Sri Lanka’s real estate sector navigates “transitional period” amidst new supply

By Nishel Fernando

Sri Lanka’s real estate sector is currently in a pivotal transitional phase, where its strong long-term potential is being tested by the short-term challenge of absorbing a significant new supply of properties, according to the latest annual report from the diversified conglomerate Carson Cumberbatch PLC.

The report paints a picture of a sector buoyed by national economic recovery and significant urban development, yet tempered by cautious market activity.

Colombo’s urban landscape has undergone a dynamic transformation, with the completion of several landmark developments reshaping the city’s skyline. The annual report highlights considerable progress in key infrastructure projects such as the Port Access Elevated Highway, Central Expressway and regulatory enhancements within the Colombo Port City, all of which signal a long-term vision for Colombo’s evolution as a major commercial hub.

This physical expansion has been mirrored by strong underlying asset values. According to the Central Bank of Sri Lanka’s Land Value Index cited in the report, the land prices in Colombo appreciated by 7.7 percent during 2024, while the commercial property values rose by a robust 9.4 percent, outperforming the previous year’s 6.7 percent growth. This reflects sustained investor confidence in the sector’s fundamentals, despite the recent economic challenges.However, the report cautions that “converting this physical expansion into tangible market absorption remains a challenge, requiring continued efforts to bolster business confidence and stimulate tenant demand”.

With the economy showing signs of improvement, including easing inflation and better external balances, leasing activity has remained modest as businesses cautiously prepare for future growth.

Within this competitive environment, Carson Cumberbatch’s real estate sector delivered a robust financial performance, driven by what the company describes as “enhanced efficiency and prudent asset management”. A key performance indicator was the increase in occupancy across its investment properties, which rose from 80 percent to 85 percent during the financial year.This operational strength translated into an 8 percent year-on-year revenue growth for the sector, reaching Rs.350.3 million. The portfolio also recorded a significant fair value gain of Rs.460.9 million, contributing to a profit after tax of Rs.477.1 million for the segment.

The company’s key real estate holdings, managed through subsidiaries such as Equity One Ltd, Equity Two PLC and Equity Three (Private) Limited, include prime office and warehouse spaces in Colombo 01, 02, 07 and 13.While the real estate segment’s performance was positive, it represents a small fraction of Carson Cumberbatch’s overall business. The conglomerate’s revenue is overwhelmingly dominated by its oil palm plantations (Rs.127.6 billion) and beverage (Rs.125.2 billion) sectors, which together accounted for nearly 78 percent of the group’s total revenue of Rs.323.9 billion. The real estate sector’s contribution stood at approximately 0.11 percent, highlighting the group’s diversified nature.

Looking ahead, the report concludes with a tone of cautious optimism. 

“The sector now finds itself in a transitional period where long-term potential remains strong but short-term absorption of new supply requires careful navigation,” it stated.