APPD Market Report Article

Colombo

November 28, 2022

Dr Samantak Das, Head of Research, India & Sri Lanka

132.3%

LKR 180

Rents
Rising

Moderate leasing activity across Grade A and B segments

  • Merchandise exports recorded total revenue of USD 1,213.7 million in August 2022, with a 10.2% y-o-y increase. The growth was primarily driven by exports of apparel and textiles, which individually showed a 15.0% y-o-y hike.
  • Despite consistently rising prices, overall leasing momentum recovered during 3Q22 with moderate activity in both Grade A and B segments. A notable transaction of a 300,000 sq ft purpose-built warehouse in Katunayake micro-market during 3Q22 signifies growing confidence from developers and occupiers.

No new supply completes in 3Q22

  • No new Grade A supply was completed in Greater Colombo during 3Q22. However, as developers have been actively proposing purpose-built models to potential occupiers, increased investments are projected to reach the market in the coming quarters.
  • INSEE Cement commenced the construction of a 100,000 sq ft warehouse within the port of Hambantota, outside Colombo. This will be the largest warehouse for raw materials within a port in Sri Lanka, and it is slated for completion by 1Q23.

Striking surge in rentals

  • Landlords continue to quote rentals in USD. As a result, Grade A rentals continued on a growth trajectory at a higher pace, recording a 132.3% y-o-y (44% q-o-q) growth to reach LKR 180 per sq ft per month. Across the market, the asking rental prices of Grade A warehouses ranged from LKR 144 to LKR 216.
  • Similarly, average Grade B rentals have gradually elevated across all micro-markets, resulting in an average 10.3% q-o-q increase.

Outlook: Industry growth anticipated, supported by policy changes

  • The consistently swelling export segment of the country is expected to reinforce demand, along with low vacancy rates putting further upward pressure on rentals. Furthermore, demand is expected to incline more towards export-oriented and manufacturing occupiers who earn revenue in USD, as the market is transforming into a USD-rental market.
  • Challenges within the industry are expected to partially ease in 4Q22 as the government relaxes import restrictions on building materials.

Note: Greater Colombo Logistics & Industrial refers to the Greater Colombo prime logistics market.

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