Demand for office and retail properties on the rise

Demand for office and retail properties on the rise

Dijan Subromo, Contributor, Jakarta

In addition to residential property, the development of other property sectors such as office and retail properties is also mushrooming in most parts of Greater Jakarta, and in other major cities such as Batam, Medan, Bandung, Malang and Surabaya.

Indeed, as predicted by the country's two leading property consultancies, PT Procon Indah and PT Colliers International Indonesia, office construction is awakening. There are several reasons why developers are interested in building office property.

First, besides serving as indispensable facilities in the construction of buildings integrated with apartments and plazas, for instance, offices are needed and have their own market opportunities.

Second, the profit margin of office property is fairly promising, "though not the highest" or the most stable of all of the sectors in the property business.

Third, with the growth of new companies, offices are highly sought after assets.

Fourth, the entry of foreign investment triggers the demand for office space.

The development of office buildings and the supply of office space in various locations often raise the question: will they sell well? Based on Procon research, nearly all offices already built have generally reached an occupancy rate of above 60 percent.

Even at the end of 2004, for instance, the occupancy rate was as high as 79.4 percent, compared with 78.8 percent in 2003. Whether this achievement will be maintained or even surpassed this year, only time can tell.

However, there are some indications. Despite Indonesia's current problems with fuel shortages and the imminent fuel price increase, the rupiah's depreciation against the US dollar and the climbing bank interest rates, PT Colliers International Indonesia estimates that in 2005 the office property market will build up.

"The market is expected to be strengthened by the rising occupancy rate in line with the improving sentiment among investors," said Colliers.

The agency recorded that in 2004 there was almost no increase in the number of new office buildings, but from this year to 2007 several more will be ready to enter the market. Three of them will add to this year's supply of Plaza Asia Sudirman, Menara Nusa Rasuna Said and Menara Kuningan Rasuna Said. In 2006, Sudirman Plazas 1 and 2, with a total space of 47,150 square meters, will follow, and that does not include the Grand Indonesia Hotel Indonesia.

The subsequent year will see Jakarta City Center and Westin Boutique Office open in the Sudirman area.

It is interesting to note that about 46 percent of the above office projects are being sold under the strata-title scheme. The strata-title trend for office property is expected to further increase, though the take-up sale of the existing stock remains comparatively low.

A number of office buildings will be absorbed by the market. The biggest demand will for the most part come from advertising, banking and insurance firms.

These firms choose offices in prime locations because of their large operations. Strategic locations certainly is a main consideration. Next comes the attractiveness of facilities offered by office developers or management.

Luxury buildings alone, located in Jakarta's Golden Triangle, are not automatically appealing if their office designs are outdated and not modern, with easy and safe lift operation, for instance.

Of course, not all companies prefer luxury offices located in the Golden Triangle, because it involves a firm's ability to pay the rents, normally in US dollars.

Foreign corporations, state-owned enterprises and large private companies generally choose luxury offices in elite areas, but medium and smaller firms prefer offices on the outskirts of the city, or even shop-houses.

Rukan (shop-houses), also called SOHO (small office home office), have become something of a trend.

Each SOHO unit, usually measuring around 50 x 110 square meters, can be turned into a two-story structure and serve as a decent residence and an appropriate place of work. And there is no problem if the occupants have to be assisted by several employees and office boys.

In Singapore or Hong Kong, the SOHO concept is common, with certain zones in the city hubs serving as sites for these homey offices. Opening an office at home is nothing new in Indonesia. Before the building of home office units, several residential zones had already been changed into office or business areas. For example, Kemang, South Jakarta, is now lined with cafes, galleries and also offices. So it should be no surprise if the price of land keeps rising there. While a square meter cost only between Rp 3 million and Rp 4 million in Kemang Indah and Kemang Dalam two years ago, this year the price is between Rp 4 and Rp 5 million.

Building office property in the central business district or on the outskirts of the city boils down to the tastes of the developers. They have their own calculations, in terms of economy of scale as well as market demand.

The obvious thing is that, as indicated by the director of marketing at Tony Edy & Associates, Tony Edy, compared with other property sectors currently nearing oversupply, the office sector is better off just offering office space. "Now the business world is moving, in need of more places of work as offices," said the director of Century 21 Casablanca.