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Jakarta’s office market remains weak
The office-space market in Jakarta is expected to remain weak for the third straight year as demand is likely to be low throughout the rest of the year amid a surge in supply, recent reports suggest
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he office-space market in Jakarta is expected to remain weak for the third straight year as demand is likely to be low throughout the rest of the year amid a surge in supply, recent reports suggest.
The supply of office space in the capital in the second and third quarter of 2017 will reach up to 500,000 square meters, while demand will settle at only 300,000 sqm, which is still insufficient to boost the market, claimed the report by prominent consulting firm Cushman & Wakefield.
The director of Cushman & Wakefield’s research and advisory team, Arief Rahardjo, said that currently, no industry in Indonesia was strong enough to drive demand for the available office space and lift the market out of the slump it has been in for the past two years.
Most established companies, he added, are pushing efficiency measures, while smaller firms are mainly seeking quality offices with the lowest rents.
“Other larger industries, particularly oil and gas, are actually trying to reduce their office space along with the number of their employees as much as they can to save costs, “Arief said Friday.
“No industry sees high potential in expanding at present and the competitive pricing of the spaces are triggering many to move from Grade D to Grade A offices more regularly.”
The country’s booming number of startups could increase demand, but they tend to look for office spaces with inexpensive rental rates instead of those located in prime areas, which are vital to the growth of the office space market, he further said.
Cushman & Wakefield also predicted that until the end of this year the occupancy rate would follow a downward trend as seen in the past few years.
At the beginning of 2016, the rate stood at between 81 percent and 90 percent, but it will decline to about 77 percent by the end of 2017, the firm estimated.
“I see there are still many investors with an interest in the market, but it’s understandable if they want to wait for it to improve. Investors may choose to invest in other property sectors, such as apartments, while they wait,” Arief explained.
In the first quarter of this year, Jakarta was placed at 27th position in the Asia-Pacific region based on its vacancy rate of 23.3 percent. Meanwhile, it was ranked 16th in terms of occupancy costs.
Jakarta is considered cheaper than its regional peers, such as Bangkok, Manila and Kuala Lumpur.
Prior to Cushman & Wakefield, another property consulting firm, Jones Lang LaSalle, also predicted stagnancy in Jakarta’s property market. In its report for the first quarter, the firm said the rental rate for Grade A offices in the central business district fell by 4.7 percent quarter-on-quarter (qoq), while the occupancy rate was 73 percent.
“Rents will keep declining in 2017 and 2018. The trend will continue until 2020 before the rates pick up again in 2021,” said Jones Lang LaSalle Indonesia head of research James Taylor recently.
The largest portion of new rent deals in the January-March period was carried out by banks and professional service providers, the firm said. It noted that the rents were mostly caused by the decision of firms to move to buildings with lower rents instead of those expanding their business.
The rental rate at non-CBD offices in TB Simatupang in South Jakarta, which is often considered the second prime location outside the CBD, was also down modestly by 1.4 percent qoq with the occupancy rate hovering around 76 percent.
