Office properties show signs of recovery

Office properties show signs of recovery

Although the demand for offices in East Java remains
relatively low, recent market trends in this sector have been
encouraging.

According to the East Java chapter of the Indonesian Real
Estate Developers Association, the demand for offices in the
province has shown signs of recovery in the last few months.

"It's obviously a good trend for the business. Hopefully, this
will remain so," said the association's chairman, Gatut Prasetyo.

Gatut said that in 1995, two years prior to the economic
crisis, there was about 119,000 square meters of office space
available on the market. At that time, the average occupancy rate
was 67 percent.

The economic crisis, which hit the country in late 1997, dealt
a major blow to the property sector. The office market plunged,
with the occupancy rate declining to 40 percent, its worst ever
level.

At the time, many local occupants moved out of their offices
to cheaper shop houses, while many foreign tenants, the main
market for offices in the province, closed their businesses due
to the uncertain business climate.

Gatut said the province's property market had been much
healthier in recent months. Offices have shown a slow-but-sure
tendency toward recovery. With the total supply of about 293,000
square meters of office space and an occupancy rate of 60
percent, the office-building business has started to move again.

Gatut said that many developers have started to build new
office buildings to anticipate a rebound in the property business
sector. "If the economic situation continues to improve, offices
will reach their highest level since before the crisis," he
explained.

However, as Gatut said again, it remains a big challenge. The
important question to ask is whether the supply will exceed
demand for office space. Answering this question is not easy
because the management of many buildings are now counting on
foreign tenants more than local tenants.

Luring foreign tenants is heavily influenced by the country's
investment atmosphere in terms of business certainty, security
protection and law assurance.

Local tenants, according to Gatut, prefer shop houses as they
are more functional, efficient and simple, in addition to the
fact that businesspeople can also obtain ownership rights for a
shop house. Based on his observations, only a few local tenants
want to move back to multi-storied office buildings, which
provide a more complete infrastructure.

In addition to the workings of the market, the business of
office building is also related to policies set by the city
administration. According to Gatut, in Jakarta and other big
cities abroad, there are laws that strictly regulate zoning for
office, housing and industrial areas.

"In Surabaya, zoning remains confused. Offices can be built
anywhere. Even the city administration reckons that businesses
will suffer losses if the zoning regulation is forcibly applied,"
he said.

If there are no regulations applied, mapping and zoning for
developing areas will be left in a state of disorder. In his
opinion, the city administration should draft a city regulation
with detailed plans and designs on the central business district.
"Instead of thinking about planning the city for the future, many
members of the city administration and some assembly members are
too engaged in their own political battles," he lamented.

Along with a good land-use plan for the city, Gatut added,
infrastructure should also become centralized. In Jakarta, for
example, office buildings in the golden triangle area of Kuningan
already have a centralized infrastructural system starting from
the disposal of garbage and sewage.

That way the developers do not need no concern themselves with
building the facilities themselves. They just pay a contribution
to the city administration. "In Surabaya, we can only dream of
having a centralized infrastructure network. Once in a while we
talk about the matter, but then it vanishes," he said.