Developers wait for normal market

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)