Key determinants of rental rates for A-grade office space in the Colombo-Central Business District: A tenants’ perspective
Article Sidebar
Main Article Content
Abstract
Property investors and tenants face complicated decision-making due to rent variations among purpose-built office buildings in the same market. While rental discrepancies are accepted as normative across economies, recent trends show the Asian office market experiencing notable growth and instability. This trend is also observed in Colombo's Central Business District (CBD), and thus far, a comprehensive analysis of the drivers behind the fluctuations is lacking. This study aims to fill this gap by examining the determinants of rental rates for A-grade office spaces in Colombo from tenants' perspectives through market research. Factors such as building age, occupancy restrictions, maintenance costs, unit size, and additional and green features emerge as significant influencers while building brand and additional and green features play a moderating role. The study’s findings contribute to the growing body of knowledge that can be used to develop and sustain a healthier office market industry.
Article Details
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
References
Abay, K. A., Chamberlin, J., & Berhane, G. (2021). Are land rental markets responding to rising population pressures and land scarcity in sub-Saharan Africa?. Land Use Policy, 101, 105139.
Adnan, Y. M., Daud, M. N., & Razali, M. N. (2012). Property specific criteria for office occupation by tenants of purpose-built office buildings in Kuala Lumpur, Malaysia. Property Management, 30(2), 114–128.
Ahmed, E. M. (2020). Modelling green productivity spillover effects on sustainability. World Journal of Science, Technology and Sustainable Development, 17(3), 257–267.
Akinsomi, O., Mkhabela, N., & Taderera, M. (2018). The role of macro-economic indicators in explaining direct commercial real estate returns: evidence from South Africa. Journal of Property Research, 35(1), 28–52.
Allan, R., Liusman, E., Lu, T., & Tsang, D. (2021). The COVID-19 pandemic and commercial property rent dynamics. Journal of Risk and Financial Management, 14(8), 360.
American Association for Public Opinion Research (2016) standard definitions: final dispositions of case codes and outcome rates for surveys. 9th ed. AAPOR. Retrieved 27.11.2022 https : // www. aapor.org / AAPOR_Main / media / publications / Standard-Definitions20169theditionfinal.pdf
Amron, A. (2018). The influence of brand image, brand trust, product quality, and price on the consumer’s buying decision of MPV cars. European Scientific Journal, ESJ, 14(13), 228.
Aybar, N., & Dokmeci, V. (2022). Dynamic analysis of Istanbul office markets with highest demand and office rent. Journal of Design for Resilience in Architecture and Planning, 3(2), 171–182.
Bera, A. K., & Uyar, S. G. K. (2019). Local and global determinants of office rents in Istanbul: The mixed geographically weighted regression approach. Journal of European Real Estate Research, 12(2), 227–249.
Bialkowski, J. P., Titman, S., & Twite, G. J. (2019). The determinants of office rents and yields: The international evidence. Available at SSRN https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3320805
Building Owners and Managers Association International, (2018), Building Class Definition, Retrieved from https://www.boma.org/BOMA/Research- Resources/Industry_Resources /BuildingClassDefinitions.aspx ?hkey = 8 faa 49ae -799b-406e-98e0-c2694fb2e60d
Byrne, D. G., Davenport, S. C., & Mazanov, J. (2007). Profiles of adolescent stress: The development of the adolescent stress questionnaire (ASQ). Journal of adolescence, 30(3), 393-416.
Cai, Y., & Xu, K. (2022). Net Impact of COVID-19 on REIT returns. Journal of Risk and Financial Management, 15(8), 359.
Ceh, M., Viitanen, K. & Perus, I. (2012). A non-parametric CAE approach to office rents: Identification of Helsinki metropolitan area submarkets. Expert Systems with Applications, 39(1), 460–471.
Celka, K. (2011). Determinants of office space choice. Journal of International Studies, 4(1), 108–114.
Cheah, J. H., Ting, H., Thaichon, P., Fam, K. S., & Bazylewich, M. (2021). Can positioning strategies help influence willingness to pay for office space? Evidence on the moderating effect of office space grade and industry sector for occupiers of leased office space. Journal of Strategic Marketing, 29(4) 1–22.
Chegut, A., Eichholtz, P., & Kok, N. (2014). Supply, demand and the value of green buildings. Urban studies, 51(1), 22–43.
Ching, F. D., & Winkel, S. R. (2022). Building codes illustrated: the basics. John Wiley & Sons.
Chin, W. (2003, January 21 - 23). Macro-economic factors affecting office rental values in Southeast Asian cities: the case of Singapore, Hong Kong, Taipei, Kuala Lumpur and Bangkok (Paper presentation). The 8th Annual PRRES Conference in Christchurch, New Zealand
Cooper, D. R., & Schindler, P. (2014). Business research methods. Mcgraw-hill.
Costa, O., Fuerst, F., & Mendes-da-Silva, W. (2018). Are corporate office buildings priced differently? Journal of Property Investment & Finance, 36(4), 348–365.
Cramer, D., & Howitt, D. L. (2004). The Sage dictionary of statistics: a practical resource for students in the social sciences. Sage Publication.
Creswell, J. W. (2008). The selection of a research design. research design-qualitative, quantitative, and mixed method approaches. Sage Publication.
Daoud, J. I. (2017). Multicollinearity and regression analysis. Journal of Physics Conference Series, 949(1), 012009.
Delventhal, M. J., Kwon, E., & Parkhomenko, A. (2022). JUE Insight: How do cities change when we work from home? Journal of Urban Economics, 127, 103331.
Deng, Y., Gou, Z., Gui, X., & Cheng, B. (2021). Energy consumption characteristics and influential use behaviors in university dormitory buildings in China's hot summer-cold winter climate region. Journal of Building Engineering, 33, 101870.
Doane, D. P., & Seward, L. E. (2011). Measuring skewness: a forgotten statistic? Journal of statistics education, 19(2), 1–18.
Elfaki, K. E., & Ahmed, E. M. (2024). Digital technology adoption and globalization innovation implications on Asian Pacific green sustainable economic growth. Journal of Open Innovation: Technology, Market, and Complexity, 10(1), 100221.
Feng, Z., & Wu, Z. (2022). Local economy, asset location and REIT firm growth. The Journal of Real Estate Finance and Economics, 65(1), 75–102
Fernando, W. W. C. D., & Perera, T. G. U. P. (2022). Physical environment and employee happiness in two public sector offices in Colombo District. Sri Lanka Journal of Real Estate, 19(1), 1–29.
Frew, J., & Jud, D. (1988). The vacancy rate and rent levels in the commercial office market. Journal of Real Estate Research, 3(1), 1–8.
Fuchs, C. & Diamantopoulos, A. (2020). Evaluating the effectiveness of brand-positioning from a consumer perspective. European Journal of Marketing, 44(11/12), 1763–1786.
Gambero, D. (2015). The “Propenomics” of economic performance and commercial property market: gentrification of office space. Kuala Lumpur: REI Group of Companies, http://www.malaysiapropertyinc.com/presentation slides2/Daniel Gambero.pdf
Gholipour, H. F., Arjomandi, A., Farzanegan, M. R., & Yam, S. (2022). Global and local economic uncertainties and office vacancy in Australia: a sub-class analysis. Applied Economics, 54(47), 5393-5411.
Glascock, J. L., Jahanian, S., & Sirmans, C. F. (1990). An analysis of office market rents: some empirical evidence. Real Estate Economics, 18(1), 105–119.
GlobeNewswire (2022, June 17). Flexible office market, global analysis of market size, share & trends for 2019 – 2020 and forecasts to 2030, ReportLinker, https://www. reportlinker.com/p06191877 /?utm_source=GNW
Govett, C., Murray, M., & Cook, J. (2020). Supreme Green: The Effect of LEED Certification Levels on Net and Gross Lease Rental Rates in Commercial Offices. https://dspace.sewanee.edu/server/api/core/bitstreams/5ddccedc-ddec-4718-b4e9-a3eb052605b0/content.
Guy, S. & Harris, R. (1007). Property in a Global Risk Society: Towards Marketing Research in the Office Sector. Urban Studies,34(1), 125–40.
Harris, R. (2021). London’s global office economy: from clerical factory to digital hub. Routledge.
Hoesli, M., & Malle, R. (2022). Commercial real estate prices and COVID-19. Journal of European Real Estate Research, 15(2), 295–306.
Jain, P., & Robinson, S. J. (2018). Do large-scale owners enjoy brand-induced premiums? Journal of Real Estate Portfolio Management, 24(1), 35–49.
Jang, D. C., Kim, B., & Kim, S. H. (2018). The effect of green building certification on potential tenants’ willingness to rent space in a building. Journal of Cleaner Production, 194, 645–655.
Jeong, J., Hong, T., Ji, C., Kim, J., Lee, M., & Jeong, K. (2016). Development of an evaluation process for green and non-green buildings focused on energy performance of G-SEED and LEED. Building and Environment, 105, 172–184.
Jones Lang LaSalle (2017). Sri Lanka - Land of Real Estate Opportunities, Research, https://www.jll.com.lk/en/trends-and-insights/research/sri-lanka-land-of-real-estate-opportunities
Ke, Q., & White, M. (2009). An econometric analysis of Shanghai office rents. Journal of Property Investment & Finance, 27(2), 120–139.
Kok, N., & Jennen, M. (2012). The impact of energy labels and accessibility on office rents. Energy policy, 46, 489–497.
Konyimbih, T. M. (2018). Effect of advertising on performance of rental office properties in Nairobi Central Business District. International Academic Journal of Human Resource and Business Administration, 3(1), 208–221.
Konyimbih, T. M., Mbura, L. K., & Paul, S. N. A. (2017). Effect of marketing promotional tools on performance of rental office properties in Nairobi Central Business District. International Academic Journal of Human Resource and Business Administration, 2(3), 432–449.
Li, W., Fang, G., & Yang, L. (2021). The effect of LEED certification on office rental values in China. Sustainable Energy Technologies and Assessments, 45, 101182.
Li, Y., Rong, Y., Ahmad, U. M., Wang, X., Zuo, J., & Mao, G. (2021). A comprehensive review on green buildings research: bibliometric analysis during 1998–2018. Environmental Science and Pollution Research, 28, 46196–46214.
Long, M. (2015). USGBC Announces International Rankings of Top 10 Countries for LEED Green Building. US Green Building Council, 22. Available at https://www.usgbc.org/articles/usgbc-announces-international-rankings-top-10-countries-leed-green-building –
Lucchesi, S. T., Larranaga, A. M., Cybis, H. B. B., e Silva, J. A. D. A., & Arellana, J. A. (2021). Are people willing to pay more to live in a walking environment? A multigroup analysis of the impact of walkability on real estate values and their moderation effects in two Global South cities. Research in transportation economics, 86, 100976.
Madushika, S. D., & Gunawardhana, T. (2019, October 8). Forecasting Space Demand: A Study in Colombo Office Space Market (Paper presentation). International Conference on Real Estate Management and Valuation (ICREMV), 2019, Colombo, Sri Lanka.
Mangialardo, A., Micelli, E., & Saccani, F. (2019). Does sustainability affect real estate market values? Empirical evidence from the office buildings market in Milan (Italy). Sustainability, 11(1), 12.
Manyika, J., Ramaswamy, S., Bughin, J., Woetzel, J., Birshan, M., & Nagpal, Z. (2018). Superstars’: The dynamics of firms, sectors, and cities leading the global economy. McKinsey Global Institute Discussion Paper. https://www.mckinsey.com/featured-insights/innovation-and-growth/superstars-the-dynamics-of-firms-sectors-and-cities-leading-the-global-economy
McCartney, J. (2010). Predicting turning points in the rent cycle using the Natural Vacancy Rate-An applied study of the Dublin office market. Journal of the Statistical and Social Inquiry Society of Ireland, 40(11), 11-33.
McCartney, J. (2012). Short and long-run rent adjustment in the Dublin office market. Journal of Property Research, 29(3), 201–226
Morawski, J. (2022). Impact of working from home on European office rents and vacancy rates. Zeitschrift für Immobilienökonomie, 8, 173–188.
Naor, M., Pinto, G. D., Hakakian, A. I., & Jacobs, A. (2022). The impact of COVID-19 on office space utilization and real-estate: a case study about teleworking in Israel as new normal. Journal of Facilities Management, 20(1), 32–58.
Napitupulu, D., Kadar, J. A., & Jati, R. K. (2017). Validity testing of technology acceptance model based on factor analysis approach. Indonesian Journal of Electrical Engineering and Computer Science, 5(3), 697–704.
Nase, I., van Assendelft, N., & Remøy, H. (2019). Rent premiums and vertical sorting in Amsterdam’s multi-tenant office buildings. The Journal of Real Estate Finance and Economics, 59, 419–460.
Ng., B. F., & Higgins, D. (2007). Modelling the commercial property market: an empirical study of the Singapore office market. Pacific Rim Property Research Journal, 13(2), 176–193.
Nurzukhrufa, A., Setijanti, P., & Dinapradipta, A. (2018). Factors Influencing Rental Office Selections (Case Studies: Class A Rental Offices Multifunction in Surabaya). International Journal of Scientific and Research Publications (IJSRP), 8(7), 26–272.
Olubunmi, O. A., Xia, P. B., & Skitmore, M. (2016). Green building incentives: a review. Renewable and Sustainable Energy Reviews, 59, 1611–1621.
Ozus, E. (2009). Determinants of office rents in the Istanbul metropolitan area. European Planning Studies, 17(4), 621–633.
Parsons, V.L. (2017). Stratified Sampling. Wiley StatsRef: Statistics Reference Online (Eds. Balakrishnan, N., Colton, T., Everitt, B., Piegorsch, W., Ruggeri, F., and Teugels, J. L.). https://doi.org/10.1002/9781118445112.stat05999.pub2
Pfrang, D. C. (2010). Property brands-development of a strategic brand management model for the real estate industry (Paper presentation). 17th European Real Estate Society (ERES) Annual Conference, Milan, Italy.
Pittman, R.H. & Thrall, G.I. (1992). Improving real estate market research. Real Estate Issues, 7(1), 1–7.
Porter, M. E., & Advantage, C. (1985). Creating and sustaining superior performance. Competitive advantage, 167, 167–206.
Porumb, V. A., Maier, G., & Anghel, I. (2020). The impact of building location on green certification price premiums: Evidence from three European countries. Journal of Cleaner Production, 272, 122080.
Rabianski, J., & Gibler, K. (2006). Office market demand analysis and estimation techniques: a literature review, synthesis and commentary. Journal of Real Estate Literature, 15(1), 37–56.
Ramani, A., & Bloom, N. (2021). The Donut effect of COVID-19 on cities (Working Paper No. 28876). National Bureau of Economic Research. https://www.nber.org/papers/w28876
Rosenthal, S. S., Strange, W. C., & Urrego, J. A. (2022). JUE insight: Are city centers losing their appeal? Commercial real estate, urban spatial structure, and COVID-19. Journal of Urban Economics, 127, 103381.
Roy, S., Ensign, P. C., & Brzustowski, T. (2016, September). An assessment of LEED certification's impact on net rental rates for commercial office space in Toronto, Ontario. 2016 Portland International Conference on Management of Engineering and Technology (PICMET), Honolulu, HI, USA, 2016, pp. 2420-2429, doi: 10.1109/PICMET.2016.7806589.
Salam, M. H. A., Mohd, T., Masrom, S., Johari, N., & Saraf, M. H. M. (2022). Influence features of office building rental: a systematic literature review. Malaysian Journal of Sustainable Environment, 9(1), 163–184.
Sanderson, D., & Edwards, V. (2014). What tenants want: UK occupiers’ requirements when renting commercial property and strategic implications for landlords (Real Estate & Planning Working Papers rep-wp2014-03). Henley Business School, University of Reading.
Schnure, C., & Thompson, A. (2020). Commercial real estate and migration: what can the employment composition of local job markets tell us about future demand? Available at SSRN https ://papers. ssrn. com/ sol3 /papers .cfm? abstract_id=3544939
Silva, D. L., Sabino, L. D., Lanuza, D. M., Adina, E. M., Villaverde, B. S., & Pena, E. G. (2014). Silva’s management competency theory: a factor-item analytic approach utilizing oblique rotation direct oblimin method under Kaiser-Bartlett’s test of sphericity. Proceedings of the World Congress on Engineering and Computer Science 2014 (22–24). International Association of Engineers. https://www.iaeng.org/publication/WCECS2014/WCECS2014_pp300-305.pdf
Simon, Z. Z., Achsani, N. A., Manurung, A. H., & Sembel, R. (2015). The determinants of rental rates and selling prices of office spaces in Jakarta: a macro econometric model using VECM approach. International Journal of Economics and Finance, 7(3), 165–178.
Stevenson, S., & McGarth, O. (2003). A comparison of alternative rental forecasting models: empirical tests on the London office market. Journal of Property Research, 20(3), 235–260.
Sundram, V. P. K., Rajagopal, P., Bahrin, A. S., Mohd, R., Sayuti, N. M., Othman, A. A. (2018), Research Methodology Tools, Methods & Techniques, Selangor, Malaysia, Malaysian Logistics and Supply chain Association
Tanrivermis, H. (2020). Possible impacts of COVID-19 outbreak on real estate sector and possible changes to adopt: A situation analysis and general assessment on Turkish perspective. Journal of Urban Management, 9(3), 263–269.
Tedja, M., Septiani, M. M., & Noegroho, N. (2021, July). A Study about office space needs with consideration of supply and demand for office buildings in Jakarta. IOP Conference Series: Earth and Environmental Science, 794(1), 012219.
Tonelli, M., Cowley, M., & Boyd, T. (2004). Forecasting office building rental growth using a dynamic approach. Pacific Rim Property Research Journal, 10(3), 283–304.
Tsolacos, S., Lee, S., & Tse, H. (2022). ‘Space-As-A-Service’: a premium to office rents? Journal of European Real Estate Research, 16(1), 64–67.
Turan, I., Chegut, A., Fink, D., & Reinhart, C. (2020). The value of daylight in office spaces. Building and Environment, 168, 106503.
Udoekanem, N. B., & Nuhu, J. I. (2014). Determinants of commercial property rental growth in Minna, Nigeria. LAÜ Sosyal Bilimler Dergisi, 5(1), 60–75.
Udoekanem, N. B., Ighalo, J. I., & Nuhu, M. B. (2015a). Office rental dynamics in Minna, Nigeria. Sri Lanka Journal of Real Estate, 8(2015), 16–30.
Udoekanem, N. B., Ighalo, J. I., Sanusi, Y. A., & Nuhu, M. B. (2015b). Office rental determinants in Wuse commercial district of Abuja, Nigeria. University of Mauritius Research Journal, 21(2015), 2–26.
Vigiola, G. Q., Cilliers, J., & Lozano-Paredes, L. H. (2022). Reimagining the future of the Sydney CBD: Reflecting on COVID-19-driven changes in commercial and residential property trends. Urban Planning, 7(3), 49–62.
Wang, S., Lee, C. L., & Song, Y. (2022). The COVID-19 sentiment and office markets: evidence from China. Buildings, 12(12), 2100
Weinbrenn, J. (2016). Coming of age: Is demand for flexible workspace changing the office market? Corporate Real Estate Journal, 5(3), 248–260.
Wen, Y., Fang, L., & Li, Q. (2022). Commercial real estate market at a crossroads: the impact of COVID-19 and the implications to future cities. Sustainability, 14(19), 12851.
Wheaton, W. C., & Torto, R. G. (1988). Vacancy rates and the future of office rents. Real Estate Economics, 16(4), 430–436.
Yadav, A. S., & Yadav, D. K. (2021). Impact of COVID-19 on real estate sector in India. Pacific Business Review International, 14(4), 85–90.
Yang, L., Chau, K. W., & Chen, Y. (2021). Impacts of information asymmetry and policy shock on rental and vacancy dynamics in retail property markets. Habitat International, 111, 102359.
Younglai, R. (2023). With office vacancies still high in Toronto, tenants privately negotiating best deals in years. The Globe and Mail web edition, https://www.theglobeandmail.com/business/article-office-rental-costs-downtown-toronto/
Zhang, Y., & Yin, H. (2022). Willingness to pay for green office: evidence from Shanghai. Environmental Science and Pollution Research, 29(56), 84345–84356.