T

he streets of metropolitan Jakarta may be packed and congested during rush hour, but surprisingly, many office spaces in the capital city’s business districts are now empty.

Late last year, the energy company where Moshe Rizal Husin works as a manager moved out from its premium space in a high-rise building in Sudirman Central Business District (SCBD) to a more affordable space in South Kemang, a less flashy business district where residential complexes mingle with restaurants and nightclubs.

“Who would’ve expected one-and-a-half years ago that the oil price would decline drastically?” Moshe said. With oil losing a third of its value in the past year-and-a-half, his company is cutting costs by renting cheaper office space.

Moshe’s office relocation, and space reduction, is a phenomenon seen at many other oil and gas-related offices in Jakarta’s Central Business District (CBD), according to data from property consultants.

Cushman & Wakefield found that vacancy rates in office buildings soared to 18.6 percent in January-March of this year at more than 1 million square meters (sqm), equivalent to over 100 soccer stadiums. That compares with 8.12 percent in the same period last year.

“The ongoing fall of the global oil price has forced oil and gas-related businesses to reduce space or close down their offices,” said Arief Rahardjo, Cushman & Wakefield director of research and advisory services.

The outlook is not bright. Cushman & Wakefield predicts the vacancy rate of office buildings in the capital city’s CBD to continue to climb, while Jones Lang LaSalle expects occupancy to rebound in late 2019 or 2020.

“Many offices are now vacant because of low demand and excessive supply,” Colliers International associate director Ferry Salanto said. “New buildings enter the market when conditions are weak, resulting in high vacancy rates.”

Five new office buildings, with a total of 270,000 sqm available for rent, entered the market in the first quarter of 2016, and another 297,000 sqm may be added this year, Cushman & Wakefield data shows. However, net take-up during January-March only amounted to 8,300 sqm, a 36 percent plunge from the last quarter of 2015.

A similar trend was also visible in Surabaya, although it was not as severe there as in Jakarta, he added.

Oil and gas businesses used to be active in renting office space in the business district, but now demand from them has slowed, said Jones Lang LaSalle regional director Vivin Harsanto.

Many oil and gas companies are cutting spending this year as global oil prices have dropped from US$115 per barrel at the end of 2014 to around $30 per barrel at present.

The highest office space vacancy is in the Gatot Subroto area, currently with 32.3 percent vacancy, followed by 18.3 percent in Kuningan, 17.6 percent in Sudirman, 13.1 percent in Satrio-Mas Mansyur and 11 percent in Thamrin.

With office space demand slowing down and supply increasing, office buildings’ landlords have started to reduce their rent. At the end of March, the average gross rental rate stood at Rp 320,600 ($24.35) per square meter per month, down 7.2 percent quarter-on-quarter (qoq).

At present, the rental cost of some office buildings in Jakarta’s CBD areas is similar to rates in Slipi, known to many as “Slipicon Valley”, a wordplay on California’s famous IT and technology start-up hub.

Indeed, many IT businesses in Slipi are now starting to move into CBD areas as rent rates go down. “The current trend is that many IT businesses are renting huge spaces in the CBD,” said Cushman & Wakefield director of residential and commercial leasing Nonny Subeno.

IT companies with offices in the central business district include ride-hailing app Uber in Thamrin, microblogging site Twitter in SCBD and online market place Matahari Mall in HR Rasuna Said.

Indonesia’s economic growth slowed to a six-year low of 4.8 percent last year, and the government is shifting toward manufacturing and the high-growth digital economy, reducing reliance on commodities exports. (win)