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.