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After a brief slowdown in 2012 due to external uncertainties, the USD 59 billion Sri Lankan economy bounced back during 2013. Supported by
increased domestic demand and improved exports and tourism, the GDP growth accelerated to 7.3% in 2013 from 6.3% in 2012. Furthermore,
strong economic fundamentals, including a vibrant financial services sector and the ease of doing business in the country, aided the quick
recovery. In addition, the high human development index in the country1 will continue to catalyse Sri Lankas economic growth.
To improve productivity in the long term and have stable economic progress, Sri Lanka is proactively investing in various infrastructural projects,
from improving transport networks to telecommunications and electricity generation. This has resulted in the construction sector steadily
increasing its stake in the Sri Lankan GDP from 7.6% in 2009 to 10.3% in 2013.
9.0%
in LKR Billions
9.4%
7.8%
6000
4000
6.3%
7.6%
7.3%
7.0%
5.0%
4.0%
3.5%
2009
3.0%
2010
2011
2012
2013
Services
8.0%
6.0%
7.6%
2000
0
10.3%
8.2%
8.0%
8000
Agriculture
Construction
GDP Growth
2.0%
Note 1 - Sri Lanka ranks as a high human development country, according to the Human Development Report 2013
Colombo, the largest city and the commercial capital of Sri Lanka, is at the forefront of infrastructure activity in the country. Some of the key
infrastructure projects that were completed recently or are under development in and around Colombo include:
Since 2009, improved confidence in the investment market has triggered an escalation in property values. Apart from infrastructure projects, an
increased migration towards Colombo2 (both from the rural areas and outside the country) and a desire to own a property in the city are raising
real estate values.
The interest in acquiring land within the central and secondary submarkets has increased steadily due to limited availablity of land in the city.
In the first half of 2014, Colombo witnessed around 5% increase in land prices on an average, while select locations within the central and
secondary submarkets saw faster growth in land prices at around 7-8% since end of 2013.
LKR Mn per Perch
Submarkets
USD per sq ft
Central - Colombo 1, 2, 3
Min
5.5
Max
12.5
Min
155
Max
353
2.0
9.0
57
254
0.7
10.0
20
283
4.0
113
Suburbs - Rajagiriya, Dehiwala, Nugegoda, Moratuwa, Wattala, Peliyagoda, Kiribathgoda and their
neighbouring locations
Figure 2: Land Prices, Source: JLL Research, 2014, Note: One perch = 272.25 sq ft, Land prices are subject to various factors including land size, road width etc.
Minimum land rate in suburbs submarket can vary and are highly subjective.
< 12.2
1:2.5
150-250
12.2
1:3.0
250-400
12.2
1:3.5
400-500
12.2
1:4.5
500-700
12.2
1:5.0
500-700
15.0
1:5.5
700-900
15.0
1:6.0
900-1,000
15.0
1:7.0
900-1,000
22.0
1:7.5
1,000-1,500
Wattala
Max.
Min Road
permissible
Width (m)
FAR
22.0
1:8.0
1,500-2,000
22.0
1:9.0
1,500-2,000
24.0
1:9.5
2,000-2,500
24.0
1:10.0
2,500-3,000
24.0
1:12.0
24.0
Unlimited
15
Colombo 15
Colombo 13
14
Colombo 11 13
Colombo 14
01
11
Colombo 01
02
12
Colombo 12
10
Colombo 02
09
Colombo 09
Colombo 10 08
07
03
Peliyagoda
Colombo 08
Colombo 07
Colombo 03
04
05
Colombo 05
Colombo 04
Rajagiriya
Malabe
Sri Jayawardenepura
Kotte
06
Colombo 06
Nugegoda
Despite an attractive floor area ratio (FAR) regime, increasing construction costs for high-rise buildings and high borrowing costs have led to
apartment prices being unaffordable. As a result, the apartment market is largely restricted to only high-income-earning resident Sri Lankans
(RSLs), non-RSLs (NRSLs) and foreigners.
Apartment cost in different submarkets in Colombo:
Price Range - LKR/Sq ft (USD/Sq ft)
Luxury
Upper-Mid
Lower-Mid
Affordable
Central
35,000-45,000 (269-346)
26,000-35,000 (200-269)
N/A
N/A
Secondary
30,000-50,000 (230-384)
22,000-30,000 (169-230)
12,000-22,000 (92-169)
N/A
Secondary
North
N/A
18,000-28,000 (138-215)
12,000-18,000 (92-138)
Suburbs
N/A
16,000-25,000 (123-192)
12,000-16,000 (92-123)
Sub-Markets
2012
2013
1H14
14.0-15.5
14.0-15.5
13.5-14.5
17.0-19.0
12.7-17.5
13.0-13.5
7.5
6.5
6.5
Figure 6: Interest rate on Housing loans, Source: Annual Report 2013, CBSL and JLL Research
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
2009
2010
Middle East
Europe
2011
Rest of Asia
2012
Americas
2013
Others
By Foreigners
By Citizens
Individuals / Institutions
Freehold
Investment
in land is
prohibited
Investment in Condominium is
allowed only in apartments that
are on or above Fourth floor
Leasehold
Individuals /
Institutions can lease
Land up to 99 years
only 1,450 units were completed, and 98% of completed units have
been sold; whilst only 57% have been sold in the projects that are
under construction. Therefore, developers are required to speed up
construction to clear unsold inventories.
Some of the prominent projects that are under development in the luxury and upper-mid segments include:
Project Name
Location
Developer
Completion Year
Total Units
Destiny Residency
Slave Island
Imperial Builder
2017
205
> 231
7th Sense
Colombo 07
John Keells
2015
65
> 385
The Elements
Rajagiriya
Fairway Holdings
2016
132
> 154
Belvedere
Kotahena
2018
260
> 280
Altair
Beira Lake
2017
224
> 326
Rajagiriya
2014
188
> 180
Figure 9: Prominent residential projects in Colombo that are under development, Source: JLL Research
Location
Developer
Completion Year
Total Units
Glennie Street
John Keells
2018
231
> 330
Duplication Road
AVIC
2018
350
> 260
Beira Lake
2018
182
TBA
Shangri-La
Galle Face
Shangri-La
2019
TBA
TBA
Waterfront
Astoria
Figure 10: Prominent upcoming residential projects in Colombo, Source: JLL Research
Segmentation of households
based on Income in deciles
Central
L
Secondary
UM
UM
Secondary - North
LM
UM
LM
Suburbs
UM
LM
3BHK+
2BHK
1BHK
Third top 10% Households 3BHK+
with a mean montly
2BHK
income of LKR 71,490
1BHK
Second top 10% Households 3BHK+
with a mean montly income 2BHK
of LKR 100,302
1BHK
3BHK+
Top 10% households
with an mean monthly
2BHK
income of LKR 285,803
1BHK
Bottom 70% with
monthly income less
than LKR 63,334
Legend:
Affordable
Not Affordable
A - Affordable
L - Luxury
UM - Upper-Mid
LM - Lower-Mid
reveals that the household income per month in Sri Lanka has been
and other dilapidated housing from the city by resettling the families
nificantly, and the poverty headcount ratio has declined rapidly during
the past decade. With the emergence of the IT/ITES and tourism sec-
housing units.
40,000
19.0
30,000
20
36,451
26,286
15.2
20,048
20,000
8.9
12,803
6.7
10,000
0
2002
25
46,207
22.7
2005
2006-07
2009-10
2012-13
50,000
15
Population (Mn)
2009
2012
% Change
10
Sri Lanka
19.7
20.2
3%
Urban
2.8
3.6
29%
Rural
15.8
15.7
-1%
Estate
1.1
0.9
-18%
5
0
Figure 13: Household Income and Poverty ratio, Source: Income and Expenditure Survey, 2012-2013
Sri Lankas constantly improving socioeconomic development, good infrastructure and availability of talent have attracted many multinational
corporations (MNCs). Furthermore, with Sri Lanka tapping other South Asian countries in terms of starting and doing business with fewer
procedural formalities, we have seen an increase in the number of companies exploring opportunities in the country. As a result, the Colombo
office market is witnessing a steady demand for small-sized office modules that are less than 2,000 sq ft, as these are ideal for start-ups. The
Banking, Financial Services & Insurance (BFSI) and IT/ITES sectors are the top two office leasing sectors in Colombo. While established
domestic BFSI companies absorb office space that is anywhere between 3,000 sq ft and 15,000 sq ft, the IT/ITES sector absorbs office modules
between 10,000 sq ft and 30,000 sq ft WNS, Aegis BPO, Leapset and WSO2 are some of the IT/ITES companies that leased space during the
past year, while Virtusa and HSBC are some of the major office occupiers in Colombo.
85
95
105
110
130
134
141
164
Sri Lanka
Maldives
Nepal
Pakistan
Bangladesh
India
Bhutan
Afghanistan
Colombo has around 2.6 million sq ft of Grade A office space, less than 5% of which is vacant. Along with Free Lanka Towers, we expect AEC
Towers to be completed this year, supplying around 0.14 million sq ft of Grade A office space by end of 2014. In 2015, we expect 0.33 million sq
ft to be completed, taking the total stock of Grade A office space to around 3 million sq ft by end of 2015.
Address
Developer
GFA sq ft
Year
AEC Towers
Colombo 14
AEC Group
75,000
2014
Colombo 9
2,00,000
2015
LHP
Colombo 3
LHP Construction
60,000
2015
Laugfs
Colombo 5
65,000
2015
Colombo 2
Access Realties
2,00,000
2016
Waterfront
Colombo 2
John Keells
5,00,000
2018
Shangri-La
Colombo 2
Shangri-La
6,00,000
2018
210
2009A
387
2011A
1000
710
2013A
2016P
2022P
Apart from office tenants, the park is expected to have centres of the
universities of Moratuwa and Peradeniya. We have been witnessing
foreign universities leasing space in various commercial buildings in
Colombo; we expect this trend to continue in the future, as the number
of students in the country pursuing higher education have been
increasing.
Office sector encroaches on prime residential buildings
Occupiers are increasingly leasing space in refurbished buildings and
choosing to stay closer to the CBD because of minimal vacancy rate
in grade A office spaces. Given the inadequate supply of quality office
space, tenants are compromising and taking up space in residential
structures and Grade B commercial buildings in the CBD to house
their offices. With a steady requirement for small-sized office spaces,
business centres are ideally placed to reap the maximum benefit from
the opportunity of providing small-sized office space modules.
Rents in Grade A buildings have been increasing steadily at a CAGR
of 8% every year since 2009, because of the demand for quality office
space. However, the long-term growth in rents and the expansion
of the office real estate market will rely on the success of the MNC
start-ups and the IT/ITES industry. Although rents have been on the
rise, Colombo still offers a very competitive rate compared to the
commercial capitals of neighbouring countries. Capital values continue
to grow faster than rents, supported by expectations of high rent
growth in the future. As a result, market yields have been compressing
since 2009.
400
350
336
300
250
211
200
165
150
100
50
0
2009
2010
2011
Average Rent
2012
WTC Rent
2013
1H14
7.7%
25,000
20,000
19,398
28,388
7.8%
24,596
21,500
7.6%
7.4%
7.4%
7.2%
7.1%
15,000
6.8%
10,000
5,000
0
8.0%
31,943
7.9%
7.0%
6.8%
6.6%
2009
2010
2011
2012
2013
6.4%
Market Yield
Figure 19: Average Capital values in Colombo, Source: JLL Research, 2014
Locations
150 - 350
100 - 200
100 - 200
Nugegoda
75 - 200
Maharagama
60 - 150
Wattala
100 - 150
> 90
Since 2009, Sri Lanka has seen a substantial growth in tourist arrivals
and revenues. Sri Lankas foreign tourist arrivals grew at an impressive
27% to a record 1.3 million tourists in 2013 (beating Sri Lankas
previous record of 1 million in 2012) while the country generated USD
1.7 billion in tourism receipts. The Sri Lanka Tourism Development
Authority (SLTDA) has set a target of 1.5 million tourists in 2014 and a
long-term target of 2.5 million annual arrivals in 2016.
According to the World Travel and Tourism Council (WTTC), the
tourism sector directly contributed around 3.9% of Sri Lankas GDP
in 2013 and is estimated to have contributed around 3.5% of the
total employment in the country. Leisure travel spending (inbound
and domestic) generated 84% of direct travel and tourism GDP in
2013 compared to 16% for business travel spending, while travel and
tourism directly supported 286,000 jobs.
The largest source markets for Sri Lanka continues to be India,
with arrivals from the United Kingdom, Maldives, the Middle East
and European countries including Germany and France also being
considerably high. Of late, the country is also recording a significant
increase in Chinese tourist arrivals.
World Tourism
5%
Asia Pacific
6%
India
4%
Hong Kong
8%
Singapore
8%
Indonesia
9%
10%
Maldives
10%
Philippines
11%
Malaysia
16%
Thailand
20%
Sri Lanka
27%
Tourist Arrivals
175
150
Thousands
125
100
75
50
25
0
January
February
March
April
May
2011
June
2012
July
2013
August
September
October
November December
2014
Major global hotel chains, including the ShangriLa Group, ITC Hotels, Starwood Hotels and
Resorts, Marriott International, Hyatt Hotels
Corporation and Moevenpick Hotels and Resorts,
have hotel developments underway in Colombo
and along the south-west coast.
Hotel Supply - Pan-Sri Lanka
Accommodation Type
Number
Keys
Tourist Hotels
262
15,450
62
700
482
1.5
Guest Houses
970
9,000
Heritage Homes
66
350
1,842
27,000
Total
Location
Proposed
Positioning
Status
Expected
Opening
Keys
Cinnamon Red
Colombo
Midscale
Newly opened
2014
240
Unconfirmed
Kosgoda
Luxury
Under construction
2015
150
Shangri-la Hotels
Shangri-la
Hambantota
Luxury
Under construction
2015
375
Sheraton
Colombo
Upper Upscale
Under construction
2015
306
Grand Hyatt
Colombo
Upper Upscale
Under construction
2015
475
Fairway Group
Unconfirmed
Colombo
Economy
Under construction
2015
196
Softlogic
Moevenpick
Colombo
Upscale
Under construction
2015
180
Marriott
Weligama
Upper Upscale
Under construction
2015
200
Anantara
Tangalle
Luxury
Under construction
2015
154
Anantara
Kalutara
Luxury
Early Development
2015
141
Jetwings
Jetwings
Colombo
Midscale
Under construction
2016
70
Aitken Spence
Riu
Ahungalla
Luxury
Planning
2016
500
Ozo
Galle
Midscale
Under construction
2016
148
Marino Sands
Colombo
Midscale
Under construction
2017
270
Shangri-La
Colombo
Luxury
Under construction
2017
550
Nexxt
Colombo
Upscale
Proposed
2018
200
Unconfirmed
Colombo
Luxury
Proposed
2018
800
Crown
Colombo
Luxury
Proposed
2018
430
WelcomHotel Lanka
WelcomHotel
Colombo
Luxury
Proposed
2018
300
Crowne Plaza
Colombo
Upper Upscale
Proposed
2019
225
Developer
John Keells Group/Sanken Lanka
Browns Investments PLC
Damro
Shangri-la
Colombo City Centre
John Keells Group
Rank Holdings/Crown Resorts
While Colombo is the engine of growth for Sri Lanka, other Tier II cities
also contribute significantly to the countrys economic development.
Some of the other emerging cities in the country include Kandy, Galle
and Hambantota.
Kandy: Kandy is the countrys second largest city and attracts
tourists for its scenic beauty and Buddhist temples. Being centrally
located, Kandy has good connectivity to all parts of the country.
Also, as the administrative capital of the Central Province, the city
hosts various government offices and branches of corporations that
are headquartered in Colombo. In addition, Kandy has its own local
industries ranging from textiles to IT. The city has one shopping mall,
Kandy City Centre, which houses various local and international
brands. With the airport and an expressway that connects with
Colombo under construction, we foresee heightened economic activity
here in the coming years.
Hambantota: Located at the southern tip of Sri Lanka, Hambantota,
which was hard hit by the 2004 tsunami, is now fast emerging as the
second major urban hub in Sri Lanka. The city is ideally placed along
Kankasenthurai
Jaffna
Pallai
Kilinochchi
Mullaitivu
Mannar NORTHERN
Talaimannar
Vavuniya
Omanthai
NORTH
CENTRAL
Madhu Road
Trincomalee
Medawachchiya
Anuradhapura
Puttalum
Polonnaruwa
EASTERN
NORTH
WESTERN
Batticaloa
Kandy
Kurunegala
Matale
Kandy
Colombo
Katunayake
Gampaha
CENTRAL
Kegalle
Nuwara Eliya
Colombo
Kottawa
SABARAGAMUWA
SOUTHERN
Badulla
Ratnapura
WESTERN
Galle
Port Projects
Oluvil
Monaragala
Kalutara
Airport Projects
Ampara
Galle
Matara
Hambantota
Beliatta
Kataragama
Hambantota
Colombo
Kandy
Galle
Hambantota
Population
(District) - 2012
2.31 Million
1.37 Million
1.06 Million
0.60 Million
Population
Density
(per sq km) - 2012
3238
714
655
239
Poverty Head
Count Ratio 2012/13
1.4
6.2
9.9
4.9
Labour force
participation %
- 2012
45.9
45.1
44
50.8
Unemployment
rate % - 2012
2.9
7.2
2.3
5.3
Literacy rates %
- 2012
95.8
92.4
96.6
88.8
Airport
Bandaranaike
International Airport,
Ratmalana Airport
Domestic
Airport U/C
Domestic
Airport
Mattala Rajapaksa
International Airport
Port
Port of Colombo
No Port
Port of Galle
Port of Hambantota
Connectivity
through
Expressway
All Expressway
connected to Colombo
Southern
Expressway
Southern
Expressway - U/C
Railway
network
Yes
Yes
Yes
U/C
Figure 26, Source: Department of Census and Statistics - Sri Lanka, JLL Research
Optimal
Space
Utilisation
Engineering services
Workplace solutions
SOFT services
Space/occupancy services
Lifts
Reception
Janitorial
Minor projects
Plumbing
Cleaning
Space planning
Energy
Reprographics
Landscaping
Moves/adds/changes
Utilities
Catering
Security
Headcount tracking
Electrical
Transport
Concierge
Archiving
Case study from Colombo: A clients energy bill cost savings for an eight-year-old G+5 building with an area of 189,000
sq ft, approximately 2,400 users and 24/7 operations. The buildings energy consumption in 2012 was 5.2 MW/hour.
Initiatives: Optimised chiller operations by increasing the outlet temperature set point, setting the air handling unit (AHU)
to auto mode and monitoring the floor temperature on a 24/7 basis.
Results: Savings based on 6.5 months electricity meter readings (June-December 2013 versus June-December 2012)
Electricity
consumption savings
in 6.5 months
Electricity
consumption savings
prorated for 12 months
188,671
348,315
kWh/annum
kWh/annum
Prorated
savings in local
currency
6.62
LRK
million/annum
Prorated
savings in US
dollars
USD
52,000
annum
Components of PAM
Infrastructure management
ASSET management
VALUE-ADDED SERVICES
Power/electricity
Tenancy management
Predictive maintenance
Risk management
Disaster management
Lease administration
Building
Financial management
Telecom
Soft services
Project management
Project management (PM) professionals serve clients to fit-out or construct a new facility. In this scenario, occupiers need a
partner who has the experience and knowledge to deliver the requirements. Today, delivering a successful project goes beyond
being on time, on budget and within specification. PM professionals commit to help identify and manage project risks before they
become costly problems. Understanding the local culture, regulations and business drivers, PM professionals support clients in
effectively completing a wide variety of project types across industries-from corporate offices and industrial developments to new
campuses and mixed-use developments. The various facets of the service include:
Interior fit-out
Tenant
improvements
Asset analysis
Multisite
programmes
Construction
management and
monitoring
Move management
Capital
improvements
Development
management and
advisory
Technical due
diligence
Design-andconstruct
development
Improving economic sentiment throughout the West and in India is expected to support exports, investments and tourism,
which in turn are anticipated to drive domestic consumption. Inflation in the economy is softening, and the Central Bank of Sri
Lanka (CBSL) has started to loosen its monetary stance. This will allow more lending to the private sector, further supporting
domestic consumption.
The government is laying a strong platform to launch its economy on a high-growth trajectory. Consequently, the government
is focusing its efforts on activity such as infrastructure development, rehabilitation of the war-torn Northern Province and job/
talent creation.
Recently, Coface, a multinational credit insurance company, identified Sri Lanka as one of the top five new emerging
economies in the world. Apart from the investments by developers from India and South Asia, private equity funds have also
started actively studying this new emerging market.
However, to exploit the opportunity, the following points need to be addressed immediately:
The country should fast track the proposed mass transport systems, such as the monorail and metro, which will have a
direct positive impact on Colombos suburban real estate.
Human resources should be appropriately trained to enhance economic and social development.
Private players have to be encouraged to develop affordable housing projects through government schemes with subsidised
borrowing rates.
Developers should be encouraged to develop more commercial developments in line with the business expansion plans of
the industry bodies.
Economic Indicators
2013A
2014F
2015F
7.3%
7.5%
7.5%
6.9%
5.0%
6.0%
3,280
3,385
3,658
31%
33%
30%
-2.0%
-2.6%
-3.5%
Figure 27: Economic Indicators, Source: JLL Research, Note: 4 - Asian Development Bank; 5 - IMF Outlook
30 Sri Lanka - Scaling New Heights
Authors
Vasanth Raghunathan
Assistant Manager - Research and REIS
vasanth.raghunathan@ap.jll.com
+91 44 3095 1063
Sujash Bera
Assistant Manager - Research and REIS
sujash.bera@ap.jll.com
+91 33 2227 3293
Special Contribution
Robin S
Manager - Strategic Consulting
robin.s@ap.jll.com
India +91 87544 04800
Sri Lanka +94 774 668 757
Roopa George
Senior Associate - India
Hotels & Hospitality Group
roopa.george@ap.jll.com
India +91 99530 58164
Strategic Inputs
Ashutosh Limaye
Head - Research and REIS
India
ashutosh.limaye@ap.jll.com
+91 98211 07054
Shankar Arumugham
Head - Strategic Consulting
Sri Lanka
shankar.arumugham@ap.jll.com
Sri Lanka +94 776326 888
India +91 99400 66869
Business Enquiries
Gagan Singh
CEO - Business, India
Chairperson - Sri Lanka Operations
gagan.singh@ap.jll.com
Sri Lanka +94 777 444094
India +91 98111 51610
Sanjeev Nair
Head - PAM & IFM
Sri Lanka
sanjeev.nair1@ap.jll.com
+94 776 868245
Sunil Subramanian
Head - Transactions
Sri Lanka
sunil.subramanian@ap.jll.com
+94 775522155
Acknowledgement:
We would like to acknowledge Ponni.S and Supun Fernando, for their valuable contribution to this research paper.
Sri Lanka - Scaling New Heights 31
About JLL
JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased
value by owning, occupying and investing in real estate. With annual fee revenue of $4.0 billion and gross revenue of $4.5 billion, JLL has more
than 200 corporate offices and operates in 75 countries with a global workforce of approximately 53,000. On behalf of its clients, the firm provides
management and real estate outsourcing services for a property portfolio of 3.0 billion square feet, or 280.0 million square meters, and completed
$99.0 billion in sales, acquisitions and finance transactions in 2013. Its investment management business, LaSalle Investment Management, has
$50.0 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated.
JLL has over 50 years of experience in Asia Pacific, with over 28,453 employees operating in 80 offices in 16 countries across the region. The
firm was named Best Property Consultancy in seven Asia Pacific countries at the International Property Awards Asia Pacific 2014, and won nine
Asia Pacific awards in the Euromoney Real Estate Awards 2013. www.jll.com/asiapacific.
For further information, please visit our website, www.jll.com
Jones Lang LaSalle Lanka (Private) Limited 2014. All rights reserved. All information contained herein is from sources deemed reliable; however, no representation or warranty is made to the accuracy thereof.