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Jakarta Post

Analysis: Property: Serviced office trend in Jakarta

Along with the recovery of the global and domestic economy, business activity in Indonesia’s capital has begun to accelerate

Anton Sitorus (The Jakarta Post)
Fri, August 27, 2010

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Analysis: Property: Serviced office trend in Jakarta

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long with the recovery of the global and domestic economy, business activity in Indonesia’s capital has begun to accelerate. Supported by improving macroeconomic indicators and political stability, companies in the banking, financial services, automotive, mining, consumer goods and insurance sectors began to roll-out expansion plans.

Meanwhile, the establishment of new businesses has also increased on the back of rising optimism towards the country’s economic outlook, as indicated by a sharp increase in foreign investment in the first six months of this year.

This positive climate helped boost demand in the office market in Jakarta Central Business District or CBD (also known as the Golden Triangle) over the past year. Market absorption between January and June 2010 has doubled from the same period a year ago to approximately 90,000 square meters. This provides a signal that recovery in the office market is gaining momentum. While net demand in 2009 dropped 50 percent from a year earlier, we expect this year’s net demand will return to the 2008 level of around 200,000 square meters — and the first half figure provides a good omen for fulfilling that prophecy.

While optimism in the sector continues to generate interest from developers to build new projects, another trend has also emerged in the market. Along with the growth in new businesses, particularly foreign companies, demand for one-stop serviced offices has also increased. This includes a demand for instant and virtual offices that target overseas companies who intend to set up offices in Indonesia. While getting an official business license and securing a permanent office location can take a considerable time here, a virtual or serviced office could be a good alternative for initial office location and is considered the best way to start for new entrants.

Historically, the development of serviced offices in Jakarta dates from the economic boom in 1995-1996. At that time, the economy was at an all-time high and the country enjoyed strong growth in investment which led to a rising office demand from incoming foreign and international corporations. The period was characterized by high take-up and low vacancy — the CBD office market peaked in 1997 when net demand totalled approximately 350,000 square meters and vacancies dropped below 9 percent.

This phenomenon gave birth to the instant office concept as demand from incoming foreign companies increased significantly. Unlike typical office space offered by building landlords, instant and serviced office operators are able to provide ready-to-occupy office facilities complete with professional basic services such as front desk receptionists, phone operators and clerks on a flexible lease in terms of the length of stay, room requirements, etc.

The first cycle in the serviced office development boom reached its peak in 1999 when almost 8,000 square meters of new additional space entered the CBD market (see above chart). Then as the country struggled with economic and political crises in subsequent years which were accompanied by falling foreign direct investment (FDI), the development of serviced offices in Jakarta also faced a challenging situation which resulted in supply stagnancy until 2005.

Later on, along with a pick-up in FDI that started in 2007, the development of serviced offices also began to increase. The supply increase is expected to peak again this year as we anticipate more than 11,000 square meters of new stock to enter the market in the coming months. On the demand side, positive market conditions have supported the performance of serviced offices in Jakarta. It is reported that most operators were able to achieve an average occupancy of around 90 percent.

Based on our observations, serviced offices in Jakarta are still heavily reliant on demand from multi-national and foreign companies. It is estimated that 70 percent of the tenants of existing serviced office operators are foreign or international companies, while the remaining 30 percent are locals. By tenant profile, the majority of serviced office users in Jakarta come from service industries such as financial firms and professional consultants, lawyers, IT and marketing.

Aside from practicality and flexibility, other factors supporting the growth of serviced offices in this market are location and efficiency. Most serviced offices in Jakarta are located in prestigious buildings in prime areas. This ensures good accessibility, convenience as well as corporate image and prestige for their users. Efficiency is also another advantage as no capital investment is required from a company when setting-up an office. It is widely known that serviced offices are expensive in terms of cost per square meter, but considering that the rent includes almost all of the monthly costs spent on the conventional office, it provides a very convenient and cost-effective option for new entrants as well as for short-term businesses or small boutique companies.

So what’s the outlook for this sector over the coming years?

It is anticipated that the economy will remain healthy and the socio-political environment will remain calm over the short to medium term. Based on that, we expect more companies, both foreign and domestic, to look at expanding their business in the country which would provide solid ground for further development in the office market, especially in the CBD area. As part of the office market development, serviced offices are also seen to grow along with the trend. As such, we are quite optimistic that this sector will continue its growth momentum, thus expect further increase in the number of operators and supply in the future.

The writer is the associated director and head of research of Jones Lang LaSalle (Indonesia). He can be reached at anton.sitorus@ap.jll.com

 

 



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