JLL Releases ‘Sri Lanka – Scaling New Heights’

Tracking Real Developments Across Real Estate

sri lankaGURGAON, September 1, 2014: International property consultancy JLL India has released its latest research report Sri Lanka – Scaling New Heights’. In this report, JLL analyses developments across the real estate spectrum in Sri Lanka, identifies the demand & supply triggers and outlines Sri Lankan real estate’s growth opportunities in the future.

Gagan Singh, CEO – Business (India) and Chairperson – Sri Lanka Operations says, “Since 2009, improved confidence in the Sri Lankan investment market has triggered an escalation in property values. Apart from the effect of infrastructure projects, increased migration into Colombo from the country’s rural areas and outside its borders and renewed appetite to own property are raising real estate values. There has also been a steady increase in land acquisition within the central and secondary submarkets, thanks to limited availability in the city. In fact, Colombo witnessed an average increase of 5% in land prices in the first half of 2014, while select locations within the central and secondary submarkets saw rapid growth in land prices at around 7-8% since the end of 2013.”

The report covers:

The Sri Lankan Economy

After a brief slowdown in 2012 due to external uncertainties, the USD 59 billion Sri Lankan economy bounced back during 2013. Supported by increased domestic demand and improved exports & tourism, the GDP growth accelerated to 7.3% in 2013 from 6.3% in 2012. To improve productivity in the long term and have stable economic progress, Sri Lanka is proactively investing in various infrastructure projects, from improving transport networks to telecommunications and electricity generation.

sri lankan table

Sri Lanka’s Residential Sector

High project development costs coupled with high borrowing costs for housing loans have breached affordability limits and restricted home buying prospects for middle class Sri Lankans in Colombo. Residents with limited income are forced to opt for properties that are at least 20–25 km away from the city limits. The majority of apartment projects in the central and secondary sub-markets rely solely on investments from HNI residents, non-residents and foreigners.

Residential Affordability Assessment

Affordability is calculated on the basis of the house price to annual income ratio. If the ratio is less than 5:1 the property is classified as affordable. The income segmentation for urban locations classified by the Income and Expenditure Survey 2012–2013 is taken as a proxy for Colombo’s income segment.

assesment

  • Only the top 20% of income-earning households, i.e., 17.1% of the resident population in Colombo, can afford to buy their dream homes in Colombo or its suburbs.
  • Apartments in the central submarket, upper-mid and luxury projects in the secondary submarket rely only on NRSLs, foreigners or HNW RSLs in Colombo.

Sri Lanka’s Office Sector

Colombo has around 2.6 million sq ft of Grade A office space, less than 5% of which is vacant. The Banking, Financial Services and Insurance (BFSI) and IT/ITeS sectors are the top two office leasing sectors in Colombo. While established domestic BFSI companies absorb office space that is anywhere between 3,000 sq ft and 15,000 sq ft, the IT/ITeS sector absorbs office modules between 10,000 sq ft and 30,000 sq ft.

Sri Lanka’s Retail Sector

As a prime business destination and a gateway for tourists, the retail market in Colombo is growing rapidly. The increasing disposable income and the rising living standards of Sri Lankans are changing their spending patterns and preferences towards better quality branded goods and services.

Sri Lanka’s Tourism and Hospitality Sector

On the back of the substantial growth observed in tourist arrivals and revenues since 2009, Sri Lanka’s tourism industry can look forward to the future with confidence. Interestingly, the tourism sector directly contributed around 3.9% of Sri Lanka’s GDP in 2013 and is estimated to have contributed around 3.5% of the total employment in the country. Driven by the promising growth in the tourism sector, Sri Lanka’s hotel industry has seen a flurry of activity.

Click here to download the report Sri Lanka – Scaling New Heights

About JLL Lanka

JLL Lanka is a leading professional services firm specializing in real estate in Sri Lanka. Based out of Colombo, the firm provides investors, developers, local corporates and multinational companies with a comprehensive range of services including research, analytics, project and development services, property and asset management, integrated facilities management, real estate capital markets and transactions encompassing commercial office spaces, hotels, land, industrial, retail and residential units. The Firm aims to combine local market knowledge with its access to global multinational relationships and capital sources, to provide Sri Lankan corporates, government agencies and clients with superior execution, towards transforming their real estate portfolios into efficient inventories, as well as in raising capital for real estate assets.

For further information, please visit www.jll.com.lk

Digiprove sealCopyright secured by Digiprove © 2014 Jones Lang LaSalle

Tracking Ahmedabad Real Estate In PM Modi’s Era

Vivek SahasrabudheVivek Sahasrabudhe, Analyst – Research & Real Estate Intelligence Service, JLL India

Over the past couple of months, no other Indian state has been talked about as much in the Indian media as Gujarat. Be it about Mr. Narendra Modi, former chief minister of Gujarat who is now Prime Minister of the nation or the growth model of the state.

This fast developing province has seen the decade-long efforts start to bear fruit in the area of infrastructure development especially in Ahmedabad, the commercial capital of the state. In recent times, the city has become the symbol of the state’s progress story.

The uninterrupted electricity and water supply, the wider roads and the rapid bus transit system have helped Ahmedabad to cement its position as a manufacturing hub. In the past, despite the city being known for its industries, particularly its textile and pharmaceutical enterprises, it did not create a sector-specific demand for real estate, unlike the IT/ITeS sector did for Bangalore and Pune. Up until recently, the city produced mostly blue-collar jobs and those employed preferred affordable housing, particularly in the unorganised real estate sector.

To attract the participation of the organised real estate sector, affordable and well-connected real estate developments were on the checklist of the Ahmedabad Urban Development Authority. The planning resulted in well-rounded growth as Ahmedabad, unlike other cities, did not have any geographical constraints on expansion. Also, the committee refrained from giving any specific city node an undue advantage, due to which capital value appreciation was held in check for many years!

Nonetheless, in recent quarters, noteworthy growth was registered in residential real estate prices. Residex, the index published by the National Housing Bank covering price movements in urban and semi-urban areas, showed that Ahmedabad residential real estate prices have grown faster than other major Indian cities over the past four quarters.

price trends in ahmedabad

It is true that current market sentiment has turned positive following the country’s recent general election but physical indicators have played a vital role too. The employment opportunities generated by the industrial/manufacturing segment have contributed most to the evolvement of real estate activity in recent times.

With improved infrastructural facilities, many new manufacturers of automobiles, engineering and instruments have established themselves in the city and existing industries have been expanding their plants, especially on the outskirts of Ahmedabad in Sanand and Changodar. To support the manufacturing hubs, logistics activity has also been growing fast.

Newly generated employment has looked at organised real estate to fulfil its housing needs as prominent developers have been offering small ticket size affordable dwellings in the outskirts of the city.

Another growth driver relates to the fact that Gujarat is part of the Delhi Mumbai Industrial Corridor (DMIC), which is an ambitious project aimed at developing industrial zones. Ahmedabad is anticipated to be an important link in this corridor. The city is expected to create more jobs, attract investment and ultimately generate greater housing needs. There will be no surprise if other cities in Gujarat follow Ahmedabad’s example in the coming years.

Digiprove sealCopyright secured by Digiprove © 2014 Jones Lang LaSalle

NCR Real Estate – Ghaziabad In Growth Mode

Rohan SharmaRohan Sharma, Associate Director – Research & REIS, JLL India

Ghaziabad caters primarily to the mid-segment and affordable housing segments. It is home to established housing clusters such as Kaushambi, Vaishali and Indirapuram while upcoming residential corridors include Raj Nagar Extension and developments along the NH-24 beyond Indirapuram, including the Crossings Republic township.

While lack of land options has restricted new launches in the Kaushambi, Vaishali and Indirapuram clusters, they being already developed to a great extent and with a large existing residential population, these residential clusters have also recorded healthy capital appreciation. Recent project launches have been mostly in the upper-mid and premium segments offering luxury specifications and upgrades from the usual, mid-segment housing options.

Prices in the Kaushambi and Vaishali areas are in the range of INR 5,500 – 6,500 per sq ft while in Indirapuram prices are in the INR 4,800-5,500 per sq ft price range. The affordable residential clusters are in the average price range of INR 2,200-3,500 per sq ft. The upper end of the range is commanded by projects which are completed or close to completion in Crossings Republic, while the newer projects in NH-24 are in the lower price band of INR 2,200-2,600 per sq ft. The Raj Nagar Extension corridor on NH-58 is also priced in the INR 2,600-3,000 per sq ft range.

All these clusters have contributed the maximum to new project launches that have been recorded in the Ghaziabad residential market over the past few quarters. While Raj Nagar Extension may be seeing project launches by first-time or lesser known developers, the likes of Assotech, Ansal API, SARE, Ashiyana Group and Wave Group have come up with projects on NH-24, which includes Crossings Republic as well.

With prices in the Noida Extension precinct in the Noida sub-market expected to be higher, Ghaziabad will continue to garner interest, particularly for affordable projects in Crossings Republic, Raj Nagar Extension and on the NH-24.

The Ghaziabad sub-market also enjoys a large population base from the industrial sector and SMEs, and low-income workers looking to upgrade to better accommodation. In the near future, the better areas within Ghaziabad, such as Indirapuram and Vaishali, should continue to hold their ground while the lower-income profile areas of Sahibabad, Raj Nagar Extension and further developments coming up on NH-24 and GT Road will account for majority of sales volumes.

Going forward, infrastructural developments such as the extension of the Metro route to Ghaziabad and widening of the NH-24 to six lanes is likely to aid in furthering residential developments in this area. The core demand is likely to emanate from the low and middle-income population for the residential offerings in this corridor.

 

 

Digiprove sealCopyright secured by Digiprove © 2014 Jones Lang LaSalle

New Trends In Mall Space Optimization

Shubhranshu PaniShubhranshu Pani, Regional Director – Retail Services, JLL India

With the liberalisation of the FDI policy, evolving consumer preferences and entry of global retail brands in India, mall developers are busy adapting their retail developments to the changing requirements and trends.

Indeed, one of the most imperative transformations is the increasing focus on planning and optimisation of retail spaces so as to extract their highest potential. Due to growing income levels and the inexorable rise of Gen Y, Indian consumers have become more discerning than never before.

To meet the demands of this trend, mall developers are now using a structured approach for developments by doing their research to understand consumer requirements right from the planning stage of their malls. In this way, they are able to optimise their mall layouts and designs, incorporating critical conveniences and features.

Evolution As An Imperative

Indian mall developers have understood the importance of offering the right combination of retail categories, entertainment and F&B. Therefore, we are now seeing the creative utilisation of unused mall spaces and even parking space to incorporate newer retail categories to attract consumers and drive additional revenue.

Intelligent and superior mall design is a vital element for healthy circulation and providing good frontage and accessibility to all stores. Today, the priority is to enhance the per-square-foot productivity of the mall while simultaneously providing value to consumers.

In order to increase the all-important ‘dwell time’ of shoppers, vacant spaces are now being reinvented into seating arrangements, kiosks, vending machines, ATMs, interactive information points and activities for children. India’s increasing integration into the Global Village has ushered in a whole new slew of international brands.

This, coupled with increased FDI inflows, has necessitated the optimization of space utilisation in malls so as to acclimatize them to international standards, store formats and norms. Developers of existing mall developments must continually assess existing mall spaces with a view to making them more compatible with the requirements of international brands in terms of sizes and formats.

Also, it is important for malls focused on superior performance to accommodate the upcoming global brands regardless of space availability. Change and adaptation is the mantra for success today, be in terms of optimising space, design oriented changes, advertising and promotion, casual leasing or implementation of softer features such as change in the location of stores.

On-ground Improvements

In the existing mall developments in the country, the major steps being taken to improve space utilization and maximise returns are:

  • Elimination of alleys or narrow passages that some malls with inherently poor design produced. By merging such non-performing spaces with existing stores, better circulation is generated and secondary spines that create dead spaces are eliminated.
  • Providing frontage and good accessibility to almost all stores in the mall, either by merging stores or by interchanging the categories within them.
  • Relocating stores and right-sizing stores of existing brands: Changing the positioning of anchor stores to improve circulation or reducing the size of existing brands to bring in first-time brands.
  • Introducing novel categories and brands in spaces that were not utilised properly earlier, thereby generating footfalls in those micro-areas.
  • Utilising parking space and other ancillary spaces for advertisements, publicity and promotional events.
  • Enhancing advertising opportunities and thereby driving additional income through floor graphics, standees, plasma screens and similar media
  • Casual Leasing: Leasing of kiosks, vacant space or carts to children’s play area, tattoo stations, foot spas, etc.

India being a fast-paced market, developers are now designing their malls in a manner that allows a certain degree of flexibility and dynamism. In this way, they can introduce newer attractions from time to time.

Mall developers now regularly track the performance of brands in terms of sales per square foot so as to assess whether the brands are utilising their space optimally. It has been evident in the industry that many brands are reducing their store sizes in order to maximise per square foot productivity.

The Impact Of Online Retail

The rapidly evolving phenomenon of online retailing has had very perceptible ramifications on physical offline retailing. Due to increasing online shopping, it has become imperative for shopping mall developments to attract consumers by offering a superlative experience and conveniences. Introduction of newer concepts and retail formats positively impacts the footfalls for a shopping mall.

Today, customers are using multiple channel and information sources to make their desired purchases. They will continue to use the most convenient channel. There are regional differences in the adoption of technology; however, mobile commerce and social media commerce are game changers.

Mobile commerce is a powerful tool in the hands of consumer that allows them to match prices and even purchase online while being in the store. Likewise, social media platforms such as Facebook and Twitter are increasingly influencing consumer decisions.

The message herein is that that the future has to be geared to provide more than retailing to the customer. Consumers expect retail venues to be the destination in their own right, with interesting ambience, the latest brands and a host of activities of leisure, F&B and social activities other than shopping. These will be the key differentiators for malls going forward. If I were to identify three key points on how retail spaces will need to evolve, they would be.

  1. Landlords must become flexible in the design of the space, layout, materials, etc. and make their retail spaces more vibrant by proving more leisure activity
  2. Stores must evolve to enable the consumer to use in-store technology to access a seamless online and offline shopping experience. Newer technology like holograms, virtual interactivity, socially networked shopping, 3Dexperience, etc. must find their way into stores.
  3. Providing experience retailing will be the need of the hour, and landlords must go the extra mile to bring a unique experience and emotional connect with customers and society at large. If a mall is to be a place for physical visits, it has to create a firm social connection via interactive means that compel consumer to physically be a part of the process.

Further, the marketplace needs amplification in availability quality mall spaces. Brands do not prefer malls with sub-optimal design and low footfalls. In this respect, there is a need to optimise spaces in non-performing shopping malls by re-engineering them in terms of design and tenant mix. The importance of connectivity has also taken on a whole new context and meaning.

While the retail industry has always been aware of the need for adequate connectivity and parking, the increasing inconvenience of overall urban commuting has itself become a red signal. Public transport will now become a key driver, and malls that are accessible by public transport will have an edge over other shopping centres.

Retail Asset Management and a structured research play an important role in improving space utilisation in a shopping mall. Resetting retail spaces according to the requirement of various stakeholders is a vital and never-ending requirement that calls for both structural and operational modifications on a constant basis.

Digiprove sealCopyright secured by Digiprove © 2014 Jones Lang LaSalle

Introduction of REITs in India will help deepen country’s property industry

India has for the first time approved legislation allowing the creation of real-estate investment trusts (REITs), a long-awaited move that should result in greater stability for the real estate industry in the country.

gateway mumbai

The formation of REITs – funds that own real estate but have shares that are listed on the stock market – will encourage the creation of big-ticket institutional-grade buildings, and will give developers a ready outlet for development projects.

Many institutional investors are put off investing in Indian property because it is highly fragmented, sometimes with multiple members of an extended family owning a building in strata-title fashion.

In a statement on Sunday, the Securities and Exchange Board of India outlined the basic rules for REITs. Industry insiders say the rules are very similar to the REIT legislation on the books in Singapore and Hong Kong.

The first talk about introducing REITs came as far back as 2008. But previous administrations dragged their feet on codifying them. Property professionals see their relatively sudden introduction after a consultation paper last October as a credit to the administration of new Prime Minister Narendra Modi and his BJP party.

“The new government is quick on their feet, and giving out decisions,” Shobhit Agarwal, the managing director of capital markets in India for JLL, notes. “They’re trying to become more business friendly.”

Indian REITs, like many others around the world, will be required to pay out 90 percent of their income from stable assets to investors. That will result in a twice-yearly dividend. It makes REITs perfect “widows and orphans” stocks since they spin off cash regularly and are relatively low-risk.

Only 20 percent of an Indian REIT’s assets can be invested in development, the riskiest end of the real-estate industry or in cash and cash equivalents for liquidity management, with a maximum of 10 percent for the former. The remaining 80 percent of the fund’s assets must be invested in income-producing property.

Since those projects – often office buildings or shopping malls – have already been developed and already have tenants, their income stream is relatively easy to predict. While they may increase in value, the REIT will hold them long-term and won’t trade in and out of real estate.

“This is not meant for speculators,” Agarwal says. “These are for investors that are looking for steady returns as opposed to capital appreciation.”

The buildings must have multiple tenants to reduce risk to any one company, and there must be a single ownership structure for any building that is folded into a REIT. The REIT must also hold multiple buildings, and cannot have more than 60 percent of its assets in any one project. It must own assets worth US$82 million at the time of going public, and must have an initial size of US$41 million on the stock exchange when it lists.

Agarwal says that the market was not prepared when India opened up its real-estate market to overseas investors. The government at the time was keen for foreign investors to fund residential development rather than office property. Under existing rules, foreign direct investment must go into new projects under development.

Now overseas investors will be able to access stable assets via REITs. JLL estimates that of the 370 million square feet of Grade A office stock in India, 170 million is of REIT standards.

At the same time as introducing REIT rules, SEBI also created a similar structure known as an infrastructure investment trust that will allow developers of infrastructure projects to sell those into a fund, with the same requirement to distribute 90 percent of profits twice a year.

Agarwal believes the current REIT legislation will appeal most to overseas investors because their tax will only be a 5 percent on capital gains, with dividends untaxed. Indian investors paying corporate taxes are faced with paying tax of 20 percent or more.
But the government is looking into that disparity. SEBI is likely to refine the REIT rules as the industry develops.

“What they have announced is a base – it can only get better from where it is,” Agarwal says. “It is a big step for the government.”

 

Digiprove sealCopyright secured by Digiprove © 2014 Jones Lang LaSalle