New developer challenged by property sector constraints
The apartment rent industry is currently seeing a growing disparity between increasing demand against already available office space in Colombo and in the long-run property developer, RIL Property Ltd (RIL) may find issues with excess office supply, analysts say.
With the proposed real estate projects that are underway, the company, which recently went public, will face a constraint in the longer run with the slowdown in rentals. RIL which became the latest entrant to Colomboâ€™s high end office space in 2015 with Parkland which has a rentable area of 194,345 sq.ft. currently charges one of the highest rental rates (with some 15 per cent – 20 per cent discount to WTC rates), will find it difficult to sell office space, they say. The company issued 120 million shares offered at Rs.8 per share, corresponding to a total of Rs.960 million.
With the oversupply of retail space triggering a rise in the number of vacant units and a corresponding fall in rental returns in some older shopping centres, the office market is facing a greater saturation scenario once all these projects are completed, together with other office developments that are currently under construction, analysts say.
RIL also operates a franchise chain of Bread Talk outlets through its 100 per cent subsidiary, FoodBuzz and intends to utilise balance IPO proceeds on outlet expansion. Analysts say that RIL will also face a risk of meeting target ROI by expanding Bread Talk outlets in Colombo suburbs, given the drop in consumer disposable income. Bread Talk currently operates with seven outlets (15,205 sq.ft), while generating a monthly Rs. 2,040 as revenue per sq.ft, analysts said.Â Nearly 75 per cent of the IPO proceeds would be utilised to refurbish their Readywear building, that will resume operations in June 2018 with a rentable area of 59,000 sq.ft., according to RIL. Readyware generates nearly Rs. 3 million rental per month (50 per cent occupancy) in FY 2017E.
The RIL prospectus says that the company will meet the minimum public holding requirement set out in a Securities and Exchange Commission directive which stipulates that 20 per cent of the total number of shares for which a listing is sought should be in the hands of a minimum number of 500 public shareholders and on the completion of the issue pursuant to which the listing RIL issued 120 million shares at Rs. 8 per share.Â Â Commercial Bank the underwriter, subscribed up to a maximum of 37.5 million shares at the Offer Price amounting to a total value of Rs. 300 million.