Refreshingly Sri Lanka - Moneycontrol.com

Retail Intelligence I September 2013
www.joneslanglasalle.com
Refreshingly Sri Lanka -
An Island of Retail Opportunity

Political
stability
drives
economic
growth

Refreshingly Sri Lanka - An Island of Retail Opportunity 3
Political and economic stability has led to sustained peace and prosperity in Sri Lanka.
Sri Lanka’s GDP growth was 6.4% in 2012, primarily supported by tourism and international
trade. Apparel manufacturing, financial services and agricultural production also contribute
considerably to the economic growth of the country.
Foreign remittances play a significant role in Sri Lanka’s economy. They account for around
8% of the Sri Lankan GDP. They 1 are the largest source of foreign exchange in Sri Lanka
and provide around 33% of total earnings. Over 1.6 million Sri Lankans (17% of the total
work force) are employed abroad 2 and around 60,000 workers went abroad during 1Q13.
There has been steady y-o-y growth of foreign remittances, which have become a stable
source of income for Sri Lanka. More importantly, foreign remittances have also contributed
significantly to consumer spending and in improving the living standards of Sri Lankans.
The stable economic growth in Sri Lanka has increased the country’s per capita income
significantly, from USD 2,014 in 2008 to USD 2,923 in 2012. This represents a 45% growth
in the last five years, faster than India and the Philippines, which recorded 43% and 35%
growth respectively, during the same period. Sri Lanka recorded triple-digit growth in
its per capita income 3 over the past ten years. There was also a substantial drop in the
unemployment rate and poverty levels over the decade. The unemployment rate 4 in the
economy is under 5%, while poverty levels 5 dropped from around 23% during 2002 to around
9% towards the end of the decade.
The improving Human Development Index of Sri Lanka along with the strong competitive
spirit among local business houses are fuelling the economic growth. In addition, Sri Lanka is
witnessing major infrastructural development in terms of road connectivity and in the power
sector funded by investments from across the world. These turnkey investments, growth in
foreign remittances and tourism along with other ancillary industries are expected to keep
the economic growth steady at around 6% y-o-y (Figure 1), which is expected to increase
the disposable income of Sri Lankans, catalysing consumer spending in the coming years.
Consumer spending 6 in Sri Lanka has recorded a compound annual growth of around 17%
between 2007 and 2012, and given the economic projections, we foresee similar trends in
consumer spending, supporting retail growth in the country.
9.0%
7.5%
6.0%
4.5%
3.0%
GDP Growth (%)
8.2%
8.0%
6.8%
6.4%
6.5%
6.0%
6.3% 6.5% 6.5%
3.5%
2008 2009 2010 2011 2012 2013F 2014F 2015F 2016F 2017F
Figure 1, Source: World Bank, IMF Estimates
3.3
1.3 1.4
6.0
Foreign Remittances (USD billion)
5.1
1.6 1.9 2.2 2.5
2.9
4.1
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Figure 2, Source: Central Bank of Sri Lanka (CBSL)
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Consumer Spending (LKR trillion) - Sri Lanka
5.3
4.6
3.7
3.1 3.1
2.0
2007 2008 2009 2010 2011 2012
Figure 3, Source: CBSL
Source: 1 - Economic and Social Statistics 2012, 2 - Ministry of Foreign Employment Promotion and
Welfare, 3 - GDP per capita purchasing power parity, 4 - Department of Census and Statistics,
Sri Lanka, 5 - Household Income and Expenditure Survey, 2009-10, 6 - CBSL.

4 Refreshingly Sri Lanka - An Island of Retail Opportunity
Sri Lanka’s
Retail -
The hidden
trove
The size of the Sri Lankan retail market is estimated at between
USD 25 billion and USD 30 billion 7 , out of which organised players
represent only 3%. However, the rising living standards of
Sri Lankans are changing their spending patterns and preferences
towards more quality branded goods and services. This offers growth
opportunities for both global and domestic retailers in Sri Lanka.
Unlike the other emerging South and South-East Asian nations,
where people prefer to save, Sri Lankans prefer to spend, as
indicated by their gross domestic savings (Figure 4) being one of the
lowest among South and South-East Asian countries. Sri Lanka’s
spending patterns resemble Western countries, whose population
demands more lifestyle products and aspirational luxury goods.
As Sri Lanka’s economy is projected to grow by an average of 6.5%
(Figure 1) for the next five years and per capita income is expected
to increase from USD 2,923 in 2012 to USD 4,000 by 2016 (Figure
5), the nation is expected to witness steady growth in consumption.
Alongside being a consumption-driven economy with changing
spending patterns, we foresee strong retail growth prospects in
Sri Lanka.
Sri Lanka’s retail sector is primarily driven by domestic consumption,
followed by tourists’ consumption. Sri Lanka’s domestic consumption
is at the nascent stage and the increase in disposable income is
expected to make domestic consumption surge over the coming
years. According to the latest household income and expenditure
survey conducted in 2009-10, only a few Sri Lankans own computers,
washing machines and other consumer durables (refer Figure 6). The
introduction of liberalisation policies, including the reduction of import
tariffs on automobiles and consumer durables, is expected to improve
the consumption levels of these goods even further. In addition,
increasing disposable income will continue to strengthen the sales of
consumer durables over the coming years.
45%
40%
35%
30%
25%
20%
15%
10%
Gross Domestic Savings (% of GDP)
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
India Indonesia Malaysia Philippines Thailand Sri Lanka
Figure 4, Source: World Bank
0
5,000
4,000
3,000
2,000
1,000
GDP Per Capita (USD)
4,633
2,836 2,923 3,134 3,360 3,631 3,933 4,269
2,400
2010 2011 2012 2013F 2014F 2015F 2016F 2017F 2018F
Figure 5, Source: World Bank, IMF Estimates
Source: 7 - A.T. Kearney 2012 Global Retail Development Index Report
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Personal
Computers
VCD/DVD
Players
Ownership of Household goods
Figure 6, Source: CBSL Household survey 2009-10
Television Washing Refrigerators Electric
Machines
Fans
2006/7 2009/10
Cooker Phone Motorcycle/
Scooters

Refreshingly Sri Lanka - An Island of Retail Opportunity 5
Tourism to
amplify retail
potential
Sri Lanka is emerging as one of the world’s key tourist destinations
and the tourism industry is one of the key drivers of Sri Lanka’s
economy. According to the World Travel and Tourism Council, the
tourism sector directly contributed around 4% of Sri Lanka’s GDP in
2012. Tourism offers noteworthy employment and entrepreneurial
opportunities, supporting improved living standards and increasing
disposable incomes. These factors in turn support retail activity from
within the economy.
Western Europe contributes around 35-40% of the number of total
tourists every year, while India alone consistently accounts for around
20%. Meanwhile, for 2013, the Sri Lanka Tourism Promotion Bureau
(SLTPB) has set aside USD 6 million for marketing and promotional
activities. Apart from focusing on India and Western Europe, SLTPB
has decided to place extra focus on other Asian markets, such as
China, Russia, Japan, the Middle East and South Korea. Further,
in order to create awareness and to promote Sri Lanka as a tourist
destination, SLTPB has been actively participating in overseas
holiday fairs and organises promotional media campaigns in different
targeted cities to attract international tourists.
With the Sri Lankan Tourism Development Authority (SLTDA)
targeting around 2.5 million visitors by 2016, we foresee enhanced
potential for the retail sector over the coming years. In general,
shopping and food expenses account for more than 50% of tourist
expenditure.
On average, tourists spent 10 days 8 in Sri Lanka
during 2012. Assuming tourists spent an average of
two days in Colombo and given a tourist spends around
USD 100 per day 9 , around 55% is assumed to have been
spent on food and shopping. Thus, tourism is estimated
to have contributed a significant LKR 1.2 billion,
which is 10.2% of Colombo’s total retail spending in
2012. Given the government’s tourism targets, we
estimate that by 2016, tourism will contribute around
20% of the city’s total retail spending, gaining the
spotlight in terms of retail potential.
0.2
0.0
1,200
1,000
800
2.7
2.5
2.2
2.0
1.7
1.5
1.2
1.0
0.7
0.5
Tourist Arrivals (million)
2.5
1.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F 2014F 2015F 2016F
Figure 7, Source: Sri Lanka Tourism Development Authority (SLTDA)
600
400
200
0
Figure 8, Source: SLTDA
Tourist Receipts (USD million)
1,015
839
576
391
319 333
2007 2008
2009 2010 2011 2012E
Tourist Arrival by Region
2011
2010
2009
2008
10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
America-North
Asia-North East
Asia-South East
South Asia (Ex-India)
Australasia
Europe-West
Europe-East
Middle East
Others
India
Figure 9, Source: SLTDA
Source: 8 - SLTDA, 9 - SLTDA, Annual Statistical Report 2011

Colombo -
The gem in
the crown

Refreshingly Sri Lanka - An Island of Retail Opportunity 7
Sri Lanka has several potential retail hotspots, such as Colombo, Gampaha, Kandy, Kalutara, Galle, Kurunegala and Matara. Colombo is the commercial
capital of the country and contributes significantly to the country’s GDP. The city is the gateway for international tourists and houses the large Sri Lankan
corporations. Being a prime business destination and a gateway for tourists, the retail market in Colombo is growing rapidly and stronger than in any other
market in Sri Lanka.
Colombo - at a glance
Colombo is one of the most densely populated cities in Sri Lanka. Traditionally a port city, Colombo has transformed into one of the key business hubs in
Sri Lanka and is a key contributor to the country’s GDP. Colombo houses one of the largest man-made harbours in the world; the key port for Sri Lanka’s
foreign trade. In recent years, the strong growth of the country’s service sector made Colombo one of the prime commercial centres of Sri Lanka, as it houses
the key national & international trade and financial institutions along with other commercial establishments. Colombo is also an industrial hub with various
manufacturing and processing industries. With all of these developments, there has been ever-growing retail activity in Colombo, both the traditional and
modern high streets as well as in malls.
Where Colombo Shops
Retail establishments in Colombo are largely located along the high streets, either in the traditional retail sub-markets like Pettah or in upmarket established
retail sub-markets like Kollupitiya, Bambalapitiya and Wellawatte (Southern Colombo). The traditional wholesale and retail sub-markets of Pettah are busy
throughout the year, with domestic and export-oriented business units specialising in jewellery, textiles, tea and spices. The branded shopping destinations are
towards the south of the city centre along Galle Road & Duplication Road and cater to the neighbouring upmarket populace.
Retail Locations in Colombo
Ja-Ela
Wattala
GAMPAHA
Pettah
Fort
Colombo
Kolonnawa
Baseline
Kiribathgoda
Slave Island
Angoda
Kollupitiya
Bambalapitiya
Cotta Road
Manning Town
Rajagiriya
Narahenpita
Talangama
KADUWELA
Nawala
Battaramula
Arangala
Wellawatte
Dehiwala
Nugegoda
Sri Jayawardenapura Kotte
MAHARAGAMA
Maharagama
Boralesgamuwa
Kotte
Kottawa
Mt Lavinia
Ratmalana
Moratuwa
Angulana
Piliyandala
Kesbewa
N
Map not to scale
Figure 10, Source: Urban Development Authority, Jones Lang LaSalle
Traditional
Retail Locations
Established
Retail Locations
Upcoming
Retail Locations

Retail
sub-markets
Prime
Secondary
Northern Suburbs
Retail zones
Galle Face, Fort,
Bambalapitiya, Kollupitiya
and Duplication Road
Wellawatte, Dehiwala,
Nugegoda, Borella and
Cinnamon Gardens
Colombo -
Negombo Road
(Wattala & Ja-Ela)
Characteristics
of different
sub-markets
• High-income catchment especially
tourist with high propensity to
spend. Residential catchment size
is limited due to fewer residential
localities in the sub-market
• Primarily dominated by high
streets on Galle and Duplication
Road, this sub-market has five
malls totalling 450,000 sq ft
• Primarily middle-income with a
few pockets of high-income
catchment (Cinnamon Gardens)
• Major retail activity on high
streets of Galle Road and Sri
Jayewardene Mawatha
• At present there are no malls
operational, however, the
250,000 sq ft Havelock City Mall is
proposed
• Major retail activity is on the
Colombo - Negombo Highway
(Airport Road) in the form of many
apparel and electronics showrooms
• Primarily catering to local residents
in the middle-income group
• Realty Plaza, K Zone Mall, Arpico
Super centre and Cargills large
format stores are operational in this
sub-market
Retail
sub-markets
Eastern Suburbs
Southern Suburbs
Traditional Retail Location
Retail zones
Rajagiriya,
Sri Jayawardenapura Kotte
and Nawala
Galle Road - Mt.Lavinia,
Ratmalana and Moratuwa
Pettah
Characteristics
of different
sub-markets
• Retail activity is restricted
to Rajagiriya and Sri
Jayawardenapura Kotte in the
form of high street and standalone
retail outlets
• Fastest growing sub-markets in
terms of residential and retail
asset classes
• The most developed suburb of
Colombo with established high
street retail along Galle Road
• The consumer profile ranges from
low-income to middle-income
groups
• K Zone Mall operates in this
sub-market and primarily services
residents of its neighbourhoods
• Traditional retail high street
• Middle- and low-income
population
Rental Characteristics
Being in the early stage of retail evolution, rents in the traditional submarkets
of Colombo are extremely varied, and a few landlords opt
for huge lump sum payments initially and low monthly rents. Being
an unorganised sector, the lump sums paid are mostly undisclosed
and are tough to track. The established sub-markets listed in Figure
11 and the upcoming locations are more organised. Like any other
city across the globe, the prime city locations are the most in-demand
commercial locations and the rents in these compared to other
locations are relatively high. Upcoming locations such as Rajagiriya,
Ja-Ela, Piliyandala, Moratuwa, Nawala and Battaramulla are seeing
encouraging demand from retailers and rents in these locations are
on the rise.
supermarket retailer is three to eight outlets per year over the next
three years, although most of these new outlets are expected to be
developed in the suburban sub-markets of Colombo.
Apart from these retail outlets, the Urban Development Authority
of Colombo has been converting the city’s heritage sites into
prospective retail destinations. Having successfully converted
the Dutch Hospital in the Colombo Fort area and the Racecourse
Complex on Reid Avenue into shopping destinations, the authority
Locations
Rents (LKR per sq ft per month)
Fort (Colombo 01) 150 - 350
Supermarkets and Major Brands of Colombo
Kollupitiya (Colombo 03)
Colombo has a strong presence of supermarkets and hypermarkets 10 .
This presence is driven by the increasing preference of Sri Lankans
for a convenient, organised shopping experience. The first organised
retail space in Colombo emerged during the 1980s and was
established by Cargill’s and Millers. However, the industry witnessed
Bambalapitiya (Colombo 04)
Wellawatte (Colombo 06)
Dehiwala & Mt. Lavinia
100 - 200
100 - 200
large expansion only from 2000 onwards. The supermarket and
Nugegoda 75 - 200
hypermarket format rapidly became popular shopping destinations
for Sri Lankans. Local retail stores such as Cargill’s Food City,
Maharagama 60 - 150
Keells Super, Arpico and Laugfs Sunup dominate this sector. The
Colombo Metropolitan Region currently has more than 160 standalone
supermarket/hypermarket format stores aggregating around
0.7 million sq ft of gross leasable area. The expansion plan of each
Wattala
Borella (Colombo 08)
Figure 11, Source: Jones Lang LaSalle Survey
100 - 150
> 90
High Streets - 150 - 300,
Malls - 300 - 700
High Streets - 125 - 250,
Malls - 250 - 650
Note 10 - A typical supermarket will have an average floor size of around 5,000 sq ft with daily consumables including fresh groceries and fast moving consumer goods, while a hypermarket’s average
floor area could vary from 50,000 to 150,000 sq ft and include all the products of a supermarket along with consumer durables and apparels.

Refreshingly Sri Lanka - An Island of Retail Opportunity 9
is working on similar lines to refurbish the Auditor-General’s Office
in the Colombo Fort location and Waters Edge in Rajagirya. The
Auditor-General’s Office will be partly developed as a museum along
with a few retail outlets for visitors, while Waters Edge in Rajagiriya
will be developed as a destination for recreation (boating) and
shopping.
The garment manufacturing industry - working for some of the
world’s top brands such as Abercrombie & Fitch, Gap, Marks &
Spencer, Nike, H&M, Victoria’s Secret and Tommy Hilfiger - has
made Sri Lankans fashion conscious. The improving living standards
have increased the propensity of the local population to spend on
international brands such as Levi’s, Mango and the United Colors of
Benetton. Local brands such as ODEL, Hameedia and No Limit also
compete aggressively in this market, while Indian brands such as
Nalli Silks and Madura Garments also have presence in Colombo.
In addition to these apparel retailers, international fast food chains
like KFC, McDonald’s, Domino’s Pizza & Pizza Hut and electronics
dealers such as Abans, Softlogic and Singer have a strong presence
in the city. The typical outlet size of these brands varies from 1,500 to
25,000 sq ft. These brands operate both through stand-alone stores
and through stores in malls.
Malls in Colombo
Colombo has eight malls at present with sizes varying from 30,000
to 250,000 sq ft. Majestic City, Liberty Plaza and Crescat Boulevard
are malls that are popular with the local population and tourists alike.
The built up area of these malls totals around 0.66 million sq ft with
an average vacancy rate of just about 5%. In addition to the existing
malls, ten other malls are planned to be developed over the next five
years in Colombo. These ten new malls are expected to add more
than 1.5 million sq ft of retail space to Colombo’s existing mall stock
by 2018. Out of the 1.5 million sq ft, more than 0.3 million sq ft of mall
space is planned to be integrated with upcoming hotel projects in the
prime sub-markets of Colombo.
The rise of mixed-use developments
Mixed-use real estate developments are an integrated combination
of residential, commercial, retail, cultural and institutional spaces
that are fast becoming popular. Given its various advantages, such
as walk to work and walk to shop options, residential development
in such complexes attracts buyers helping faster sales. This gives
the added advantage of a captive catchment for the retail space
within and around the complex. Havelock city is one such large-scale
development that is taking shape in Colombo. In addition, Krrish
Square, Destiny Mall & Residency and Tata Housing will introduce
large-scale residential mixed-use developments over the coming
years. Similarly Shangri-La, ITC Hotels and Colombo City Centre
have planned mall spaces along with their upcoming hotel projects.
The need for luxury malls
The retail spaces within or adjacent to hotels typically sell high-end
luxury products. High-end and luxury product retailers generally start
their flagship stores within high-end hotel complexes to tap hotel
customers who generally buy such products. This trend can be seen
in many branded hotels in India and across the globe. However, as
the market matures, luxury brands try to reach out to the local market
and sometimes move out of star hotels, setting up outlets on high
streets to improve visibility. With a very limited number of high street
properties suitable for luxury brands to expand in Colombo, we see
hospitality players developing mixed-use spaces including malls as a
viable option to give the luxury brands the best of both worlds.
Integration to bring synergy
Sri Lanka’s casino industry, like other fast-growing Asia Pacific
markets, provides exciting growth opportunities. Integrating casinos
along the mall will also bring affluent tourist to the mall supporting
increased trading volumes in the mall. Ballys Casino, Bellagio and
Stardust are some of the important casinos in the city. With the
success of the casino industry, players such as Crown Casino have
recently planned to enter Sri Lanka’s casino market. Sri Lanka’s casino
industry is largely driven by tourists from other Asian countries. these
destinations attract the affluent tourist population and thus help Sri
Lanka to position itself as a premier tourist destination in South Asia.
Malls with few recreational activities will be one such option to create
a destination to stop for the tourist. Major malls across the globe
integrate some recreational elements such as multiplexes, gaming
arcades, bowling alleys, 3D theatres, a few amusement rides and
other recreational concepts like a Scary House and a Snow House.
Colombo is the gateway to Sri Lanka, yet does not have any such
malls to stop. Colombo requires a few such destinations for the tourist
to stop and relax. The multiplex is a common recreational facility and
is available only at Majestic cinemas in Colombo. The low penetration
of multiplexes in the country is largely due to the country’s low content
production and restricted import of films from abroad. However, malls
can still focus on other amenities to attract the tourist.
Existing malls
Mall Name and
Location
Liberty Plaza at
Duplication Road,
Kollupitiya
Unity Plaza at Galle
Road, Bambalapitiya
Majestic City at Galle
Road, Bambalapitiya
Crescat Boulevard
at Cinnamon Grand,
Galle Road
Built Up
Area (sq ft)
Figure 12, Source: Jones Lang LaSalle Survey
Start of
Operations
110,000 1982
36,000 1985
252,000 1997
35,000 2003
Major Tenants
Realty Plaza, Ja-Ela 75,000 2007 Cinemax Cinemas
K Zone, Moratuwa 30,000 2010
Dutch Hospital
Courtyard, Fort
26,000 2011
Keells Super, Abans, Sony, Premasiri,
Label Swine, Bata, Perfumerie, Lake House
Bookshop, DSI
City Optical, Network Communication, PC
Electronics, Leader, Photo Micro
ODEL, Hameedia, Triumph, DSI, KFC, Food
City, Majestic Cinemas, Wonderworld
Hameedia, Triumph, Levis, Reebok, Adidas,
E-Mart, Keells Super, Perfumerie
Keells Super, Levis, Paris Gallery, Keko,
DSI, Adidas
LUV SL, Colombo Jewellery, SPA Ceylon,
Ministry of Crab, Heladiv Tea Club, WIP Bar,
Barefoot
K Zone, Ja-Ela 100,000 2013 Keells Super, Stone n String, Samsung

The retail sector
is growing but
retail realty
is not keeping
pace!

Refreshingly Sri Lanka - An Island of Retail Opportunity 11
Comparing the per capita mall stock of a few Asian cities with characteristics similar to those
of Colombo, we find that the per capita mall stock of Colombo is relatively much lower than in
the other cities reviewed (refer Figure 13). Considering the Sri Lankan preference for organised
space, the low vacancy rate in existing malls in Colombo and the meagre mall supply
in the pipeline, we can clearly see that there is a huge shortage of mall space. Currently,
some of this shortage is being fulfilled by existing high street properties. For instance, Mango
started its flagship store on Galle Road, and Levi’s and the United Colors of Benetton started
their flagship stores at Dharmapala Mawatha.
Understanding the apparent mismatch between the retail potential and the inadequacy of
quality retail space in Colombo, we have assessed the demand for mall space in Colombo
over the coming years.
Relative Analysis with peer emerging Asian cities
Cities Colombo Jakarta Bangkok
Mall stock in
million sq ft
Population
(latest) in
million
Per capita
mall stock
Per capita
GDP (USD)
Kuala
Lumpur
Kochi
Chennai
0.66 13.80 19.63 11.72 2.46 4.76
2.58 10.19 14.57 4.82 2.12 8.70
0.26 1.35 1.35 2.43 1.16 0.55
5,358 7,247 23,448 23,906 4,522 4,902
Figure 13, Source: Brookings Metro Monitor, Jones Lang LaSalle Survey
Scenario Analysis
Popuplation -
2.58 Mn
Current
Situation
Scenarios
Per-capita Mall
Stock (sq ft)
Required Mall
Space in million
Sq ft
0.26 0.50 0.75 1.00 1.25 1.50 1.75 2.00
0.66 1.29 1.93 2.58 3.23 3.87 4.52 5.16
Figure 14, Source: Jones Lang LaSalle Estimates
The major findings of the demand assessment are:
1
Colombo faces an acute shortage of mall space due to inadequate
supply.
2
Given the present scenario, the total mall space required in Colombo
is around 2.37 million sq ft, while the actual mall stock available is
about 0.66 million sq ft.
3
Considering the inadequate supply conditions, the shortage of mall
space in Colombo will continue to remain at around 70% until 2017,
dropping to about 32% in 2018.
4
The lack of mall space along with a shortage of quality high street
properties hinders the expansion of both international and domestic
retailers.
5
The supply crunch of mall space along with good demand from
retailers are pushing the retail rents upwards, and given the pipeline
of mall supply, we foresee this trend continuing.

Estimating the demand for mall space in Colombo
Domestic retail potential
Tourist Retail Potential
Based on average monthly household
expenditure & based on top 4 income
earning household deciles
(similar to Sec A & B population in India)
Based on receipt per tourist per
day, tourist arrivals and assuming 2
days of stay in Colombo
Total expenditure of top income
earning households is calculated
Total expenditure of tourists
is calculated
Total retail sales potential from
households in Colombo from top income
earning households per month (A)
Total retail sales potential from
tourists in Colombo per month is
calculated (B)
Total monthly retail sales = A + B
Based on average rent per sq ft
per month in Colombo malls and
rents as % of Sales
Total high street sales
Total mall sales
Monthly sales per sq ft
Mall space
demand in Colombo
(2.4 million sq ft)
Assumptions:
• 55% of the household expenditure is spent on retail (including food
& recreation)
• 55% of tourist expenditure is spent on retail (including food)
• Mall sales is 40% of total retail sales (A+B)
Upcoming Malls in Colombo
The existing shopping malls in Sri Lanka are merely larger versions of
shopping centres, and very few upcoming projects are large enough
to offer a complete shopping experience for shoppers. A mall should
feature amenities such as a multiplex, a kids’ zone, crèche services,
a games zones and a must-have food court. However, we see only
a couple of upcoming malls with such capabilities (Figure 17). Most
of the developers who have proposed a mall project are progressing
with their projects at a slow rate and we expect some of the projects
to be delayed by a year or two.
Mall Sub-Market Location Completion Year BUA (sq ft)
Liberty Plaza - Phase 2 CBD Kollupitiya 2014 60,000
Altair CBD Beira lake 2017 40,000
Shangri-la CBD Galle face 2017 250,000
Silver Needle- Abans CBD Beira Lake 2017 160,000
Destiny Mall CBD Slave Island 2017 30,000
Havelock City Mall SBD Havelock 2018 250,000
John Keells CBD Glennie Street 2018 400,000
Krrish Square CBD Fort 2018 315,000
ITC Hotel CBD Galle face 2018 60,000
Tata Residential CBD Slave Island 2018 150,000
Figure: 17, Source: Jones Lang LaSalle Survey

Total monthly retail sales potential (LKR billion)
25.0
20.0
15.0
10.0
1.6
11.6
2.1
12.6
2.8
13.7
3.7
14.8
4.6
16.1
5.8
17.5
5.0
2013F 2014F 2015F 2016F 2017F 2018F
0
Domestic Demand
Tourist Demand
Figure: 15, Source: Jones Lang LaSalle Estimates
Demand - Supply Gap (million sq ft)
3.5
3.0
2.4
2.5
2.7
2.9
3.1
3.3
2.2
2.5
2.0
1.5
1.0
0.7
0.7
0.7
0.7
1.1
0.5
0.0
2013F 2014F 2015F 2016F 2017F 2018F
Total Demand for Mall space in Colombo
Cummulative Mall Supply
Figure: 16, Source: Jones Lang LaSalle Estimates

14 Refreshingly Sri Lanka - An Island of Retail Opportunity
Can
Colombo
accommodate
a mega mall?
Although the per capita mall stock in Colombo is much lower than
in other developing Asian cities and the city faces an acute supply
crunch of mall space, it is critical to understand what kind or size
of mall is sustainable in the city. To understand this, we studied a
recently launched mega mall in India. The LuLu Mall is India’s largest
mall and has a total built up space of more than a million sq ft.
Why Kochi’s LuLu Mall?
In terms of tourism and foreign remittances, Sri Lanka can be
compared to the Indian state of Kerala. More than 3 million Keralites
work abroad and they sent around USD 11,320 million during 2012
as foreign remittances, which is similar to Sri Lanka. Sri Lanka, like
Kerala, is also a preferred tourist destination and continues to witness
significant retail demand from tourists. On similar lines, Kochi, the
commercial capital of Kerala, is comparable to Colombo with respect
to ongoing developments. Kochi had a few small mall developments
similar to Colombo, until it recently recorded the completion of India’s
largest mall with a total leasable area of more than a million sq ft - the
LuLu Mall. Due to the similarities of Colombo and Kochi, the LuLu
Mall can be an interesting case study to understand if a similar mall
would be sustainable in Colombo. The mall hosts over 300 national
and international brands, which have leased 90% of its space.
The mall is witnessing robust footfall, high conversion rates of around
50% even on weekdays and it is on track to become a destination
mall for Keralites, besides being a prime attraction for tourists visiting
Kochi.
Kochi is considered the gateway for tourists who visit Kerala, and
Colombo is considered the gateway for tourists who visit Sri Lanka.
Tourist demand coupled with the city’s purchasing power backed
by foreign remittances is believed to be the rationale behind the
construction of such a massive mall in the Tier II Indian city of Kochi.
The LuLu Mall is located at the junction of NH-17, NH-47 and the
Kochi bypass, which is one of the prime locations in the city and
experiences heavy traffic flow. This is one of the key factors for the
surging footfall in the mall. The location is very critical for the good
performance of a mall. Therefore, in Colombo, a mall like this in a
prime location can attract strong footfall from both the local population
and tourists.
LuLu Mall has about 300 national and international retailers. In
addition to this, interestingly the mall has a reserved retail space
to promote local products and handicrafts, which promotes Kerala
to tourists and the local population. A similar tenant mix can be
replicated in the malls in Colombo, especially the idea of dedicated
retail space for promoting local handicrafts, as Sri Lanka also has a
vibrant tradition of handicrafts, such as handicrafts made of coconut
shell, wood and local products such as tea, cinnamon and other
spices. Besides being a retail attraction, the mall also employs
8,000 workers directly and 20,000 indirectly, thus stimulating local
employment and the economy. A similar mall in Colombo could
contribute to increased employment in the city.
The total shortage of mall space can be either aggregated to one
building or scattered across many buildings throughout Colombo.
Therefore, Colombo may or may not accommodate a LuLu
Mall, depending on how these factors are addressed. However,
considering the per capita mall space (Figure 14), the city has a
massive shortage of mall space that a supply of good quality malls in
the city could alleviate.
1
Location
Edapally, Kochi
3
Total BUA
1.4 million sq ft
Figure: 18, Source: Jones Lang LaSalle Survey
LuLu Mall Quick Facts
Developer
EMKE Group, Abu Dhabi, UAE
Total Leasable Area
1.0 million sq ft
5
Completion Year
March 2013
Vanilla Rents
INR 200 - INR 350 per sq ft per month
7
Anchor Rents
INR 55 - INR 75 per sq ft per month
Occupancy
90%
9
Conversion Rates
50-55% Weekdays, 55-60% Weekends
2
4
6
8

Refreshingly Sri Lanka - An Island of Retail Opportunity 15
Beyond
Colombo
Although Colombo city has significant retail potential, we also see
prospective retail opportunities outside Colombo. The southern
suburb locations of Colombo, such as Dehiwala, are established
residential locations with a few hospitality projects, yet no malls
have been planned. Similarly, the eastern suburb locations such as
Rajagiriya and Battaramulla have been seeing increased residential
activity amid the concentration of government offices. Moreover,
with easy access to Colombo city, these locations are increasingly
attracting residential developments.
Apart from these suburb locations, some of the locations listed in
Figure 19 follow Colombo in terms of population density. Supported
by their respective per capita income levels, we believe locations
such as Gampaha, Kalutara, Kandy, Galle and Matara have
significant retail potential.
Kandy is the second largest city and attracts tourists for its scenic
beauty and for the Buddhist temples. Kandy City Centre, which
became operational in 2008, is the only mall in this sub-market. Due
to war and the economic downturn, the mall saw few takers initially,
yet of late retailers’ interest has been on the rise.
Gampaha has one of the highest per capita incomes among all the
cities in Sri Lanka. Realising the potentials of this district, Gampaha
Development Company is coming up with couple of malls OREX City
and Ward City. OREX City will become operational by the end of this
year and Ward City will become operational by early 2015.
Given the government’s focus on developing infrastructure and
its special interest in the Tamil-dominated Northern and Eastern
provinces, including Jaffna, we can expect enhanced retail potential
in these locations in the medium term.
Jaffna
Matara
Galle
Kandy
Kalutara
Gampaha
Colombo
Figure: 19, Source: Income and Expenditure Survey 2009-10, CBSL
Jaffna
Matara
Galle
Kandy
Kalutara
Gampaha
Colombo
664
667
678
755
726
1,634
Population density (persons/sq Km)
3,822
5,00 1,000 1,500 2,000 2,500 3,000 3,500 4,000
7,938
4,434
7,533
7,923
8,285
8,790
18,917
16,846
14,855
12,300
12,202
16,994
21,534
26,589
30,980
Household Income & Expenditure (LKR)
31,376
33,063
31,171
35,780
48,870
51,070
10000 20000 30000 40000 50000 60000
Average Monthly Household Income (LKR)
Average Monthly Household Expenses on Non-food (LKR)
Mean Monthly Per Capita Income (LKR)
Figure 20, Source: Income and Expenditure Survey 2009-10, CBSL

16 Refreshingly Sri Lanka - An Island of Retail Opportunity
Conclusion
Conclusion
Sri Lanka’s growing middle-class population, the changing spending
patterns toward branded and organised retail as well as the strong
growth in tourism are expected to keep retail demand upbeat over the
next few years. Colombo, as the commercial capital of the country,
has tremendous retail potential and it is expected to witness retail
development in terms of both malls and high streets.
According to A.T. Kearney’s 2013 Global Retail Development Index,
Sri Lanka’s ranking leapfrogged from 20th to 15th best country
for retail investments between 2011 and 2012 and the country
maintained the same ranking in 2013. Improvement in the retail
investment ranking was largely due to the political and economic
stability, which is significantly uplifting the living standards in the
country.
Furthermore, with Sri Lanka topping the South Asian countries in
terms of starting and doing business and given its fewer procedural
formalities, it is logistically and legally easy for the Indian retailer to
expand to Sri Lanka. The country has Free Trade Agreements with
other South Asian countries, such as Pakistan and Bangladesh. Thus,
entering Sri Lanka will have the added advantage of easy access to
these consumer markets, which otherwise would be difficult.
As discussed, creating a destination mall that includes amenities
such as a multiplex cinema, a gaming zone for kids and casinos,
and integrating this project with a golf course or an amusement
park would make such a mall a destination to stop and hence would
deliver outstanding results.
The local players have built world-class supermarkets, apparel
brands and electronics showrooms to an extent that the time is
ripe for international stakeholders to get their foot in the market.
Therefore, retailers, mall developers and investors across the globe
can evaluate Sri Lanka as a potential market for expansion and
explore the new opportunities.
Having detailed the untapped market potential of Sri Lanka, we
recommend that stakeholders critically assess aspects such as the
location of the mall or retail property, catchment size, the size of
the project, the design of the project, optimal tenant and product
mix, positioning of the stores and maintenance of the project. We
also suggest that stakeholders carefully study other challenges and
risks attached to the retail business in Sri Lanka, such as inflation,
exchange rate fluctuations and stringent labour laws.

Entering Sri Lanka
Franchising is one of the easiest routes for an international retailer
to enter Sri Lanka. On the other hand, direct investments into Sri
Lanka will enjoy various tax benefits, including corporate income tax,
customs duty and value added tax. The following flow chart shows an
overview of the entire investment approval process.
BOI Approvals
Line Agency Approvals
Application Submission for
BOI Approval
Assigning of a Project
Officer to guide the
investor
Site Approval:
• (Engineering Approvals
Dept. - BOI)
Letter of Acknowledgement of
Business Activity
Incorporation of Company
(Dept. of Registrar of Companies)
Opening of
Bank A/C SIA
(Optional)
Project Activity*
• Preliminary Clearance for the
project Activity
• Environment Clearance
• Preliminary Clearance for
sourcing of raw materials
• Rules of Origin Certificate
• Import/Export License
Environmental Clearance:
• (Environment dept. - BOI/
CEA)
Formal Letter of Approval
Preliminary Planning Clearance
for the Building*
Collect the draft
agreement
(Legal Dept. /BOI)
Signing of BOI Agreement
(Section 17 Projects)
Opening of
Bank A/C
(FCBU/SIA)
Development Permit*
(Building Approvals)
Commence implementation
(Within the specified period)
Import (duty free items)/
Export
BOI Approval:
• (IFC unit/Engineering)
Registration:
• ( I n v e s t o r S e r v i c e s
Dept. - BOI)
Recommendation for
Work Permits and
Residence Visa*
(Investor Facilitation Unit - BOI)
Certificate of Conformity (COC)
Environment Protection License (EPL)
Registration for VAT/TIN
(Inland Revenue dept.)
Import Export Registration
(SL Customs)
Work Permit &
Residence Visa*
(Ministry of Defence and Dept.
of Immigration & Emigration)
Utilities
Electricity:
• Ceylon Electricity Board
Water:
• National Water Supply & Drainage
Board
Telecom:
• Sri Lanka Telecom/Private Company
Certificate of Conformity (COC)*
SIA: Securities Investment Account
FCBU: Foreign Currency Banking Unit
Commence Commercial Operations
*If applicable only
*Refer Infrastructure Brochure for details
*Residence Visa can be obtained at any stage of the process
Figure 21, Source: Board of Investments, Sri Lanka

Authors
Vasanth Raghunathan
Assistant Manager, Research and REIS
vasanth.raghunathan@ap.jll.com
+91 44 3095 1063
Robin S
Manager, Strategic Consulting
robin.s@ap.jll.com
India +91 87544 04800
Sri Lanka +94 774 668 757
Special Contribution & Guidance
Shankar Arumugham
Head - Strategic Consulting
Sri Lanka
shankar.arumugham@ap.jll.com
India +91 99400 66869
Sri Lanka +94 776326 888
Simon Selvaraj
Vice President
Strategic Consulting
shimon.thomas@ap.jll.com
India +91 98400 68451
Sri Lanka +94 777985 640
Trivita Roy
Assistant Vice President
Research & REIS
trivita.roy@ap.jll.com
+91 40 40409123
Akshit Shah
Manager
Capital Markets Research India
akshit.shah@ap.jll.com
+91 98195 78866
For more information about Research contact
Ashutosh Limaye
Head of Research
India
ashutosh.limaye@ap.jll.com
+91 22 3985 1319
For further business enquires contact
Gagan Singh
CEO - Business &
Chairperson - Sri Lanka Operations
gagan.singh@ap.jll.com
Sri Lanka +94 777 444094
India +91 98111 51610
Sunil Subramanian
Head - Transactions
Sri Lanka
sunil.subramanian@ap.jll.com
+94 775522155

Since establishing our presence, we have witnessed marked improvement in the country’s
infrastructure. Sri Lanka’s economic progress has trickled down well with disposable
incomes and purchasing power on the rise along with positive consumer sentiments.
Gagan Singh
CEO - Business & Chairperson - Sri Lanka Operations
It’s not just international brands, even established domestic brands face challenges in
identifying the right quality of retail space in Colombo. There is a desperate need for
high grade retail locations in the city.
Sunil Subramanian
Head-Transactions - Sri Lanka

About Jones Lang LaSalle
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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.
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COPYRIGHT @ JONES LANG LASALLE 2013. All rights reserved. The content of this publication has been compiled from the various sources acknowledged. The information is from
sources we deem reliable; however, no representation or warranty is made to the accuracy thereof. This report has been produced solely as a general guide and does not constitute
advice. We stress that forecasting is a problematical exercise which at best should be regarded as an indicative assessment of possibilities rather than absolute certainties.