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Jakarta Post

Jakarta’s office market to continue its decline as investment slows: Analysts

  • News Desk

    The Jakarta Post

Jakarta   /   Tue, March 17, 2020   /   04:26 pm
Jakarta’s office market to continue its decline as investment slows: Analysts Office buildings fill Jakarta's skyline. (JP/Dhoni Setiawan)

Jakarta’s office market is predicted to continue its declining trend as multinational companies remain cautious about expansion amid the growing uncertainties surrounding the country’s economy, property consulting company Knight Frank Indonesia has said

According to the company’s data, the occupancy rate for office buildings in Jakarta currently stands at 76.2 percent and is projected to continue declining, with office spaces in central business districts (CBD) still the preferred choice for companies.

“There is a continuation of the decline in the office property sector, while spaces in CBDs are expected to still be preferred by companies until 2021,” Knight Frank’s strategist Donan Aditria said during the launch of the Wealth Report 2020 in Jakarta on Thursday.

Donan said he expected multinational companies to remain cautious about expanding operations in the country, and would opt to upgrade their offices to Grade A and Premium Grade A spaces rather than renting new spaces.

“While Indonesia’s GDP growth remains stable at around 5 percent in 2019, this year will be tough for the property sector,” he said.

Last year’s GDP growth was the weakest since 2015, slowing from 5.17 percent in 2018, and lower than the government’s target of 5.3 percent stated in the 2019 state budget.

Read also: Indonesia sees gloomy outlook on economy as growth falls below 5%

Indonesia’s GDP grew 4.92 percent in the fourth quarter last year, the slowest pace in almost three years, amid plunging investment and export growth, Statistics Indonesia (BPS) data showed.

The government expects the economy to grow 5.3 percent in 2020 but analysts have expressed doubt the target can be achieved given the worsening outlook of the economy due to Covid-19 pandemic, which has not only affected Indonesia’s main trading partner China but also countries in Europe and the United States.

Investment – the second largest contributor to Indonesia’s economy – expanded by just 4.45 percent last year, a far cry from the 6.67 percent recorded in 2018, according to data issued by the Investment Coordinating Board (BKPM).

As the occupancy rate continues to decline, Knight Frank also recorded a slight decrease in rental prices for office space in Jakarta’s CBD areas.

The average monthly gross rental price for Premium Grade-A spaces decreased from around Rp 475,000 (US$31.5) per square meter in the second half of 2018 to below Rp 450,000 per sq m in the second half of 2019, according to the company’s data.

The average price for regular Grade-A office spaces also fell to around Rp 355,000 per sq m in the second half of 2019 from around Rp 372,000 per sq m in the second half of 2018. The average rental prices of Grade-B and Grade-C spaces in 2019 also declined to around Rp 277,000 per sq m and Rp 211,000 per sq m, respectively, from around Rp 273,000 per sq m and Rp 212,000 per sq m in the second half of 2018.

While most of the capital’s office properties are projected to experience a decrease in occupancy rates, Knight Frank's analysis has shown that office buildings along Jakarta’s MRT line have defied the general trend with soaring occupancy rates.

“Office buildings that are located along the MRT line have a 30 percent higher occupancy rate than the average, with some buildings at full capacity,” the company’s commercial property associate director Andi Rina Martianti told The Jakarta Post.

Read also: Property developers, banks rush to woo millennial homebuyers

She added that office buildings in the Thamrin CBD that were connected to the MRT line had stable and high occupancy rates, compared to areas that were not connected to the MRT, such as Gatot Subroto.

Knight Frank also recorded growth in the number of coworking spaces in office buildings in Jakarta, which appeal to millennials and entrepreneurs and provide alternatives spaces for companies to set up offices.

According to property consultant Jones Lang LaSalle (JLL) Indonesia, coworking spaces offset the sluggish occupancy rates in Jakarta between April and June of 2019.

JLL Indonesia’s data shows that the overall amount of space taken up by coworking spaces and serviced offices in CBDs had increased by 6 percent to around 170,000 sq m in the second quarter last year from about 160,000 sq m in the first quarter. (mpr)