Sri Lanka’s real estate market has experienced intensifying demand for grade A and B offices from both domestic and foreign establishments
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Since the emergence of COVID-19, commercial real estate tenants’ traditional behaviours, expectations of an office, have changed. In this new norm, commercial real estate developers / landlords are challenged to find new and effective ways to improve workplace performance, according to the latest Research Intelligence Unit (RIU) report on Sri Lanka’s commercial market.
To help identify commercial office space requirements for these changes, the RIU, which has monitored real estate markets for 17 years, conducted a survey among Grade A and B commercial space tenants. Findings were reported in its Commercial Property Market Report which was launched in July 2020. The report provided insights on the different perceptions of the evolving commercial real estate market in Colombo and basic requirements that tenants expect from an office space with the current situation in mind.
According to tenants that completed the RIU’s survey, technology firms, health care and telecommunication, were considered to be the industries which will drive demand for commercial real estate. Advertising, construction, security firms and travel were understandably expected to remain stagnant.
‘The main aim of any office is to get the office work done with maximum efficiency at minimum cost. This aim can be achieved only when the office is properly located in a central location where it is convenient for business partners / customers / clients / suppliers. A good location of an office building ensures congenial working conditions. However COVID-19 has become an additional point of consideration. Only 50 per cent of the survey respondents were satisfied with their current geographical location of the office space and they did not feel threatened by the COVID-19 pandemic’s spread,” the report said.
A majority of tenants believe that COVID-19 will affect the number of upcoming office spaces in Colombo and it could shift demand for outer suburb areas (less urbanised). RIU sources confirm that some tenants are considering leaving grade A offices and moving into smaller spaces in the suburbs. This is mainly due to reduced business activities in the post COVID-19 era which has gravely impacted on some companies and they are unable to keep up with the high rentals in grade A offices.
Safety standards and health guard facilities provided at entrances to buildings (COVID-19 symptom checker, disinfect anyone who enters the building) are the most important requirements for tenants. Above all, tenants have prioritised the safety and health of employees through all reasonable means.
RIU said implementing social distancing measures will be an important key to maintaining a safe workplace during the COVID-19 pandemic. For example, tenants believe lunchtime and teatime practices in the office will change in the future. Particular social distancing practices will vary depending on the type of workplace or as may be required by an applicable public health agency or other governmental order. However, landlords need to make sure that they understand the risks of spread in this moment and accordingly help protect everyone in their ecosystem.
The RIU survey insights indicate that most companies have taken office space above 10,000 sq. ft. It’s a sign that tenants will recalibrate their space requirements in Colombo and this will be a central consideration with social distancing measures coming to the forefront.
Tenants are expecting a change to the traditional office floor set up (design, hardware, layout) in the future. The COVID-19 pandemic has slowed down construction and design companies, but the expectation is that they will be the driver for new innovations in design and office layout. A natural ventilation system to circulate air, open design concepts, integrated anti-microbial technology in interior design elements (door hardware, faucets, paint, window shades) and smart office technologies, were among these recommended changes. Of these, it has been indicated that more emphasis has been given for smart office technologies – automating frequent touch points, such as doors, elevators and sanitary systems, the report revealed.
Lines of operation have adjusted to a great extent due to COVID-19. Sri Lanka endured several weeks of curfew imposed by the Government in order to contain the spread of the virus and has seen many office spaces move towards remote working arrangements. This has led the country’s commercial real estate sector to unchartered waters, as the pandemic-fueled economic crisis is set to change the industry as a whole.
COVID-19 has led to more employees working from home and a majority of survey respondents have indicated that they would like the option to work remotely for 2 – 3 days a week. While there is an indication that employees may have missed the human and social interaction that the office facilitates, it is believed that more organisations will provide flexibility about working from home. The publicly traded video conferencing platform Zoom is now one of the tools most in demand and several companies encourage virtual meetings more than physical meetings. This shift to remote working can have positive impacts for the telecommunication industry as it will drive demand for better networking infrastructure and connectivity. Offices will still be relevant however, because they preserve the culture of the organisation and people still need to connect face to face and collaborate to add more value.
The RIU survey additionally revealed that most tenants expect concessions from the landlord in the next three to six months to stabilise and recover from the economic impact of the pandemic. Extended grace periods, rental discounts, consent to sublease and flexibility over contract negotiations are some of the expected concessions.
Worker experience should be the top priority for most commercial real estate landlords, developers and business leaders and post COVID-19 will change this experience in the future. The on-demand economy is reshaping tenant expectations about how real estate is consumed. The pandemic has encouraged the public to practice social distancing and to abide by health and safety protocols which is now a necessity. Technology-enabled facilities and personalised experiences will escalate tenant satisfaction and may increase the demand in commercial real estate as a whole. Decision makers must now re-evaluate how they can effectively and efficiently operate in traditional office spaces, the report said.