'City industrial property market stagnant'

Fitri Wulandari, The Jakarta Post, Jakarta

The industrial property market in Greater Jakarta remains stagnant, with an average occupancy rate of below 69 percent amid a sluggish investment climate.

Colliers International Indonesia, an international property consultancy firm, said in its report that the occupancy rate in Greater Jakarta industrial estates for the third quarter of 2002 averaged 68.6 percent, down from 71.8 percent in the same period last year.

"Increasingly, investors are pursuing exit strategies from Indonesia, resulting in a steady increase in properties being offered for sale, with investors exploring opportunities in countries such as east China and Vietnam, which offer more certainty in the business climate and higher productivity with lower operational costs," Richard Rossiter, the managing director of Colliers International Indonesia, said.

The report said Indonesia had failed to lure investment as it had lost its competitive edge over other ASEAN countries that could provide investors with investment incentives, legal certainty and reliable labor.

An unstable political climate, unfavorable labor regulations and tax incentives are some factors that are prompting foreign investors to postpone expanding their factories and make new industrial investment in Indonesia.

Rossiter said it was a major factor behind the drop in demand for industrial land in Greater Jakarta.

As of the third quarter of 2002, transaction volume in the Greater Jakarta industrial property market only reached 14 hectares compared to 18 hectares in the same period last year.

Meanwhile, total supply as of the third quarter this year increased by 2 percent to 10,234 hectares following the entry into the market of an additional 200 hectares at the Modern Cikande Industrial Estate in Cikande, Banten province.

The report also shows that the Karawang-Cikampek region has the highest vacancy rate with 35 percent of industrial estate land unoccupied, followed by Bekasi in West Java with a vacancy rate of 33 percent.

Rent for standard factory buildings in 2002 is Rp 46,000 ($5.10) per square meter and Rp 23,000 ($2.60) per square meter per month for Jakarta and on the outskirts respectively.

Collier predicts that the industrial property market in Greater Jakarta will not recover until after 2004.

"Recovery of the industrial property sector can only be expected after 2004, along with a higher growth rate of the manufacturing sector and the national GDP," Rossiter remarked.

He predicted that there would be no new supply of industrial land for the remainder of 2002. For the next 12 months, Colliers said that converting industrial premises into warehouse space and distribution centers would continue to dominate the minority demand.

However, he stressed that it would depend on the interplay of political, economic factors and the outcome of the 2004 general election.

Further, Rossiter advised the government to provide investors with a more conducive business environment by improving labor relations and offering tax concessions and other incentives.