Wed, 18 Oct 2000

Developers wait for normal market

SURABAYA (JP): There are not many office buildings in Surabaya. In fact, you can easily count them on your fingers.

For example, the buildings located in the Central Business District (CBD), or what is known as the "golden triangle" of Jl. Basuki Rahmat, Jl. Panglima Sudirman and Jl. Pemuda, such as Wisma BII, Wisma Dharmala Surabaya, BRI Tower, Hyatt Skyline, Bumi Mandiri (formerly called Bumi Bappindo), Wisma Tiara and BBD Tower.

There are also some located toward the suburbs, such as the newly opened Graha Surya Citra Adhikusuma (Graha SA) in the Gubeng industrial estate and the Graha Pangeran and Graha Jawa Pos on the southern outskirts of the city.

Yet, these two office buildings have been mostly used by groups of companies for their business activities, while the remaining space has been leased or sold.

Nonny Subeno, the senior associate director of PT Procon Indah, which forged a partnership with Jones Lang LaSalle, said the building has a total space of 291,300 square meters with an occupancy rate of about 65 percent.

"In general, this rate of occupancy is good enough amid the prolonged economic crisis," she said.

A report published by Jones Lang LaSalle/Procon Indah Research in June 2000 revealed that their net take-up (the net cumulative increases in space occupied in a particular period) reached 23,600 square meters, a relatively strong rebound achieved in the first half of 1999.

High occupation rates were mostly seen at bigger office buildings, such as BRI Tower, Gedung BUN, Wisma Dharmala Surabaya and Wisma BII.

Nonny said the major dominant tenants over the last 12 months were from such sectors as telecommunications, security companies and foreign banks, but a new trend revealed that airlines, freight forwarders and foreign IT companies would take up more space.

"The majority of them leased an average space of between 100 square meters and 300 square meters, although there are some companies occupying up to 1,000 square meters for their branches. Even the Indonesian Bank Restructuring Agency (IBRA) rents up to 3,000 square meters of space in an office building for its branch.

Developer's reluctance

Timoticin B. Kwanda, a property analyst from Indonesian Real Estate Developers (REI) East Java chapter, said construction of office buildings was a long-term investment needing large capital and complex management. Such a project also needs supporting facilities and infrastructure, such as a shopping center, hotels and banking center.

"That's why developers would think twice before deciding to enter this sector," he said.

For example, he said, of some 200 members in the East Java REI chapter, only four were bold enough to engage in this sector.

In addition to that, they only joined the sector after they received access to a major reliable source of capital and after long experience in the business.

Take for example the cooperation between PT Pakuwon Jati and BBD Tower, Dharmala and Wisma Dharmala Surabaya, PT Sinar Mas Teladan and Wisma BII, and Mulia Group and BRI Tower.

"The break-even point in the office building business is usually achieved between eight and ten years, while in the housing sector it is usually between four and five years," Kwanda said.

Apart from that, the market climate is also not conducive for the office building business.

Most tenants of luxury office buildings are foreign companies, which have put prestige and one-stop facilities as the main priority, while local companies prefer to run their businesses in shop-houses or at residences.

Tenants at office buildings are also generally companies running a service.

"And to be honest, it is a very limited market and that's why middle-scale developers prefer to build shop-houses, which are a more promising market, than office buildings," he said.

Nonny Subeno also conceded that there were many office building projects in Surabaya that were still on a wait list as the owners did not dare to risk starting the projects.

They adopted this stance because of the lack of capital and due to the slow pace of the market.

With the current inflation rate of 3.6 percent and gross domestic product (GDP) growth of 0.54 percent (the national inflation rate is 4.2 percent and GDP growth 0.23 percent), the market condition in Surabaya is still far from being conducive.

"Big developers, especially those based in Jakarta, still adopt a wait-and-see attitude," he added. Unclear regional regulations

Unlike Jakarta, which has relatively well-designed zoning, the physical condition of the country's second largest city is still a mess. Included in this messy state is its office building layout.

"Regional administration lacks a standard policy which can be a reference for both the developers and the market," Nonny said.

Kwanda also gave a similar opinion. The East Java REI deputy secretary said the East Java provincial administration had once drafted a bill for a regulation (Perda) regarding office buildings, which would enable -- or more precisely oblige -- businesspeople to open their offices in office buildings or build their offices in areas allocated for office buildings.

"The administration, apparently, has no clear parameters. And the result is the bill 'evaporating into the air'," he said.

Kwanda said he agreed with the idea of issuing the regulation, "but the administration must work seriously to create a favorable business climate".

"As long as we do not create a conducive business atmosphere, then it is useless to issue such a regulation. Everybody can just build or open offices wherever he or she wants: at his/her house, shop-house or at a shopping center, anywhere. So, let's develop a favorable business environment, then we can talk about regulations," Kwanda said.

The two experts' opinions are quite understandable regarding the fact that the authorities have not been consistent in their plans.

The Surabaya municipal administration once made an astute zoning plan. According to the scenario, Surabaya would be divided into five CBDs, namely the Jembatan Merah CBD, Tunjungan CBD, Basuki Rachmat-Pemuda-Panglima Sudirman CBD, Keputran CBD and the Wonokromo CBD.

"Surabaya's zoning plan had many changes, as if the authorities were adjusting the plan to meet the interests of major investors. For example, office building projects. They were built based merely on the results of market surveys," said Kwanda.

Another point missing from the administration's policy is the building's practicality in relation to parking allocation.

Many office building operators in Surabaya built parking facilities incompatible to the real situation.

Nonny said ideally, the construction of every 50 square meters of office space must be followed with the provision of a parking space for one car (1:50 ratio). "But in reality, in many office buildings the ratio is 1:100. That's why parking lots are jam- packed and many cars have to park outside. I was once informed about an incident in which a Toyota Land Cruiser could not leave the parking area because there wasn't enough space to turn left or right," she said. (Ainur R. Sophiaan)