APPD Market Report Article

Colombo

May 31, 2022

9.3%

LKR 375

Rents
Rising

Heightened activity in Grade A office spaces with moderate rentals

  • The economic and political headwinds encountered by Sri Lanka impacted the Colombo office market during 1Q22 as absorption declined by 1500 sq ft. Similarly, leasing negotiations in the initial stages had slowed down due to undetermined conditions in the market.
  • The persistent power shedding experienced by the country has pushed the tenants to premium Grade A buildings which to date have an uninterrupted power supply. As a result, buildings offering reliable services at affordable rent have reached maximum occupancy levels.

Vacancy buoyed amidst delayed openings

  • Vacancy rates dropped from 19.70% in 1Q21 to 17.75% at the end of 1Q22. However, there has been a marginal rise of 0.2% compared to the 17.7% that prevailed in 4Q21.
  • Two projects Ekroma and JFI tower further pushed their openings which were scheduled to take place during 1Q22.

Rental surge driven by the exchange rate depreciation

  • Most of the developers in the market changed their pricing strategies to quote rentals in USD due to the sharp depreciation of LKR against USD. Consequently, average Grade A rentals significantly spiked indicating a y-o-y growth of 8.7%.
  • An increased emphasis has been placed on the Common Area Maintenance (CAM) charges in the ongoing market transactions from both landlords and occupiers, due to the electricity and fuel shortages anticipated in the short term.

Outlook: Rentals are anticipated to rise further

  • Rentals and CAM charges are expected to increase further, as more developers are likely to quote the rentals in USD in the short term, as a response to increased flexibility in exchange rates and rising inflation.
  • The most anticipated Havelock city Mireka tower is expected to become operational by 2Q22 adding 600,000 sq ft of premium Grade A office space to the stock. Developers remain bullish on the market demand with a pre-leasing commitment of more than 40% by 1Q22.

Note: Colombo Office refers to Colombo's overall Grade A office market.

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