APPD Market Report Article
ColomboNovember 28, 2022
Dr Samantak Das, Head of Research, India & Sri Lanka
Absorption turns negative despite heightened market activity
- Leasing activity picked up pace in 3Q22, with many projects receiving increased enquiries and inspections, particularly for small spaces in Grade A properties. This indicates that the market is stabilising, following a period of volatility.
- Despite the higher leasing activity, negative net absorption was recorded during 3Q22 as more vacant space re-entered the CBD micro-market.
Overall vacancy soars during 3Q22
- During the quarter, the overall vacancy rate inclined by 2.82% from the previous quarter to 19.5%. While this reflected only a negligible 0.63% y-o-y growth, it was the highest volume indicated since 1Q21.
- Although no new supply entered the market during 3Q22, the completion of ongoing projects is expected to accelerate as the government relaxes import restrictions on several construction-related items.
Rents signal stability as exchange rate volatility eases
- Although average overall Grade A rents increased 27.9% y-o-y to LKR 399.7, this represented a marginal q-o-q decline of 0.5% from LKR 401.8 in 2Q22.
- With many landlords switching to USD-quoted rentals, tenants with local operations have appeared not to be very receptive to the exchange rate risk, especially for long-leasing tenures. As a result, these occupiers are finding the market less alluring.
Outlook: New supply is set to enter the SBD market in 4Q22
- The highly-anticipated Mireka tower, which will add 600,000 sq ft (GFA) to the SBD market, is scheduled to debut in 4Q22. This is poised to change the Grade A SBD micro-market dynamics, currently saturated with only 0.56% vacancy.
- Increased leasing demand from international occupiers is expected in high-end projects, as rates remain competitive to peer economies with the depreciation of the LKR. However, given the anticipated short-term changes in the country’s fiscal policy, these tenants continue to make cautious decisions.