Demand for conventional offices surges

The demand for conventional office space in Jakarta is projected to further gain ground this year in line with the more promising outlook in the country's economy.

Property consultant Procon estimates that the improvement in business confidence would result in an increase in both domestic and foreign direct investments which would in turn push up the demand for office space particularly in Jakarta.

"Nevertheless, the increase in the supply will result in the drop in the occupancy rate," Procon says in its latest property market review.

Rental costs are also projected to increase as most landlords are likely to raise their rental rates and service charges to compensate for the high operational costs resulting from the recent increase in fuel prices, and most likely the increase in electricity rates within the next few months.

In its report, Procon says that an additional supply of 86,000 square meters will enter the market this year. The new supply will come from several new office buildings including Plaza Asia, Menara Bank Mega and Menara Nusa, which are scheduled for opening during the year. About 80 percent of the total supply will go to the office market in the Central Business District (CBD) area along Jl. Thamrin, Jl. Sudirman in Central Jakarta and Kuningan area in South Jakarta.

"An additional supply of about 321,600 sq m is expected to enter the market in 2006," Procon says, adding that South Jakarta will remain the main location for the construction of new office buildings outside the CBD area.

Rental transactions were relatively sluggish during the fourth quarter of 2005. Most of the rental transactions during the period were made by small and medium-size companies which occupy between 50 sq m and 400 sq m.

Outside the CBD area, most of the rental transactions were booked by newly built office buildings in South and Central Jakarta. Trading, manufacturing and telecommunication companies are the main occupants of the new office buildings in those areas.

The net take-up rate within the CBD area during the fourth quarter was recorded at a total of 8,667 sq m, down from 15,044 sq m in the previous quarter, due to the relocation of several occupants from Menara Gracia. Most of the occupants terminated their contracts in the building following the bombing attack on the Australian Embassy in September last year.

Nevertheless, the total net take-up for the year 2004 reached 68,800 sq m, or an increase of nearly 85 percent from the level in 2003, bringing the occupied space area to 2.4 million sq m.

The high demand also resulted in an increase in the occupancy rate to 79.4 percent at the end of 2004 from 78.8 percent at the end of 2003.

The gross rental rates of the office buildings located within the CBD area dropped by 0.5 percent to Rp 112,200 per sq m a month during the fourth quarter due to a slight increase in the value of the Indonesian currency against the U.S. dollar during the period.

The recent increase in the fuel price and the planned increased in electricity rates within the next few months will prompt landlords to increase service charges and the rental rate, albeit not significantly.

The rental and service charges of the office buildings outside the CBD area were more stable compared to those in the CBD area during the September-December period, according to Procon in its quarterly report.

Transaction activities at the existing strata-titled office buildings remained inactive during the fourth quarter of 2005. During the period, a major transaction was recorded within the CBD area when 65 percent of the Menara BCD building on Jl. Sudirman was sold to a local bank. This was the second block sale taking place in the CBD area during 2005.

The asking price of the strata-title office space remained stable during the fourth quarter. Strata-titled office space of higher quality was offered at between Rp 11.5 million and Rp 14 million per sq m, while those of lower quality were offered at between Rp 9 million and Rp 10.5 million per sq m.