Jakarta, a potential business city in Asia Pacific

Arief Rahardjo , Contributor , Jakarta | Tue, 09/02/2008 10:23 AM | Supplement

Cushman & Wakefield conducted a survey summed up in Asia Pacific Cities Monitor 2008 recently, with a surprising result. The survey, which involved 50 multinational corporations as respondents, does not mention Jakarta in its top recommendations as a location for regional head offices in Asia and the Pacific.

Hong Kong, Shanghai and Singapore are favorite cities in the survey. The survey, which involved companies from various sectors (industrial, consumer, retail, distribution and service) says that Hong Kong is the most suitable location for a regional head office because of its excellent transportation system and it is easy to recruit adequately skill workers. Hong Kong is also located strategically at the gateway to China.

Singapore still has its attraction, too. Like Hong Kong, besides a good transportation system and a potential resource of highly skilled human resources, Singapore is noted for its development of science and technology. Some respondents also chose Singapore as a center of research and development in Southeast Asia.

India was considered the best place for outsourcing. Strategically located in Asia, cities like Mumbai, New Delhi and Bangalore deserve to be considered.

Indeed, Jakarta lags behind in various aspects, particularly when compared to 16 cities from the 13 countries covered in the survey. Jakarta, however, is not an unattractive choice. In terms of familiarity, Jakarta, an evolving metropolitan city, scored 32 percent as a business location, be it for offices, manufacturing, distribution or retail outlets. It is true that Jakarta scored way below Shanghai (79 percent), Singapore (61 percent) and Hong Kong (58 percent) but it scored better than Sydney and Taipei (both 29 percent) and Osaka (21 percent).

However, the office sector in Jakarta is very promising. Office space supply in Jakarta in the second quarter of 2008 cumulatively increased.

Supply coming from Permata Kuningan, located in the Kuningan Persada compound, for example, meant an addition 22,000 square meters while the completion of part of Menara BCA added another 16,400 square meters. Up to June, total office space supply in the Jakarta CBD was no less than 3.6 million square meters. This supply will increase by 282,600 square meters by the end of 2008.

Meanwhile, outside the CBD, the increase in office space supply was marked with the completion of a number of office buildings, such as the Recapital Building (8,400 m2) in the first quarter and Oleos I (5,300 m2) and Adityawarman Tower (5,400 m2) in the second quarter of 2008. In general, the CBD is still the top location for Grade A offices. Meanwhile, South Jakarta is becoming the favorite location for multinational offices outside the CBD. Even in terms of rent, office buildings on Jl. TB Simatupang are as high in rent level as office buildings in the CBD.

In terms of value for money, rent for office buildings in Jakarta is relatively lower than rent for similar buildings in other Asia Pacific metropolitan cities. The average monthly rate for Grade A office space in the CBD, including service charge, is Rp 174,000 per m2.

Although the macro-economic condition in the first semester of 2008 was still marked by high inflation and increased interest rates, business transactions in the office sector in Jakarta was still robust. Total absorption in the first six months of 2008 was equal to 196,000 m2, or 280 percent higher than the total absorption registered for the same period in 2007, which totaled only 51,600 m2. The level of absorption in this semester was the highest since 1997.

Up to the end of the second quarter of 2008, the average occupancy rate in Jakarta's CBD office space market went up by 1.6 percent to 86.4 percent, with 489,300 m2 remaining vacant.

However, further observation will show that most transactions came from existing tenants wishing to expand their office space by 50 square meters to 150 square meters. Generally, they were companies dealing in banking, information technology and telecommunications.

Jakarta does indeed lag behind other cities in Asia and the Pacific. However, this does not mean that Jakarta is not a suitable location for multinational corporations' regional head offices. There are several factors that must be fulfilled to make Jakarta a favorite city for companies wishing to open offices in Indonesia.

Indeed, it is not easy to equal the reputation of Singapore, Hong Kong or Shanghai. There are many things that need revamping to make Jakarta a good choice for the location of regional head offices.

Obviously, a good office building must take into account the following factors: a floor must be at least 1,500 square meters so that it will be more efficient for the building owner and allow a tenant to have offices on one floor, flexible lease, guaranteed security and comfort, good building image, adequate parking space and reliable IT services.

Equally important are easy accessibility to and from the building, good location image, proximity to business links, public transportation and alternative roads that enable tenants to avoid the three-in-one traffic restriction.

Not only is the quality of an office building important, but also a city's infrastructure, transportation system, IT network and accessibility to consumers, customers or clients as well as macro factors encompassing a sound business climate, clear government regulations, etc. Will Jakarta be able to respond to the challenge?

-The writer is associate partner, strategic consulting, PT Property Advisory Indonesia (Provis) in association with Cushman & Wakefield.

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