With the steady growth of the IT/ITeS sector in Sri Lanka, the demand for large office spaces of 15,000-100,000 square feet presents a very promising scenario for commercial space investors. Colombo is the prime hotspot for such investment opportunities. Since cost is a concern in this segment, the demand is skewed towards the more cost-effective suburban locations of Colombo, such as Welisara in the north, Rajagiriya in the east and Ratmalana–Moratuwa in the south.
Commercial Real Estate
The demand for medium-sized office spaces of 3000–15000 square feet is fairly buoyant, and emanates primarily from domestic companies – especially the financial sector. The supply situation is weak, since there are not enough Grade A buildings in the city to cater to such demand. However, occupiers do have a range of medium-sized options in new and refurbished buildings to choose from within a radius of 10 kilometres of the CBD.
The demand for small or start-up configuration office spaces of under 2000 square feet is noteworthy due to the influx of many MNC companies exploring prospects in Sri Lanka. Such spaces are available all over the city, across commercial buildings and older residential houses in various locations. There are a few business centres (or serviced offices) that cater to requirements for even smaller sizes such as 100-500 square feet.
Rentals for commercial properties in the CBD and immediate periphery are in the range of USD 12–15/sq.ft. per annum (barring WTC, which is at around USD 24/sq.ft. per annum. This appears to be high for a city like Colombo; however if we compare it with office rentals in commercial capitals of other countries in the neighbourhood, Colombo is very competitive – provided supply issue is taken care of.
Retail Real Estate
In terms of retail spaces, malls are still thin on the ground and those that exist are relatively small. However, larger projects are being planned. These will largely be components of integrated mixed developments such as Havelock City, Colombo City Center by Abans-Silverneedle, Shangri-La, Property Alliance Capital, etc. who all have planned mall spaces within their developments. That said, the actual delivery of these spaces still appears to be about five years in the future. The traction mostly in the CBD and within a radius of 4-5 kilometres from the CBD.
International retail brands are positive about Colombo city as such, and franchising is the tried and tested model. Partnering with Sri Lankan companies also helps in easing out regulatory processes. Some of the success stories on this front are KFC, McDonalds, Levis, Panasonic, etc.
Residential Real Estate
Overall, there currently is no new residential supply available in Colombo. A few residential apartment projects have been planned across the city, and some of these are already under construction. As these projects approach completion, there could be a variety of options to choose from. Within the CBD and its immediate periphery, most residential projects are in the premium to super-luxury categories. A few projects in the affordable and budget range are coming up in suburban locations. In other words, there is a good mix of options planned and being developed.
Rental returns for premium/luxury apartments in the CBD fall in the range of 4–5 %. The resale values of apartments in the CBD appreciated significantly until 2012, but have stabilized after that up to the current time. One needs to keep in mind that the base also has been low.
Thanks to the strong potential for returns, the investment scenario in Sri Lanka is very strong. There is a great level of interest for setting up business operations emanating from Europe, Asia and the Middle-East, across sectors. As the visibility of this market improves, many companies are showing a keen interest to invest in Sri Lanka. The favourite sectors are Tourism, Hospitality and Residential. There is interest in townships, large scale affordable housing and agriculture, as well.