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Real Estate in Sri Lanka Prospects and Potential Translating Economic Growth into Real Developments in Colombo April 2012

Real Estate in Sri Lanka Presentation

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Page 1: Real Estate in Sri Lanka Presentation

Real Estate in Sri Lanka – Prospects and Potential Translating Economic Growth into Real Developments in Colombo April 2012

Page 2: Real Estate in Sri Lanka Presentation

2

Per Capita

Income targeted

to cross USD

4,000 by 2016

Highest literacy

rate in South Asia

at 94.2%

2 successive

years of 8%

growth in GDP

(2010 & 2011)

IMF upgraded Sri

Lanka to Middle

Income Country

in 2010

Tourist arrivals

have grown at a

CAGR of 38%

during 2009-2011

Low Costs of

Operations and

Human

Resources

Workers’

remittances

multiplied over 3.5

times during the

last decade

Colombo Stock

Exchange has given

returns at a CAGR

of 48% during

Jan09-Mar12

Sri Lanka – An Emerging Economy

Page 3: Real Estate in Sri Lanka Presentation

3

Offices in Colombo

Putting Function Before Form

Stock and Supply of Office Space

Operational 5 million sq ft

Under Construction 765,000 sq ft

Proposed 6 million sq ft

The office stock will multiply 2.4 times in the next 4-5 years!

Average Occupancy of Office Space

2009 60%

2011 90%

High occupancy levels of 90% have resulted in demand trickling down

to inferior grade properties

Source: Jones Lang LaSalle, 4Q11

World Trade Centre, Colombo

Page 4: Real Estate in Sri Lanka Presentation

4

BangaloreGurgaon

ChennaiColombo

ManilaChengdu

Guangzhou

Beijing

Ho Chi Minh City

Hanoi

Kuala Lumpur

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

0 10 20 30 40 50 60

Ave

rage

Ren

ts (

USD

psf

pm

)

Office Stock (million sf)

Office Rents in Colombo

Among the lowest priced markets in Asia Pacific

Majority of office space in CBD and SBD is available in a rental range of LKR 100–

150 per sq ft per month, comparable to Chennai and Bangalore rents

Source: Jones Lang LaSalle, 4Q11

Page 5: Real Estate in Sri Lanka Presentation

5

Major Demand Drivers for Office Space

Banking, Financial Services and Insurance

The sector contributes to 8-9% of

the country’s GDP

22 banks (including 11 foreign)

operate in Colombo Metropolitan

Region

Number of banking branches in Sri

Lanka has been increasing at an

average rate of 7% per annum

since 2007

Nearly 1,804 more banking branches are projected to open by 2015, resulting in

demand for nearly 4.5 million sq ft of office space across cities

Source: Central Bank of Sri Lanka, Jones Lang LaSalle

Major Foreign Banks Major Domestic Banks

Page 6: Real Estate in Sri Lanka Presentation

6

Major Demand Drivers for Office Space

Information Technology

Colombo ranked 21st in the AT Kearney

Global Services Location Index 2011

Ranked 6th in financial attractiveness,

ahead of India, China, Central Europe

and Eastern Europe

Included among the Top 9 in Asia pacific

Gartner's 30 Leading Locations for

Offshore Services (2010-2011)

7 million sq ft of additional office space required during 2012-2015 to meet the

TARGET of USD 1 billion annual revenues and 100,000 employees by 2015

Source: Jones Lang LaSalle

Revenue

(USD mn)

Employees Office

Space

(mn sf)

2011 392 40,000 4.5

2015F 1,000 100,000 11.5

Orion City, Colombo

OFF-SHORE CENTRES IN COLOMBO

Page 7: Real Estate in Sri Lanka Presentation

INFORMATION

TECHNOLOGY

AD

VA

NTA

GE

SR

I LA

NK

A

HUMAN RESOURCE

COST EFFECTIVENESS GROWING INDUSTRY

IP PROTECTION

91.4% literacy rate and

English as the primary

language of higher

education

Produces 30,000

graduates each year

Full tax holiday of 4-12

years depending on

minimum investment size

Custom duty exempted

on the import of project

related capital goods and

raw materials

Salaries lower than other

outsourcing destinations,

including India

Low real estate and

operational costs

Achieved export revenues

of USD 392 mn and

employed over 40,000

employees

IT exports have doubled

during 2006-10

Signatory to Berne

Convention and WTO /

TRIPS

Enacted Electronics

Transactions and

Computer Crimes Act

INFRASTRUCTURE

Adequate power with

100% up-time

Well established telecom

and data network with

ample redundancies

POLICY SUPPORT

Major Demand Drivers for Office Space

Information Technology – Advantage Sri Lanka

Page 8: Real Estate in Sri Lanka Presentation

8

Real Opportunities in the Office Sector

Leapfrogging Integrated developments at suburban

locations will offer offices at lower rents

for outsourcing

Consolidation Opportunities to achieve cost rationalisation

and reduction of leverage through

consolidation and decentralisation of self-

owned and single tenanted offices by banks

and conglomerates.

Since a major portfolio of offices held by

banks is self-owned, sale and lease back to

prospective investors will provide

opportunities.

Real Value through

Refurbishment Refurbishment of Grade B and C

properties to Grade A will offer quality

space to prospective occupiers

Page 9: Real Estate in Sri Lanka Presentation

9

Retail in Colombo

Designing Spaces for the Consumer

The retail mall stock will multiply 2.6 times in the next 3-4 years!

Eight operational malls with 0.65

million sq ft of retail space

Three malls with 1.05 million sq ft as

supply over the next 3-4 years

Source: Jones Lang LaSalle, 4Q11

Proposed Fairway City Mall, Colombo

Retail dominated on High Streets by Super-Markets and Mini Majors

High Street Supermarkets Mini-Majors

Galle Road

Duplication Road

Sri Jayewardene Mawatha

Cargills Food City

Keells Super

City Co Op

Lauhgs

Premasiri

ODEL

Abans Abstract

Fashion Bug

Hameedias

Barefoot

No Limit

Glitz

Page 10: Real Estate in Sri Lanka Presentation

10

Real Opportunities in the Retail Sector

Experience Retailing Urban Colombo requires 2-3 malls

which provide a holistic shopping

experience with an eclectic mix of

leisure, entertainment and cultural

experiences, housing anchor stores,

multiplex, food courts, gaming zones

and atrium spaces

Tourism Retailing Destination Retailing

Paradise Road, Colombo Orchard Road, Singapore Mall of the Emirates, Dubai

Page 11: Real Estate in Sri Lanka Presentation

11

The Residential Sector

The Segments of Housing

Luxury segment units (>LKR 45 mn) are mostly sold out, while availability in mid-

level segment (LKR 10-25 mn) is high

Source: Jones Lang LaSalle, 4Q11

Page 12: Real Estate in Sri Lanka Presentation

12

Real Opportunities in the Residential Sector

Affordability Prominent developers have massive opportunities

of scale available at the bottom of the pyramid

and construct housing units for lower mid-income

and low-income segments

Up in the Sky High land prices has restricted villa and plotted

developments to fringe areas of the city. With

growing demand for condominiums to lead to slew of

condominium developments.

Developers will diversify their risks and

increasingly opt for mixed-use developments at

the city core, with multiple asset classes including

high-end residential, hospitality, office and retail

space.

Havelock City, Colombo

Page 13: Real Estate in Sri Lanka Presentation

13

The Hospitality Sector

Surge in Tourist Arrivals

Tourist arrivals to cross 1 million during 2012 and is estimated to grow at a CAGR

of 24% to reach the target of 2.5 million annual arrivals by 2016

Sri Lanka named

among the top five

destinations in Kuoni’s

2012 annual poll of

where UK customers

want to spend their

holidays. Sri Lanka

also retained the top

destination for

weddings.

Source: Sri Lanka Tourism Development Authority (2000-2011), 2012e estimated by Jones

Lang LaSalle, 2013F-2016F based on the target set by Government of Sri Lanka

Page 14: Real Estate in Sri Lanka Presentation

14

The Hospitality Sector

Capacity Generation

There are 22,735 hotel rooms in Sri Lanka, of which 21% is of the 5-star category.

Occupancy increased from 48.4% in 2009 to 70.1% in 2010 and is estimated to be

above 80% in 2011.

Accommodation Type Number Number of

Rooms

Tourist Hotels 256 14,948

Boutique Hotels and Villas 50 577

Home Stay Units 181 560

Guest Houses 679 6,393

Heritage Homes 49 257

Total 22,735 Source: Tourism Development Strategy 2011-2016, Ministry of

Economic Development, Government of Sri Lanka

To meet the demand due to

the expected surge in

tourist arrivals,

22,500-25,500 hotel rooms

or 375-425 hotels

need to be constructed

during 2012-16 Source: Jones Lang LaSalle

JAIC Hilton Residencies, Colombo

Major Foreign Investors in Sri Lanka’s Hospitality Sector

Page 15: Real Estate in Sri Lanka Presentation

15

Closing Thoughts

What Sri Lanka needs to become a Breakout Nation?

Maintain a high rate of inclusive growth

Increase policy support to investments

Provide geo-political stability

Improve infrastructure to cater to rising urbanisation

Decentralise growth to new urban hubs

Page 16: Real Estate in Sri Lanka Presentation

Copyright © Jones Lang LaSalle, 2011

For more details, please contact:

Gagan Singh

Chairperson

Sri Lanka Operations

[email protected]

+91 98111 51610

Ashutosh Limaye

Head

Research and REIS

[email protected]

+91 22 3307 1512

Shankar Arumugham

Local Director

Strategic Consulting

[email protected]

+91 99400 66869

Simon Thomas

Assistant Vice President

Strategic Consulting

[email protected]

+91 98400 68451

Authors

Himadri Mayank

Assistant Vice President

Research and REIS

[email protected]

+91 99756 12304

Robin S

Assistant Manager, Strategic Consulting

[email protected]

+91 87544 04800