Jakarta may be hit by oversupply of retail spaces

JAKARTA (JP): An international property consultant warns that an oversupply on certain types of retail spaces may hit the city and only those with sound fundamentals will continue to perform well.

In its latest report on the city's retail sector, PT First Pacific Davies Indonesia, says the amount of retail space will continue to increase so greatly in the next two to three years that it may lead to an oversupply of retail spaces in the city.

"First Pacific Davies believes that this is partly true in that there is likely to be an oversupply in certain types of retail, but not all," it says.

It projects that by the end of this year, the total supply of Jakarta's retail spaces will have reached 1.1 million square meters. About 38 percent of this will be less than two years old and just over 60 percent will have been completed in the last five years.

"This means that the majority of Jakarta's retail property stocks are relatively modern," the report says.

In 1996, the company predicts, the supply of new retail space will amount to 213,195 square meters (sqm), including Mal Taman Anggrek in West Jakarta with a net rentable area of 95,000 sqm, Mega Mal Pluit in North Jakarta with 90,000 sqm, Mal Depok in Bogor -- 25 kilometers south of Jakarta -- with 24,195 sqm and Plaza Festival in South Jakarta with 4,000 sqm.

In 1997, another 145,000 sqm of retail spaces will enter the market. They consist of Ambassador in South Jakarta with a net rentable area of 15,000 sqm, Mal Pejaten in South Jakarta with 29,000 sqm, Plaza Depok with 8,000 sqm, Mal Puri Indah in West Jakarta with 60,000 sqm and Mal Daan Mogot also in West Jakarta with 33,000 sqm.

In 1998, there could be up to 200,000 sqm of new retail space, including Senayan Square with a net rentable area of 20,000 sqm, Mal Ciputra with 75,000 sqm, Plaza Sudirman with 35,000 sqm, Plaza Kota BNI with 35,000 sqm, Plaza Kasablanca with 75,000 sqm -- all in South Jakarta -- Cempaka Mas in East Jakarta with 65,000 sqm and Plaza Modern in North Jakarta with 13,000 sqm.

In addition to the above-mentioned projects, several other developments are on the drawing board and may be completed in 1998 and 1999. However, owing to strategic, financial or technical reasons, these are not definite or may be delayed indefinitely, the report says.

"This situation is unlikely to ease in the near future. Its effect will be to delay development proposals and thus deter future supply," it adds.

Demand

On the whole, demand for space in most modern shopping centers is high, the report said, adding that the strongest demand comes from restaurants, snack and fast-food operators.

A larger contribution to overall demand is being made by new retailers in almost all sectors, from books and electronics to hardware and toys.

However, demand for fashion stores aimed at the middle-upper and upper market segments may decrease in the future due to a proposed legislation to protect local retailers from being overcome by foreign ones and problems arising from under- performing stores.

When demand from some sectors decreases and an oversupply of retail space really occurs, First Pacific Davies predicts that only modern shopping centers with sound fundamentals will continue to perform well.

It defines such fundamentals as a proven need for modern shopping facilities, a large enough catchment population with a sufficiently high capability to spend, an accessible site, a good design, an appealing mix of tenants and capable management.

First Pacific Davies believes that many of the centers currently in operation or under construction are deficient in one or more of these areas.

"Moreover, due to substandard management, they could quickly become old-fashioned, unattractive and increasingly obsolete," it said, adding that the number of modern shopping centers having sound fundamentals remain fairly small.

Shopping centers with sound fundamentals will be able to offer a high rate of rents. Plaza Indonesia in Central Jakarta, for instance, commands more than US$150 per square meter per month for its best units.

Meanwhile, prime rents for specialty units currently range from $45 in new suburban shopping centers to $80 in new city centers.

For department stores, rents are much lower, ranging from around $6 per square meter per month up to $9.

Asking rents for new centers have been constant over the last year and should remain at their current level for the foreseeable future. Rents for newly-negotiated units in the existing centers, however, have increased quite sharply in some cases, says First Pacific Davies.

It states that occupancy levels in most modern shopping centers are very high, averaging between 90 percent and 95 percent.

Because demand from specialty retailers is strong, malls which are currently under construction are also achieving high levels of precommitment, which can be as high as 85 percent for malls due to open soon. (rid)