This article seeks to highlight how that vision of tourism growth has been translating into a reality in the past two years with improvements in infrastructure, tourist arrivals and tourism earnings, and hotel market performances.

Having followed the Sri Lanka market closely since the last two years, performing market studies, feasibilities, and valuations in different parts of the country including Colombo and other emerging destinations, HVS believes that the growth story continues for Sri Lanka.

In this article, we have analyzed the Colombo hotel market and the Southwest Coast resort market to evaluate the impact of the growth in the economy and tourist arrivals on hotel performances in these regions.

Economic Overview

The Sri Lankan economy has witnessed tremendous growth in the past three years. The GDP growth in 2011 was recorded at 8.3%, the highest annual rate of expansion since the country gained independence in 1948. The inflation rate in the country remained controlled at 6.7%, and the unemployment rate declined to 4.2% in 2011 from 5.8% in 2009.

The Economist Intelligence Unit forecasts that the country will grow at an average rate of 7.4% from 2013 to 20161. Going forward, private consumption and rising incomes will contribute to economic growth, coupled with investment in infrastructure, businesses, and property investments.

The following section illustrates the developments in infrastructure that have taken place recently, which will enable both economic and tourism growth.