Real estate niches emerge in Indonesia

After a boom in commercial development in Jakarta, there are concerns that a combination of oversupply, rising prices and slower economic growth could dampen demand, though serviced office space in the CBD and developments in secondary cities continue to offer opportunities.

Rising high

With Jakarta topping UK property consultant DTZ’s list of the world’s high-performing office-building markets last year, outranking New York, San Francisco, Shanghai and Mumbai, an influx of developments has created a sharp rise in supply, with more office space projects expected to come on-line in the near term.

Construction work on International Financial Centre Jakarta Tower Two, which is being developed by Singapore’s Keppel Land, entered its final phase in September and is set to be completed in the first quarter of 2016. The 48-storey building will offer some 50,200 sq metres of office space upon completion.

The tower is one of 12 office projects under way in the CBD as of last year, according to local media, including Sinarmas MSIG, Lippo Kuningan, Noble House Office Tower, Gran Rubina Tower 1 and Convergence.

While the market is expected to absorb the 34,000-sq-metre Gran Rubina Tower 1 by the end of the year, according to Budi Lesmana, director of Triyasa Propertindo, the company developing the project, the second and third phases of the Gran Rubina Business Park project are being postponed until 2017 due to market oversupply and weakening economic conditions. As of August, Gran Rubina Tower 1 was 94% sold, Lesmana told local media.

Striking a balance

Greater commercial stock in the capital has seen vacancy rates rise and presales ease in some segments. According to Savills Indonesia, the vacancy rate for grade-A office space in the CBD rose from 6.4% in late 2014 to 17.1% in mid-2015.

Several developers have already revised their sales projections to reflect the changes in the market. Earlier this year Ciputra Development cut its marketing sales target from Rp10.9trn ($781.2m) to Rp9.48trn ($679.4m), citing a slowdown in high-rise and office turnover. Just 50.6% of the company’s revised target had been reached as of the end of August.

Anton Sitorus, head of research and consultancy at Savills Indonesia, attributed the weaker demand for office space to slower overall economic growth. With GDP growth easing to 4.67% year-on-year in the second quarter of 2015 on lower global commodity prices, rental growth has been impacted, with premium office rents falling over the past 20 months, Sitorus told local media.

Services segment

Amid the apparent slowdown, however, some segments have emerged as key growth areas, including serviced offices and developments in secondary cities.

The number of serviced office centres climbed to 68 last year, according to figures from industry player Marquee Offices, up from just six in 2006, and the number of providers expanded from six in 2008 to 19 in 2014. In terms of volume, the amount of serviced office space in Jakarta alone nearly doubled in the two years to 2014, from 40,000 sq metres to 70,000 sq metres.

While industry insiders view the growing number of new players in the segment as a positive development, oversupply in the field also remains a concern.

“As investors increasingly come to Indonesia, the office space property market is growing. With several players entering the market, we are starting to feel a slight oversupply in Jakarta,” Lena Thong, CEO of Marquee Offices, told OBG. “Nonetheless, competition is needed, and will contribute to overall performance and efficiency.”

Looking outwards

Key secondary cities adjacent to the capital, such as Bogor, Depok, Tangerang and Bekasi, also show promise as potential hubs for property development, though improved connectivity would help strengthen their bid.

Industry players welcomed a move by President Joko Widodo’s government in early September to relax business regulations, including simplifying the process of obtaining operating permits and access to land to accelerate strategic infrastructure projects and boost investment in Indonesia’s property sector.

Indonesia’s infrastructure goals, including toll roads connecting secondary cities to Jakarta, are key to achieving the government’s vision of fostering a healthy property sector outside of the CBD.

The private sector is already taking on a key role in the expansion of Indonesia’s satellite cities, with local developer Era Graha Realty (ERA Indonesia) focused on suburban development outside of Jakarta.

“Currently, Indonesia is going through dense and rapid development. All the sectors in Jakarta are very lucrative. As a consequence, property prices in the capital have been very high. This is why we consider the secondary cities favourable for various property projects,” Darmadi Darmawangsa, ERA Indonesia’s president-director, told local media earlier this year.

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