Demand for office space in Jakarta remains strong
JAKARTA (JP): An international property consultant believes that worries about the possible oversupply of office spaces in the city this and next year are unfounded as demands will remain strong while supplies will fluctuate over the next two years.
"Everyone talks about oversupply in office market... We are confident that the market will not be in oversupply and the rent will remain firm at much the same level as now," Martin Steens, a director at PT First Pacific Davies Indonesia, said yesterday.
He contended that demand is very likely to remain strong this year, at some 250,000 square meters, the same level as last year's.
During the first quarter of this year alone, 85,000 to 90,000 square meters of office space were already taken up, Steens added.
The company projected that the demand for office space will decline slightly to 230,000 square meters next year and increase again to 250,000 in 1998.
On the supply side, Steens projected that the supply of office space will reach a record level of 472,305 square meters this year before diving to 129,250 square meters next year and recover at 427,000 square meters in 1998.
Steens, however, forecasted that a number of projects for 1998 will be postponed because the market is more sophisticated, while developers and banks are much more aware of the supply.
Because of such robust demand and just enough supply, office rents, which have been stable at US$13 to $14 per square meter a month -- excluding service charges -- for the last three years, are expected to remain at similar levels this year and possibly increase slightly next year, Steens noted.
The vacancy rate of office space is forecasted to fall to about 10 percent next year, compared to the current level of some 12 percent.
In 1998, however, when supply is expected to recover, the rental rate is expected to subside to an average of $12.50 a month per square meter and the vacancy rate is likely to rise to 14 percent.
Because of the large supply this year, large tenants in the market are very aware that they can obtain attractive packages in terms of best rental rate, delay commencement date and free car parking.
"Since the incentives are very great, we have seen a lot of movements, especially by larger companies," Steens said, naming Asamera and Mobil Oil among those who have relocated their Jakarta offices.
Steens noted that traditionally, the market for offices has been driven by oil companies. Currently the market is much driven by those in the service sector, including banks, insurance firms, securities firms, brokerage houses and property companies.
He noted that the large demand for office space has also been driven by foreign direct investment in the country, which has increased sharply during recent years.
The government approved foreign direct investment projects worth US$39.9 billion last year, up from $23.7 billion in 1994. During the first four months of this year, foreign investment approvals reached $17.9 billion.
"Even though not all the projects are realized, we still see that there is a direct relationship between foreign direct investment and office space demand," Steens said.
Speaking of the retail market, Julian Rayner, another executive at First Pacific Davies Indonesia, acknowledged that some areas of the city, especially East Jakarta, will most likely suffer an oversupply of retail space.
Retail space supply is projected to increase by 50 percent over the next two years from the existing supply level of some 800,000 square meters. Retail space supply will reach 260,000 square meters this year and 140,000 square meters next year.
On the demand side, Rayner said retail take-ups currently reached 90 percent of existing space. In most retail projects to be completed this year, 70 percent to 80 percent of the space has been precommitted.
Rayner projected that retail rental rates will swing in favor of the tenants.
"At the moment, landlords demand from tenants payment in advance for one year, even when they have not moved in. Now, the trend is changing," he said.
He said average rents are likely to drop from the current level of $75 per square meter a month in the city center and $45 in the suburbs.
He also projected that more and more foreign retailers will enter into the country, either by forming joint ventures with local partners or forming franchise networks here.
Warner Bros of Hong Kong, BHS department store of Hong Kong, Tower Records of the United States and Virgin Records of Britain will possibly enter Indonesia within the next two years, Rayner said.
At present, the Indonesian retail sector is still closed by law to foreign investment. The sector is actually allocated for local small and medium businesses. (rid)