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Office market net absorption up 200% Y-o-Y: JLL

23 Mar 2022

  • Demand in the market was predominantly driven by the IT/ITeS and financial services and capital market-related occupiers 
  • A strong supply pipeline is envisaged in the market strengthened by the increased capital flow amidst the prevailing interest rate environment 
  The Sri Lankan office sector ended the year 2021 with net absorption of 133,464 sq. ft. in Grade “A” operational buildings in Colombo, a 200% Y-o-Y growth and noticeable pre-leasing activity, according to JLL’s Colombo Commercial real estate market Report. Another confidence-building measure has been the approval of $ 2 billion worth of investment in projects in 2021 by the Board of Investment (BOI) Sri Lanka out of which $ 1.6 billion is through foreign investment.  While the office staff is adopting new normal routines, the occupiers re-configured their post-pandemic real estate requirements opting for more quality spaces, particularly investing in more premium Grade “A” commercial office spaces within the central business district (CBD).  “The broad-based absorption witnessed in Colombo office market towards the end of the year sets the seal on rebounding of the market, envisaging a robust outlook for 2022,” said JLL Head – Sri Lanka Jerry Kingsley.  Despite the supply influx during the year, vacancy levels in the market stood at 17.7% at 4Q21, recording the lowest for 2021. The average vacancy rate for 2021 posted at 18.83% indicating a decline of 1.5%, compared to the pre-pandemic average in 2019.  “The low-interest rates that prevailed in the country coupled with import controls on automobiles and higher inflation rates have triggered the capital flow towards the real estate asset classes in general. Consequently, a strong supply pipeline is envisaged in the commercial office market, with the heightened investor sentiment witnessed in the market from both local and foreign players,” noted JLL Head – Research and REIS (India) and chief economist Dr. Samantak Das. Rentals Colombo has been perceived by the stakeholders as a market that offers premium Grade “A” spaces for a competitive price in the region. This has been the catalyst for most of the global firms to seek office spaces in Colombo and utilise the destination as a gateway to the ever growing South Asian market. Although some of the firms in the IT/ITeS sector adopted hybrid working models such as the Hub and Spoke office model, the demand in the market was predominantly driven by the IT/ITeS and financial services and capital market-related occupiers. Rental values in the market have been on a downward trend since 2020 and gradually stabilised throughout 2021.  Although the premium lessors in the market adjust rentals to remain competitive, the face rentals are projected to remain range-bound amidst the strong upcoming supply. However, overall occupier activity in the Grade “A” office market is likely to remain active in the CBD despite the anticipated tightening in the economy. Looking ahead  The Sri Lankan economy has gathered momentum in 2021, as businesses build confidence. The rapid vaccination drive rolled out nationwide had laid the groundwork for the people to participate in pre-pandemic activities such as gatherings, concerts, etc. despite the expected setback in the social activities due to the Covid-19 Omicron variant. Another positive measure has been the achievement of more than 70% of the population being fully vaccinated. Although the country’s foreign reserves dwindled to alarming levels amidst the increased money supply, the economy kept abreast with the growth in peer economies, remaining as a captivating destination for potential investors amidst a global pandemic. JLL (NYSE: JLL) is a professional services firm that specialises in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces, and sustainable real estate solutions for their clients, people, and communities. JLL is a Fortune 500 company with annual revenue of $ 19.4 billion, operations in over 80 countries, and a global workforce of more than 98,000 as of 31 December 2021. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated.  For further information, visit www.jll.com. 


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