Good infrastructure no longer enough to attract new tenants

I. Christianto, Contributor, Jakarta

Searching for a site for a factory or plant involves a mix of corporate strategy, business consideration and other factors, which may or may not relate to commercial considerations.

For example, existing infrastructure, the supply of raw materials, housing for employees or the distance to a golf course are all factors that will help lead an investor to select a particular area for a factory.

Industrial estates in Indonesia, particularly those in Jakarta and the surrounding areas of Bogor, Bekasi, Tangerang, Serang and Karawang are making their utmost efforts to attract tenants amid the continued sluggish demand.

Competition is growing, though it is no longer focused on infrastructure but more on value-added services such as convenience and security.

For example, Suryacipta Swadaya, which operates a 1,400- hectare industrial estate in Karawang, promises efficient and hassle-free industrial establishment in addition to well- developed infrastructure.

"As all sites on our industrial estate possess genuine land titles, no land acquisition or location permits are required for new factories," said Karel Walla, Suryacipta's director for estate management and development.

He said the estate's well-established infrastructure guarantees reliability and convenience for its tenants.

Lippo Cikarang, one of the country's largest and most- comprehensive urban-cum-industrial developments, also provides high standards, environmentally friendly facilities and infrastructure to investors.

To meet the growing demand from investors, Lippo Cikarang have launched three industrial estates including Delta Silicon, which offers industrial plots from 3,000 square meters up to 10 hectares, Delta Technology Center, which features ready-built factories, and Multiguna Niaga, which offers smaller-sized ready- made factories.

Like the two major industrial estate developers, Jababeka, which operates a 2,970-hectare industrial plot also in Cikarang, and Bekasi, it not only offers adequate infrastructure facilities but also promises a convenient plant for investors and workers living in the area.

Agus Canny of PT Kawasan Industri Jababeka said that in the first five to seven years of operating, his company found infrastructure was the major concern for prospective tenants.

But he said that as good infrastructure facilities have become the standard requirement, an industrial estate developer should be able to provide other incentives to win the hearts of investors.

"Competition focuses more on 'software', not on 'hardware' anymore. To a certain extent, anchor tenants will also be given the competitive edge at industrial parks," he said.

According to Agus, Jababeka always tries to provide a good business climate for both existing and new tenants.

There are at least 40 industrial parks covering 20,000 hectares along the Jakarta to Cikampek toll road, and another 40 industrial estates covering 8,600 hectares in the Jakarta to Serang area.

Investors and industrialists are also familiar with Cilandak Commercial Estate, Pulo Gadung, Pluit Distribution Center, Kawasan Berikat Nusantara, Balaraja Industrial Park, Taman Tekno Bumi Serpong Damai, Cipta Cakra or Krakatau Industrial Estate.

Some of the industrial parks have stopped marketing because they claim they are fully occupied. There are also new projects under construction.

Although there are indications of an improvement in business confidence in the country, the construction of new factories remains at a low level.

Property consultant PT Procon Indah said the lack of improvement in the general political situation along with the perceived legal uncertainties for foreign investments in Indonesia would continue to hamper demand for space on industrial estates.

The consultant said demand for large industrial land plots was expected to remain weak, and as a result, an increase in the price of land in the primary market was unlikely in the short term.

Continuing negative sentiment among foreign investors in the country had impeded property demands. The level of foreign direct investment approvals in the first five months of the year plunged to US$1.67 billion, 60 percent lower than the total level of foreign investment approvals last year.

Security problems, labor conflicts and a weak legal system have discouraged foreign investors from returning to the country.

In its latest report, Procon said there was no new supply entering the industrial estate market in Greater Jakarta during the second quarter of this year, with the total cumulative supply remaining at 6,469 hectares.

The future supply of industrial land in 2002 and 2003 is expected to come from four projects, Cikupamas 2 (Tangerang), Delta Silicon 2 in Lippo Cikarang (Bekasi), KBN Marunda (Jakarta) and Techpark Cikarang (Bekasi), and will add 104 hectares in 2002 and 150 hectares in 2003.

Take-up in the second quarter reached 9.9 hectares, which was only 2 percent higher than the same period last year and about 29 percent lower than the last quarter. The cumulative sales rate improved slightly to 71.8 percent.

Procon said all the land transactions were of relatively small-sized premises (1,000 square-meters to 12,000 square- meters), and most were made by local investors.

The average price of industrial land, in rupiah terms, slightly decreased by 1 percent to Rp 315,000 per square-meter, said Procon. As a result of the rupiah strengthening against the U.S. dollar by 10.6 percent over the reviewed quarter, the dollar price rose by 9.5 percent from US$33 per square meter to $36.1 per square meter.

The average base rent of industrial buildings remained unchanged from the last quarter, ranging from between Rp 10,000 and Rp 22,500 per square meter.