APPD Market Report Article


February 28, 2023

Dr Samantak Das, Executive Director and Head of Research & REIS, India & Sri Lanka


LKR 467


Positive absorption amid challenges

  • Colombo’s Grade A office market witnessed a broad-based demand during 4Q22. Multiple transactions recorded across projects in the CBD indicated the rebounding of the market in a turbulent period.
  • Although tight fiscal and monetary policies were feared to hamper demand, the market recorded positive net absorption during 4Q22. 

Vacancy in the CBD declines

  • While no new projects were completed in 4Q22, Mireka Tower by Havelock City became operational and raised the bar for Colombo’s SBD micro-market. 
  • The addition of the Mireka Tower essentially caused the overall average vacancy in the Colombo market to increase to 27.9% during 4Q22, up 838 basis points from the previous quarter. However, the average vacancy rate for CBD dropped to 21.95% from 23.36% in the earlier quarter.

Rental trajectory peaks during 4Q22

  • Average rents peaked at LKR 434.51 per sqm per month during 4Q22, despite the stabilised exchange rate and moderating inflation. This represents a significant increase of 39.26% compared to the same period in the previous year, and a q-o-q increase of 8.1%.
  • The longstanding relatively low rental trend in SBD was disrupted by the entry of Mireka Tower and pushed the average micro-market rents up to LKR 337.45, up 26.54% from LKR 266.67 per sqm per month in the same quarter the previous year.

Outlook: Heightened supply expected in 1Q23

  • In 1Q23, the Ekroma and JFI towers in Colombo’s CBD and SBD are slated for completion, adding about 400,000 sq ft of GFA to the city’s Grade A stock. However, the supply pipeline is likely to remain still as no new launches were announced due to the persistent challenges developers face.
  • With fresh supply entering the market and the lacklustre demand challenges amid the contractionary policy environment, rents are predicted to stagnate at their peak in the short term and decline in the medium term.

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

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