Bali blast to negatively affect property sector

Rendi A. Witular, The Jakarta Post, Jakarta

An international property analyst painted on Tuesday a bleak picture of the country's industrial property sector following the Bali bomb blast, saying the sector would take longer to recover due to the incident.

The Bali bomb attack over the weekend, which killed more than 180 people, mostly international tourists, would further scare away investors, which already lacked interest in Indonesia over legal uncertainties, labor issues and security.

Thus, a lot of areas in the industrial property market, which have been left vacant due to the drop in foreign and domestic investment over the past several years, would remain so in the next several years.

"Already compared to 2001, we have seen a further decline in new investments in the industrial estate sector. The blast will cause an extended recovery," said Chief Executive Officer of PT Procon Indah David Cheadle.

Procon's latest report said the take-up of the industrial estate in the Greater Jakarta area reached 29.7 hectares in the third quarter of the year, or about 4 percent lower than the same period of last year, but 200 percent higher than the second quarter of the year.

The rise in the third quarter take-up compared to the previous quarter was mainly attributed to a large transaction by a Japanese car manufacturer which bought space in an industrial estate in Cikampek. The report did not provide details.

Procon's local director for strategic advisory group Lini Djafar said the sector was first predicted to fully recover in three years from now. But, the Bali bomb blast could extend the recovery to about seven years.

"There was a slight progress in the estate market. We have even put it in the circle of three-years recovery. But the Bali blast has jeopardized all the prospects.

"We now predict it will only recover in seven years," said Lini.

The short-term impact of the Bali bomb blast on the office market was minimal as the existing occupiers are tied to contracts which make them difficult to immediately walk away.

Following the Bali incident, office building tenants will put more emphasis on security and safety of the buildings.

"Most certainly, in the office sector occupiers' decision making will be more focused on the security and safety standards of the building they want to occupy," said Cheadle.

Office demand in the Jakarta central business district was relatively flat during the third quarter with occupancy rates marginally rising to 78 percent. Of the total 4.95 million square meters of office space available in the area, 651,800 square meters remain vacant.

With regard to the Greater Jakarta retail sector, Procon said, the impact of the Bali incident would not be felt in the sector as it has thrived mostly from domestic sales. Even if many expatriates leave Greater Jakarta, the impact would be small.

However, Procon said, in the short term, there would be a drop in the number of people visiting shopping malls due to fears that the Bali incident could happen in Jakarta.

The average occupancy rate of retail space in Jakarta as of the end of September was 91.37 percent. Of the 1.35 million square meters available in the retail sector, only 116,600 square meter space were vacant in the third quarter of the year.

With regard to the apartment and condominium market, occupancy is likely to drop in the short term, but it won't happen immediately.

Occupancy rates in this sector increased to 62.9 percent in the third quarter of the year, from 61.6 percent in second quarter. Of the total 14,768 units available, 5,472 units were vacant.