Adrian edited this around 5pm on 12/4/02

Adrian edited this around 5pm on 12/4/02

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Office-property-outlook

Market demand remains modest, trend is likely to continue

I. Christianto
Contributor
Jakarta

Office property in the capital reported modest growth during
the first quarter of this year in line with the country's slow
economic recovery.

The market trend is likely to continue as there is no
indication that business will improve within the next few months.

In its latest Property Market Review, property consultant PT
Procon Indah reported zero new supply to the Jakarta office
market in the first quarter of this year.

In the first quarter of this year, total office stock remained
at 4.89 million square meters (sqm) comprising of 2.93 million
sqm in the Central Business District (CBD) area and 1.96 sqm
outside the CBD area, said Lini Djafar, who is the director of
the property consulting company's strategic advisory division.

She said the 30,000-square-meter Asiatic Tower in Kuningan,
which had managed to secure a 35 percent pre-commitment, was
expected to be completed and ready for occupation only in the
second quarter of this year.

In addition to the Asiatic Tower, she added, future supply in
the CBD will include the 37,000-square-meter Wisma Mulia 1 and
the 73,000-square-meter Wisma Mulia 2. Both office buildings are
located on Jl. Gatot Subroto.

She said that at the end of March, there was 83,000 sqm under
construction outside the CBD. Out of the confirmed future supply,
about 54,000 sqm is scheduled for completion this year and the
remaining in 2003, she added. Therefore, the total future supply
during 2002 and 2003 will reach 223,000 sqm.

The economic reasoning may have been the reason why many
developers have temporarily suspended the construction of high-
rise office buildings.

Djafar said the office market was off to a slow start during
the first quarter this year with an overall occupancy rate of
79.6 percent, a slow increase of 0.7 percent compared to the last
quarter in 2001.

Slow economic growth still plagues the capital's office
property market, restricting new demand, she said, adding most
business sectors maintained, or even reduced, their space
requirements for cost efficiency reasons.

The overall take-up in the CBD was 17,300 sqm, a 4-percent
decrease compared to the previous quarter. As a result of this
positive net take-up, occupancy in the CBD had risen by only 0.6
percent to 77.9 percent, compared to the fourth quarter in 2001.
Occupancy rate beyond the CBD was 15,400 sqm, increasing the
occupancy level to 82 percent. Increasing occupancy rates
occurred mainly in competitive rupiah rental office buildings.

In the first quarter of 2002, the total amount of vacant space
reached 1 million sqm, with 647,000 sqm located in the CBD.

Rental rate: The current competitive rental market continued
to be the most important factor influencing tenant preference in
choosing office space, according to Procon.

The average gross rental in the city's CBD office market
showed a slight improvement from Rp 99,900 per sqm per month in
the last quarter to Rp 100,500, the company said. In equivalent
U.S. dollar terms, it reflected a significant increase by 8.4
percent to US$10.4 per sqm per month due to the strengthening
rupiah against the dollar during the first quarter of 2002.

The rupiah has recently been on an upward trend following some
improvement in the country's political situation.

However, Procon added the improvement in the average gross
rental rate was not due to a base rental increment but to the
continuing increase in service charges over the quarter.

The rise in electricity rates has led to a significant
increase in service charges over the past three months. However,
there has also been an increment in the base rent rate in certain
office buildings that have enjoyed an above-average occupancy
level.

Procon said the average rupiah gross rental rate outside the
CBD was 34 percent below the average rental rate in the CBD. The
average gross rental rate outside the CBD rose by 1.8 percent to
Rp 67,400 per sqm per month during the review period.

Tenants: Relocation and expansion of domestic companies are
the major force in the capital's office-market-leasing
activities. These main tenants are companies dealing with
insurance (18 percent), telecommunications (16 percent), trading
(13 percent) and finance (10 percent).

Procon said 35 percent of demand originates from relocation
for cost-efficiency reasons or upgrading premises to better
quality office buildings, 26 percent were from tenant expansion
and the remaining were new firms and additional office space.

Better quality included not only location but also smart
buildings. A major force driving the marketplace is the
information technology and telecommunications revolution. With
the world's growing reliance on Internet, e-mail and other
computer-related enterprises, the phenomenal information
explosion is impacting upon every business.

Advanced telecommunications and data services are vital to all
businesses. Therefore, many tenants presently want to have
uninterrupted state-of-the-art resources available.

Nowadays, some tenants are willing to move to other office
building to improve their image, as well as for additional safety
and security services extended by the building's owner or
management.
Investment: Procon cited the investment activity in Jakarta's
office market saw stable interest from domestic companies.

Investors in consumer goods industries were actively seeking
office buildings for sale in the first quarter of 2002, while
others were looking for building acquisition through a share
participation in existing owner companies.

However, the availability of stock that could meet investors'
requirements remained very limited, although there were several
CBD office buildings offered for sale this quarter. The estimated
capital rupiah value of CBD office buildings increased
slightly by 2.9 percent to Rp 8.4 million per sqm.

Outlook: The prognosis for the office market in the capital
will remain slow for the whole year, according to Procon. A
combination of low economic growth and external factors such as
mergers in the banking sector will adversely affect Jakarta's
office sector.

Market activities will continually come from domestic demand
doing relocation for cost efficiency reasons or seeking better
quality office space offered at competitive rental rates.
Consequently, leasing deals in lower-grade rupiah office building
are likely to be more active compared to U.S. dollar buildings.

The overall occupancy level of Jakarta's office market is
expected to increase slightly this year due to softening demand
and the increase in new supply. The increase in rental income tax
applied by next month is likely to affect base rental rates for
new deals in the next medium term. Combined with regular
increments in the electricity rate, average gross rental rates in
rupiah terms are expected to increase as several landlords
continue adjusting their service charge.

The investment market is predicted to be more active with
local and foreign companies keen to look for good quality office
buildings, particularly given that the Indonesian Bank
Restructuring Agency is likely to dispose of more assets, as they
have to fulfill their obligations by next year.