On serviced office spaces as an indicator of economic growth
How do you see the serviced office segment developing in 2017?
LENA THONG: Overall, we are noticing a lot of positive signs of the segment moving forward in 2017. The serviced office market suffered a slowdown in 2014-15, with occupancy rates decreasing significantly, especially because of several oil and gas companies leaving the country. In 2016 we were already receiving many more inquiries from foreigners, which is a good indicator that the situation is improving. In 2017 we are seeing further increasing demand; however, even with this higher demand, there is a lot of price pressure. There is a lot of competition in the serviced office segment, which has triggered a sharp decrease in prices compared to previous price levels. During the 2010-13 commodity boom offices in Jakarta saw a two-fold increase in prices. Then, in 2014 we experienced a sharp slowdown, which had us lowering prices. Now, in 2017 we are hoping prices come back to the levels of previous years, but there is still a persisting difference of around 20%.
How is competition affecting the industry for premium offices?
THONG: Right now, office rentals are everywhere in Jakarta, and developers are trying to reduce prices. There is major competition between office owners and building owners, and this is creating a type of price war. We are definitely confident about the demand levels, which are picking up and in good shape, given the high level of competition. It is hard for premium offices to position themselves advantageously in this price war, since we have to offer both premium services as well as prices that are competitive enough to attract clients. At the same time, we are not able to lower prices too much. Competition is always a challenge, but it is also healthy for the market. In order to stand out from the competition and also be able to maintain profits, it is best to offer premium spaces in the best locations in Jakarta, and provide high-quality services that continue to attract clients.
Which sectors are currently driving growth?
THONG: Most of the companies that are coming into the market are IT companies. That is one sector that is really burgeoning in Indonesia, and is helping to drive growth and replace oil and gas companies in terms of occupancy rates. Coal is another industry that is returning to higher levels of production, following the increase in prices from early to mid-2017. In 2014 – after the commodity boom ended – coal companies were closing every month, and we were frequently receiving early terminations from clients, but in 2017 we are seeing coal contribute to economic growth again.
What opportunities are there for further office space development in Jakarta?
THONG: The demand is still mainly in areas of Central and South Jakarta. Serviced offices are also growing in West Jakarta – in the Tangerang area – but those are second-tier rather than premium office spaces. There is not much focus on developing West Jakarta, because prices can’t compete and rental prices are still quite high. There is also a co-working spaces trend developing in the market, not only in the outskirts of Jakarta, but also in secondary cities.
In secondary cities, we see a lot of economic dynamism, with IT companies, start-ups and other types of entrepreneurial endeavours that may be interested in co-working solutions. The future of office space development is co-working spaces. This can address an untapped part of the market that is growing steadily, but still doesn’t have the income to afford premium office space. Many companies are cutting costs by decreasing their office space, and for these companies, renting co-working spaces can be an interesting opportunity.
Read More from OBG
