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ith GDP growth for 2011 expected to have hit more than 6% and home to a growing and savvy population, the future of Indonesia’s retail sector looks promising, though there are concerns that a recent influx of mall building has glutted the market temporarily.

Indonesia’s economy, already one of the 20 largest internationally, is growing rapidly, well above the global average. The International Monetary Fund (IMF) estimates that Indonesia’s economy grew by 6.4% last year and will hit a similar rate in 2012. This is an enviable expansion given the global difficulties associated with the eurozone crisis and China’s apparent slowdown.

Retailing is a sector sensitive to broader economic growth and consumer confidence, and thus retailers in Indonesia have every reason to be upbeat about the outlook. Economic growth should feed into higher wages, both among the well off and the rising middle-classes who are increasingly keen to frequent modern retail outlets.

Consumer confidence also hit a six-month high in December, according to the Danareksa Research Institute, a Jakarta-based organisation. The index rose 0.2 points to 91.6 in December on growing optimism amid the country’s rapid economic growth.

Purbaya Yudhi Sadewa, the chief economist at Danareksa, said that the rise in consumer confidence “showed that Indonesian consumers remained confident that economic expansion has not been affected by the global economic slowdown”.

While allowing for downside factors, the trend toward promising retail growth and internationalisation looks set to continue this year. As global real estate firm Jones Lang LaSalle Indonesia said in its 2011 report on the sector, retail “demand grew steadily on the back of robust consumption and aggressive retailer expansion”. Indeed, the public’s improved buying power has encouraged foreign retailers to open outlets in Indonesia, particularly Jakarta, and brands include everything from luxury fashion to hypermarkets to the ubiquitous food and beverage (F&B) outlets at Indonesian malls.

The increasing sophistication of the domestic retail scene is encouraging more Indonesians to spend money at home, rather than go to neighbouring countries to shop. “It is a myth that Indonesians always go on shopping trips to Singapore, Hong Kong and Kuala Lumpur; consumer trends in the luxury market have changed considerably and we now see more and more Indonesians shopping here in Jakarta,” Irwan Mussry, the president and CEO of Time International, which represents several luxury brands in Indonesia, told OBG.

As Irwan points out, the next step could be to build up Indonesia’s reputation as a centre for retail tourism, to rival the number of neighbours for whom tourists’ shopping is an important earner.

Responding to rapidly rising demand for modern retail and an eclectic range of outlets, malls have sprung up across the country in recent years, with five new projects reaching completion in 2011, Jones Lang LaSalle said. But last year, the city authorities moved to issue a moratorium on the issuance of construction permits for new shopping centres larger than 5000 sq metres until the end of 2012. Two main reasons have been given for this: the large amount of vacant space at existing malls, and the road traffic associated with the complexes in a city in which congestion is already endemic.

Furthermore, Jakarta’s spread in recent years of economic growth has at times been rather unplanned, and a moratorium allows some time for a reconsideration of how future expansion should take shape. The local press reported that seven new malls had had construction proposals refused between June and mid-October 2011, indicating that the administration was sticking to its policy.

Jones Lang LaSalle’s statistics do indicate that there is some excess supply, with average occupancy rates of 87.6% in Jakarta as of the end of 2011. However, occupancy does vary considerably depending on the mall in question, suggesting that factors such as location, design and the other brands present make a difference.

Some analysts do not expect the moratorium to make a great deal of difference, as so many permits were issued before it came into force. Colliers, another real estate firm, forecasts that mall supply will grow by 5.6% this year, and a remarkable 21 new shopping centres will open in 2012.

Commercial real estate firm Cushman and Wakefield, while forecasting that the moratorium will cause deceleration in expansion, said in a third-quarter 2011 report that it expected overall retail supply growth of 10% annually over the next two years. The fact that it refers to this as a “moderate” rate at a time of global stagnation is indicative of the strong position that Indonesia is in.

The firm expects “stable” outlook for retail rents over the year — good news for retailers who can look to install themselves on a large, growing and increasingly diverse market.