19: Average Weighted Lending Rate
15.5
15.17
15.5
14.98
15.0
14.80
14.21
14.25
14.5
14.11
1.7
1.71
14.0
13.74
1.71
1.70
13.62
13.60
13.47
13.44
1.5
1.0
1.5
Source: Central Bank of Sri Lanka
0.1.011
0.11.011
1.10.011
0.09.011
0.08.011
9.07.011
0.06.2011
1.05.011
9.04.2011
1.0.011
8.0.011
1.01.011
1.1.010
0.11.010
1.10.010
0.09.010
1.0
The Emperor
Hotels: Building a Tourist’s Home
Sri Lanka entered the international tourism arena in the 1960s
and has witnessed a steady annual growth of 8% in tourist
arrivals from just 18,969 in 1966 to 438,470 in 2009. The direct
contribution of travel and tourism to GDP was LKR 219.7 billion
(3.4% of total GDP) in 2011, and forecasted to rise by 5.6% in
2012, and by 5.7% from 2012-2022, to LKR 402.4 billion in 2022
(in constant 2011 prices)16. The sector is also a major contributor to
employment generation, and directly supplied 236,500 jobs (or 3%
of total employment) in 2011. It is estimated that total employment,
including jobs indirectly supported by the sector, was 7.5% of total
employment (590,000 jobs).
The Surge in Tourist Arrivals
After the end of the Civil War in 2009, Sri Lanka witnessed an
upsurge in tourism in 2010 and 2011, with the number of tourist
arrivals increasing by 46% in 2010 and 31% in 2011. Tourist arrivals
in January and February 2012 have witnessed a y-o-y growth of
16% and 27% over the same period in 2011. Extrapolating the
trends, we can expect the total tourist arrivals in Sri Lanka to reach
one million in 2012; a significant 38% CAGR during 2009-2011
(Figure 21). The Government of Sri Lanka has projected a
2.5 million tourist arrivals by 2016, which implies a healthy 24%
CAGR during the 2011-2016 period.
Hilton JAIC Tower
Figure 21: Tourist Arrivals in Sri Lanka – The Expected J Curve
Tourist Arrivals
60%
40%
0%
JLL ESTIMATE
855,905
654,477
80%
0%
016F
015F
014F
01F
01e
011
-0%
010
008
007
2006
005
2004
00
00
001
000
-
009
447,890
438,470
494,010
559,600
549,310
566,200
500,640
9,170
336,800
1,000,000
400,410
Tourist Arrivals
1,500,000
1,078,719
CAGR 38%
(009-011)
,000,000
100%
% Y-o-Y Change
CAGR 24%
(2011-2016)
,500,000
500,000
GOVERNMENT ,500,000
,000,000
% Y-o-Y Change
Source: Sri Lanka Tourism Development Authority (2000-2011), 2012e estimated by Jones Lang LaSalle, 2013F-2016F based on the target set by Government of Sri Lanka
16
Economic Impact 2012: Sri Lanka by World Travel and Tourism Council
Hospitality Infrastructure: Capacity Generation
The surge in tourism will require a near doubling of hospitality infrastructure in the coming years. As of 2010, the country had only 22,735
SLTDA approved hotel rooms (Figure 22). From an assessment done by SLTDA in 2009, there was a high concentration of hotels in the
premium 5-star category and the budget 2-star category (Figure 23). A significant share of the current capacity is unclassified with no star
rating, which offer a less expensive but non-standard product option to tourists. In the segment spectrum, there is a significant shortage in
the 4-Star and 3-Star categories, which together account for only 18% of the rooms.
Figure 22: Tourist Accommodation in Sri Lanka (2010)
Accommodation Type
Number
Number of Rooms
Tourist Hotels
256
14,948
Boutique Hotels and Villas
50
577
Home Stay Units
181
560
Guest Houses
679
6,393
Heritage Homes
49
257
Total
With a target of 2.5 million tourist arrivals by 2016, nearly 4,500–
5,100 annual incremental supply of hotel rooms will be required in
the next five years. With an average of 60 rooms per hotel17, the
supply of hotels needed every year for the next five years to meet
the demand is 75-85 hotels or nearly 3.5-4.0 million sq ft of hotel
space (Figure 24).
22,735
Source: Tourism Development Strategy 2011-2016, Ministry of Economic
Development, Government of Sri Lanka
Figure 24: Estimated Number of Additional Hotel Rooms Required
Hotel
Rooms
Required
Figure 23: Hotel Rooms by Star Category (2009)
Hotel
Estimated Area
Hotels
Rooms
(million sq ft)
5-Star
1%
Unclassified
36%
11%
4-Star
7%
7%
17%
1-Star
-Star
Source: Sri Lanka Tourism Development Authority
-Star
Government of
Sri Lanka Target
(2012-2016)^
22,500
4,500
75
3.6
E&Y-FICCI Estimates
(2011-2016)#
30,500
5,083
85
4.1
JLL Estimates
(2012-2016)*
25,000
5,000
83
4.0
Source: ^Tourism Development Strategy 2011-2016, Ministry of Economic
Development, Government of Sri Lanka (2011)
#
A New Realty: Dissolving Borders Through Cross-Border Integration, E&Y and
FICCI (2011)
*Jones Lang LaSalle
Cinnamon Lakeside
17
Annual Incremental Supply
Required
As per SLTDA, in 2010 there were 242 hotels with a total of 14,461 hotel rooms, implying an average of 60 hotel rooms per hotel.
Hotel Rooms - Occupancy
Occupancy rates in hotels across Sri Lanka increased after the end of the civil war, rising from 48.4% in 2009 to 70.1% in 2010 (Figure 25)
and it is estimated that occupancy rates in 2011 were above 80%. Hotels in the Greater Colombo Area enjoyed a high occupancy rate of
over 75% during 2010, which underlines the need for quality supply in this region. The tourist hotspots on the South Coast also witnessed
high occupancy levels of over 71.9% during 2010. However, occupancy of hotels along the South Coast before Galle was higher than those
beyond Galle.
Thus, from the occupancy data, it is clear that there are ample opportunities for hotel construction in the Greater Colombo Area and on the
South Coast before reaching Galle.
Figure 25: Hotel Occupancy Rates by Region
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Colombo City
45.4
56.4
68.7
75.5
76.3
64.3
63.9
57.1
57.8
78.3
Greater Colombo
47.2
42.8
48.9
52.9
44.8
48.0
49.3
52.6
52.7
75.1
South Coast
41.1
38.0
48.3
52.6
31.5
41.2
47.6
46.1
49.6
71.9
East Coast
15.0
44.8
51.1
44.2
29.1
16.9
18.0
21.6
37.8
70.0
High Country
35.4
36.3
44.3
52.4
36.6
39.9
41.2
34.2
42.2
63.5
Ancient Cities
39.1
42.4
54.0
60.4
39.5
43.3
40.3
35.2
44.4
62.6
All Regions
42.1
43.1
53.2
59.3
45.4
47.8
46.2
43.9
48.4
70.1
Source: Annual Statistical Report of Sri Lanka Tourism 2010 (SLTDA)
Notes: Major Cities in Each Region - Greater Colombo: Colombo, Gampaha and Kalutara | South Coast: Galle | East Coast: Trincomalee and Batticaloa | High Country:
Badulla and Bandarawela | Ancient Cities: Kandy, Anuradhapura, Habarana and Polonnaruwa
Figure 26: Major Investments in the Hospitality Sector
Project
Location
Acres
Investment (LKR)
Year
Investor
Investor
Origin
661 room Shangri-La
Luxury Hotel
Colombo
10
USD 500 million (LKR 65 billion) for 99 year lease
of land and construction
2011
Shangri La
Hong Kong
650 room ITC Luxury
Hotel
Colombo
6
USD 125 million (LKR 13.7 billion) for 99 year
lease of land and USD 300 million (LKR 32.9
billion) for construction
2012
ITC
India
Thona Bay Development
Kalkudah
NA
USD 360 million (LKR 39.5 billion) for acquiring
land and construction
2010
Karooda Group
Switzerland
315 room Shangri-La
Luxury Resort
Hambantota
145
lease of land and construction
2011
Shangri La
Hong Kong
20 Acre Beachfront
Property
Kuchchaveli
20
lease of land and construction
2011
Mfar Hotels (Cochin)
(Dr P Mohammed
Oman
Ali)
Six Senses Before
Galle and Six Senses
Meeraladuaa
Ahungalla,
Meeraladuaa
37.5
USD 45 million (LKR 4.9 billion) for acquiring land
and construction
2010
Six Senses Resorts
and Aitken Spence
Thailand and
Sri Lanka
Ippantivu Islands
Kalpitiya
190
USD 127,500 (LKR 14 million) for 5 year lease
of land and USD 15.5 million (LKR 1.7 billion) for
construction
2010
Qube Lanka Leisure
India
Vellai 1,2 and 3 Islands
Kalpitiya
80
USD 34,000 (LKR 3.7 million) for 5 year lease
of land and USD 11 million (LKR 1.2 billion) for
construction
2010
Sun Resort
Investment
Maldives, Sri
Lanka and
Switzerland
Source: Industry and Media Sources, Jones Lang LaSalle
Notes: 1 USD = 109.76 LKR (Average During 2011)
The Next Decade: Top Trends to watch for in Colombo’s Real Estate
Leapfrogging: Integrated Developments at Suburban Locations
Land prices in Colombo have appreciated rapidly in the last four years. With prime land parcels in
the CBD (Colombo 01 and 02) being offered at LKR 8-9 million per perch18 (USD 268-301 per sq ft),
construction of offices in the core of the city will imply a high rental expectation. Land in SBD locations is
also expensive, and is available at LKR 4-5 million per perch (USD 134–167 per sq ft).
Leapfrogging is the phenomenon of developing real estate at locations further away from the city, where
land prices are still cheap despite the on-going improvements in infrastructural connectivity. To increase
financial attractiveness for outsourcing, developers and government should explore the development of
integrated IT parks with office, retail and residential developments in these suburban locations. These compact developments with
walk-to-work concepts are also sustainable as they bring the workforce closer to their offices.
Consolidation: Portfolio Rationalisation of Major Banks and Conglomerates
A significant amount of banking institution and major conglomerate office spaces in Colombo consist of
self-owned or single tenanted premises. As more Grade A office space is constructed across the city,
there will be opportunities to achieve cost rationalisation and reduction of leverage through consolidation
and decentralisation measures. The sale and leaseback of properties will offer investors the prospect of
gaining exposure to investment grade stable income yielding assets. Since the supply of office space
is limited, non-performing real assets held by the banks and conglomerates can be sub-leased to
prospective occupiers.
Real Value: Refurbishment and Redevelopment of Prime Properties
Refurbishing existing Grade B and C properties with Grade A facilities and infrastructure can be a cost
effective measure to provide prospective occupiers with quality office space in a short span of time.
It will not only increase the efficiency of real estate space, but will also reduce the energy requirements,
if sustainable solutions are incorporated in the new design. There are several plots of mill land near the
CBD and in the northern part of Colombo which offer immense opportunities for redevelopment into prime
residential, hospitality or office projects.
Up in the Sky: High Land Prices to lead to Slew of Condominium Developments
High land prices have already restricted villa and plotted developments to fringe areas of the city, and
such developments will be pushed even further out as land becomes more expensive. With growing
demand for condominiums, we should see the building of more residential towers in various city
locations.
18
1 perch = 272.25 sq ft and 1 USD = 109.76 LKR (Average during 2011)
Affordability: Lower to Mid-Income Mass Housing to cater to Urbanisation
As income levels increase and more people begin to be able to afford the minimum housing prices
(assessed through the rate of construction costs), even prominent developers will look at the massive
opportunities of scale available at the bottom of the pyramid and construct housing units for lower midincome and low-income segments. This will not only address the issues of urbanisation but also reduce
risks for developers, who will have a diversified development portfolio.
Experience Retailing: A Place to Shop, Dine and Hang out
Colombo is limited in experience retailing with its major shopping malls constructed nearly a decade
ago. Successful modern malls in South Asia not only serve the purpose of retailing, but are important
congregational places for shopping, dining and relaxation activities. We foresee at least 2 - 3 large
shopping malls with an eclectic mix of leisure, entertainment and cultural experiences, housing anchor
stores, multiplexes, food courts, gaming zones and atrium spaces, being constructed in Colombo in the
next 4-5 years.
Globalisation: Foreign Players drive Quality
The opportunities in Sri Lanka will capture the attention of several global players in the real estate
business – developers, investors, property consultants, architects, contractors and manufacturers. During
the next decade, the quality of construction will improve significantly, both due to the demand pressures
from overseas investors and the availability of expertise.
Mixed-Use: High Rise Developments in City Core
As per a study carried out by the Department of Estate Management Valuation in the University of Sri
Jayawardenapura, 78% of the office properties in Colombo are held as “pure office” properties, while 22%
are held as mixed commercial and retail developments19. With high land prices, developers will diversify
their risks in the core city and increasingly opt for mixed-use developments, with multiple asset classes
including high-end residential, hospitality, office and retail space.
19
Office Market in Colombo: An Empirical Analysis by RG Ariyawansa and UGM Dilhani, Sri Lankan Journal of Real Estate (2009)
Authors
Himadri Mayank
Assistant Vice President, Research and REIS
[email protected]
+91 99756 12304
Robin S
Assistant Manager, Strategic Consulting
[email protected]
+91 87544 04800
Advisors
Ashutosh Limaye
Head, Research and REIS
[email protected]
+91 98211 07054
Simon Thomas
Assistant Vice President, Strategic Consulting
[email protected]
+91 98400 68451
Special Contributors
Gagan Singh
Chairperson, Sri Lanka Operations
[email protected]
+94 777 444094
+91 98111 51610
Shankar Arumugham
Senior Vice President, Strategic Consulting
[email protected]
+94 776326888
+91 99400 66869
K-Zone
About Jones Lang LaSalle
Jones Lang LaSalle (NYSE:JLL) is a financial and professional services firm specializing in real estate. The firm offers integrated services
delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 2011 global
revenue of more than USD 3.6 billion, Jones Lang LaSalle serves clients in 70 countries from more than 1,000 locations worldwide,
including 200 corporate offices. The firm is an industry leader in property and corporate facility management services, with a portfolio of
approximately 1.8 billion square feet worldwide. LaSalle Investment Management, the company’s investment management business, is
one of the world’s largest and most diverse in real estate with USD 47.9 billion of assets under management. Jones Lang LaSalle has over
50 years of experience in Asia Pacific, with over 20,800 employees operating in 77 offices in 13 countries across the region. The firm was
named the Best Property Consultancy in Asia Pacific at ‘The Asia Pacific Property Awards 2011 in association with Bloomberg Television’.
For further information, please visit our website, www.ap.joneslanglasalle.com
About Jones Lang LaSalle Sri Lanka
Jones Lang LaSalle Lanka is a leading professional services firm specializing in real estate in Sri Lanka. Based out of Colombo, the firm
provides investors, developers, local corporates and multinational companies with a comprehensive range of services including research,
analytics, transactions, project and development services, property and asset management, integrated facilities management, real estate
capital markets across the office, hotel, land, industrial, retail and residential sectors. The Firm aims to combine local market knowledge
with its access to global multinational relationships and capital sources, to provide Sri Lankan corporates, government agencies and clients
with superior execution, towards transforming their real estate portfolios into efficient inventories, as well as in raising capital for real estate
assets. For further information, please visit www.joneslanglasalle.com
Sri Lanka Office
34, East Tower, World Trade Center
Echelon Square, Colombo 01
Sri Lanka
tel +94 117 444 555
Real Estate Intelligence Service (REIS) is a subscription based research service designed to provide you with cutting edge
insights into diverse and challenging real estate markets through collation, analysis and forecasts of property market indicators and
trends across all major markets across various real estate asset classes - office, retail, residential.
REIS empowers you with consistent and complete market data and analyses for all real estate indicators by specific micro markets.
It is supplemented by value added services including client briefings, presentations and rapid market updates.
For more details, contact, Ashutosh Limaye - [email protected]
COPYRIGHT © JONES LANG LASALLE All rights reserved. No part of this publication may be published without prior written permission from Jones Lang LaSalle.
The information in this publication should be regarded solely as a general guide. Whilst care has been taken in its preparation no representation is made or responsibility accepted for the accuracy of the whole or any
part. We stress that forecasting is a problematical exercise which at best should be regarded as an indicative assessment of possibilities rather than absolute certainties. The process of making forward projections
involves assumptions regarding numerous variables which are acutely sensitive to changing conditions, variations in any one of which may significantly affect the outcome, and we draw your attention to this factor.

Real Estate in Sri Lanka Prospects and Potential

Transcription

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