Wed, 18 Oct 2000

Office property sector gaining ground

By Ainur R. Sophiaan

SURABAYA (JP): Although efforts are being pursued for a recovery in the country's economy, they have not produced an encouraging outcome.

The economic wheels in some sectors, especially the property sector, have begun to pick up speed.

Property was the first sector to have been hit by the economic crisis and it has arguably suffered the most since the crisis first struck Indonesia in the middle of 1997.

One area in property that has recovered the quickest has been the office building business. The market in this sector has indicated signs of a rebound since early 2000, the year which has been celebrated and considered to bring good luck in the third millennium.

At least, this indicator was noted very clearly by two office building developers/operators in Surabaya -- PT Dharmala Intiland, which manages Wisma Dharmala Surabaya, and PT Sinar Mas Teladan, which manages Wisma BII Building with a commercial space of 23,216 square meters.

"In terms of macroeconomics, our economic condition, indeed, has not yet recovered. But thank God businesspeople have again shown interest in occupying office buildings, which were left for efficiency reasons at the start of the crisis," A. Adelie, the director of PT Dharmala Intiland, said, adding that it was termed the "back to the office (building)" trend.

Ronny Yostan, the senior property manager of PT Sinar Mas Teladan, also shared a similar view.

He said a trend in market improvement had been seen since the end of 1999 and it would continue to improve until this year.

"If nothing serious affects the economic stability, I'm optimistic that the occupancy rate of some office buildings in Surabaya will increase substantially next year," he said.

Wisma Dharmala Surabaya is projected to reach an occupancy rate of about 80 percent in the first quarter of next year.

"This is a realistic prediction from the current rate of about 50 percent, while there are many new potential tenants who are prepared to join us," Adelie said.

Meanwhile, Ronny expected that Wisma BII, whose current average occupancy rate stands at 65 percent, would regain its occupancy rate of 80 percent before the crisis.

The memory of Wisma BII's occupancy rate dropping to its lowest, 56 percent, due to the crisis, was still fresh in Ronny's mind.

"Some tenants canceled their lease contracts while others failed to extend their lease term.

"They chose to operate their businesses in shop-houses or residences, which have low overhead. And those previously having branches transferred their employees to their headquarters in Jakarta.

With the economic climate getting better, they are returning and many others are reopening their branches," he said.

Wisma Dharmala Surabaya, which was opened in October 1999 when the crisis started to cripple the economy, had to fight very hard to survive.

"We started operating office buildings after waiting a long time, because of delayed construction projects," he said, adding that the property business was very dependent on economic stability.

Safety and image

Governor Imam Utomo briefed businessmen on Friday that the collapse of some 460 companies has caused some 800,000 workers to lose jobs.

Some of the bankrupt firms were Jakarta-based companies having branches in Surabaya.

On the business climate, Governor Imam said many investors and foreign businessmen were doubtful about guarantees for security and political stability, even though Surabaya, in particular, and East Java, in general, were relatively more quiet and stable.

"They tend to generalize. When a bomb went off in Jakarta, they would say that other areas were insecure, too," he said.

Office building operators share Imam's concern about foreign investors' anxiety over security.

That is understood, however, since between 60 percent and 80 percent of tenants in this multistory office building are foreign companies or joint venture firms.

"Foreign investors are usually very concerned about safety and image," said Arief Subagyo, the assistant building manager of PT Dharmala Intiland.

He further said that foreign tenants were generally more cautious before making a choice on the best location.

They usually survey the area months ahead of time. As an example, a foreign tenant usually carefully calculates any risks in the drop/interruption level of electricity or communication lines, water supply, maintenance, 24-hour security and air circulation.

"These realities were carefully considered before we designed the Wisma Dharmala building, which has an open terrace. Tenants can also enjoy sunshine and a view of the sunset," he said.

That was why the building was designed with only 16,500 square meters of space, even though it could have been 20,000 square meters.

Angela Karyadi, the tenant relations officer at Wisma BII, shared the same opinion.

She said the tenants, mostly foreign companies, always put building location and facilities as the top priorities.

"They will check whether it is located in a strategic area which gives them easy access for both communication purposes and business deals.

"They are also very cautious about safety and security measurements. Only after the aforementioned aspects are fulfilled will they assess the available facilities and the competitive base rental and service charge," she said.

Angela and Arief were of the opinion that a stable security and political condition would boost the occupancy rate.

Luckily, the majority of current tenants come from such sectors as information technology (IT) and financial institutions, such as banks, security companies and insurance firms.

"These two sectors currently enjoy a steady and rapid development and have a good company image in the first place," Arief said.

Exchange rate

Compared to conditions in Jakarta, competition among office building operators in Surabaya is relatively normal.

The operators generally set a relatively low exchange rate of the rupiah to the U.S. dollar.

Wisma BII, for example, puts the rate at Rp 4,000 to the dollar with a base rental of US$10 per square meter a month, excluding a service charge of $6 per square meter a month.

Compare that with the rate offered by Wisma Dharmala. This company fixes a rate of between $9 and $25 per square meter a month (based on the level) plus a service charge of $6.50 per square meter a month.

"With this relatively low rate, there are tenants who try to negotiate, including the exchange rate, which is already very low," said Adelie.

Other building operators at the same Central Business District (CBD), such as BRI Tower, Graha Bumi Mandiri, BBD Tower and Gedung TIARA, apply almost the same rate.

Some of these office buildings are enjoying an average occupancy rate of 60 percent.

"Offices in office buildings are always the favorite among foreign tenants, because of easy transportation, information and communication access, and, of course, the company's prestige," said Nonny Subeno, the senior associate director of PT Procon Indah, Surabaya.

Nonny said except for foreigners, having an office in an office building was still too costly for most of the business community in Surabaya.

For them, a reasonable price was important. "However, competition here in Surabaya, I think, is still within the tolerable limit. Of course, the main reason is merely the market mechanism and a balanced supply and demand.

"Moreover, there are new office buildings opening," she said, adding that the auction of the assets of liquidated banks by the Indonesian Bank Restructuring Agency (IBRA) gave another side to the business of office buildings in Surabaya.