Analysis: Property: Making the right move
Paper Edition | Page: 14
“The market is on fire” is a phrase that is music to the ears of Jakarta’s commercial development community. Jones Lang LaSalle is forecasting a continuation of this robust real estate office market environment driven by Indonesia’s strong economy.
For over 15 years, Jakarta’s commercial office market has been anything but on fire as the market has favored occupiers. However, this situation has changed quickly and in the process has caught a number of companies off guard. The market has quickly recovered from the speed bump of the global financial crisis in 2009, with net demand in both 2010 and 2011 setting new records, 2012 looks like it will be another very strong year despite the global economic headwinds.
Average occupancy in the CBD, Jakarta’s golden triangle, has increased to approximately 91 percent, while occupancy in the city’s top quality buildings has reached 98 percent. Leasing deals are being concluded in those top quality buildings at an average gross rental between US$35–$45 per square meter/month, up at least 90 percent from the height of the global financial crisis in 2009. Average occupancy outside of the golden triangle is 84 percent, largely due to the completion of projects in West Jakarta. South Jakarta’s occupancy level remains the highest at above 90 percent, despite the fact there have been a large number of new buildings become available as many companies look to relocate out of the central city closer to their employees, thereby avoiding some of Jakarta’s notorious traffic problems. Gross rentals in better quality buildings in South Jakarta are now in the gross rental range of $22 to $25 per square meter per month, up at least 35 percent from the lows of 2009.
How are companies reacting to this rising market?
Should I stay or should I go? As the song goes … companies are deciding whether they stay in the city or go. Organizations such as consumer goods, pharmaceutical, mining, oil and gas businesses are moving to secondary locations, typically in the south. There are many reasons for this but cost has been a significant driver. Historically, south Jakarta rentals have been similar to those in the Golden Triangle. However, over the last few quarters rental in top quality buildings have nearly doubled, while costs for similar buildings on the outskirts of Jakarta have increased at a lower rate of 30-35 percent. Since this trend is likely to continue, the cost benefit of moving some or all operations outside the city center becomes even more appealing. This trend is evident with larger occupiers increasingly looking at the possibility of putting “back office” staff in cheaper locations. We recently moved the head office of a nonfinancial institution from the city whose rent was doubled upon renewal. By relocating to a suburban location, the company was able to achieve a cost saving of over $10 million while still being in a high quality building.
Can I work differently? The workplace is no longer perceived as simply a “facility”. It has in fact, evolved into an essential tool that must meet the physical and cultural needs of the organization and delivering bottom line impact. By providing smarter spaces that suit the way your people want to work, you strengthen their ties to the organization. An environment that facilitates interaction and collaboration ultimately leads to greater efficiency. We have seen examples of this with several multinational corporation clients who have adopted this new way of working. They have seen increased productivity and improved staff retention while reducing occupancy costs as much as 20 percent.
Are we green? Not like Kermit the frog but green as in reducing our carbon footprint. This is now a much bigger consideration for companies who want to understand green workplaces and buildings with sustainable features. An increasing number of buildings are offering sustainability benefits. By selecting a sustainable building as an occupier, we can achieve improved organization morale, reduce operating costs, improve the indoor environment and be socially responsible.
Why not buy? Just as most of us strive to buy our own homes, many companies from different industry sectors are currently exploring purchase options instead of leasing. The key drivers for this trend include low interest rates, capital appreciation opportunities, attractive purchase prices that may double the asset price over the construction period of the project and the greater control that ownership provides.
With all of the above taken in to consideration, it’s definitely worth any organization putting their thinking caps on early to provide themselves time to not only develop the right strategy but also execute it.
The writer is the head of office leasing department at Jones Lang LaSalle.