Colombo not yet ready to take up apartments; may face a glut : Analyst
Colombo is not yet ready to take up many apartment units and if all its proposed developments come at once, the city would face a glut of apartment units, making it difficult to market these condominiums to the locals at present given its pricing, analyst says.
“In a way these projects getting delayed is a good thing and a gradual addition of capacity is needed when the city matures,” Danushka Samarasinghe, Director TKS Securities (Pvt) Ltd, said. He added that a gradual addition of apartment units is needed to match the change in the Sri Lankan real estate market with the expected lifestyle changes and the returning local expats.
He said that nowhere are nine large scale mixed development projects, five standalone apartment projects and 6 three to five star hotel projects which have been announced in and around the city.
Mixed development
In the mixed development arena, Havelock City has already completed and sold 226 units and another two apartment towers (218 units) are under construction. Hyatt Regency and Platinum One have partly completed structures. Mr. Samarasinghe said that apart from these developments all other projects are yet to break ground. “Therefore we believe that the Colombo metropolis would function with a marginal capacity increase during the next 2-3 years where we would not see a real growth until the next 4-5 years.”
A TKS research report said that Colombo is only equipped with about 2,000 five star rooms and that with the completion of the Movenpick and Hyatt another 700 rooms will be added during the next 3-4 years. “There would be demand for city five star rooms with the expected growth in business, crew and MICE travellers.”
It said there are more than 100 apartment units in Colombo and the suburbs and most of them are fully sold out or 80 per cent of the units are sold.
He said the highest demand is triggered for semi luxury apartments and when further analysed it was evident that most of those apartment units are bought by Sri Lankan expats in order to rent it out (and receive an income). “It is also seen that some degree of demand for such apartments come from families of businessmen living in rural areas aiming for convenience for schools, higher education and employment associated with the locations of apartments.” He said that in the medium term it is expected that apartment rentals will increase despite now at low levels (6-7 per cent).
Market for office space
After the conflict ended in 2009 the demand for office space in Colombo increased drastically, Mr. Samarasinghe said, adding that the only sizable office spaces available in Colombo were the World Trade Centre, HNB Towers and Access Towers. “Subsequent to the demand we saw the rents also doubling in Colombo commercial complexes,” he said, adding that there is significant opportunity for office space developers. He said office space would continue to be in demand in line with the transformation towards a hub status of Colombo together with needs of increasing BPO operations in the country.
The research report said that despite retailing space in Colombo not being in great demand in the past and most the retailing outlets were confined to smaller shops (apart from some clothing outlets), the post war era has seen a significant expansion in this segment (mainly white goods and branded apparel) with the entry of leading international brands. “Thus the demand for sizable retail space has also increased. Most of the new mixed development projects announced has a significant retailing space (on average 50,000 sq ft). It is unlikely that one retailer would take up this entire space but more likely that this space would be divided among few retail operators,” it said. Sri Lanka’s gaming and entertainment industry looks optimistic with interest being shown from both local and foreign parties to enter the industry.
Gaming
Sri Lanka’s casino market is a fragmented industry with six licenced casinos operating in Sri Lanka, namely Bellagio, Ballys, MGM, Stardust, Marina Colombo and Ritz, according to the research report. It said that in the six years leading up to 2011 casinos contributed Rs. 1.7 billion in tax revenue.
“The targeted market for gaming clientele would be wealthy Indian and Chinese players. As seen in Macau and Singapore (both regions operating a multi-billion dollar industry dwarfing the iconic Las Vegas) it invariably leads to more tourist arrivals and Sri Lanka could expect more tourist arrivals from India, China and the Middle Eastern region.”
Thus the huge growth potential in the industry particularly due to the current scale of the casino industry in Sri Lanka citing the Indian traffic as a lucrative target market is further evident with the interest shown by industry tycoons such as Packer, the report said, adding that this could lead to the expansion of tourist arrivals from other regions as well which would assist in the demand for hotels, apartments and retail space.
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