A STUDY ON THE VIABILITY OF INVESTMENT IN MULTI-STOREY OFFICE BUILDINGS IN TERMS OF BUILDING COST & RENTAL VALUES

Abstract

The risk involved in the investment of multi-storey buildings will be very high due to the complexity of the activities in construction industry and the rental market in Sri Lanka. Therefore the investor should have sound knowledge on optimum level of floors for multi storey office building to get the optimum profits from the so called investment. The study identifies the cost of construction and rental value of each successive floor as the best determinants of the viability in the above context and therefore it has become so vital to determine the most accurate building costs and real rentals. This is because the inaccuracy of the two determinants causes losses to the client’s interest. This studyfurther revealed that marginal building cost increases from ground to upper floors and the marginal rental decreases from ground to upper floors. For the purpose of the study, six office premises adjacent to Galle Road from Bambalapitiya to Kollupitiya town centres have been selected for rental analysis and direct cost calculations and professional views were used to derive reasonable cost. Final outcome of the study is determined at the point where marginal cost is equal to marginal rental value, which theoretically gives viability level of the project or the most economical number of floors that should be constructed to receive the optimum profit level of the said investment. However it is evident that due to frequent price escalation of building materials, labour and rental values within the area, the final outcome of the study may be subject to future changes. To avoid this difficulty the study too recommends the flexibility of such decisions that would undoubtedly be useful to secure the future interest of the client.

Keywords: Viability, Marginal Building Cost, Rental Value, Optimum Profit

For full paper: fmscresearch@sjp.ac.lk