Office space occupancy rates fall to 80 percent in Jakarta's CBD

JAKARTA (JP): Office occupancy rates in the Jakarta commercial business district (CBD) dropped to around 80 percent or 2.27 million square meters by the end of September, compared to 84.4 percent in the second quarter of this year, according to a firm of property consultants.

In a biweekly report, Procon Indah and its partner, Jones Lang Wooton, said the office market in the CBD area had suffered the decline as the result of a drastic drop in demand for office space combined with an increase in supply.

"Companies predominantly from finance, insurance, oil, telecommunications and other service sectors... reduced space by 20 to 30 percent from previous tenancies," the company said.

It said vacancies had risen by 4.4 percent over the third quarter of 1998 to about 568,700 square metres or 20 percent of the CBD's total office space.

Based on the contraction in the economy, the amount of occupied space is projected to decline by a further 135,000 square metres by the end of the year and by a further 85,000 square metres next year.

Continuing rationalization, downsizing and relocation strategies implemented by many companies will result in a further increase in vacancies to 25 percent by the end of this year, then to 31 percent in 1999 and to 32 percent in 2000.

Increasing vacancies and deteriorating demand has forced a further decline in rental rates.

The vale of rentals dropped by 9.1 percent in rupiah terms over the third quarter.

The majority of grade A offices now offer monthly rents ranging from US$11 to $15 per square metre at fixed exchange rates of between Rp 4,000 and Rp 5,500 against the dollar.

Grade B and C offices continue to be offered for monthly rents of between $9 to $12 per square metre at the same fixed exchange rates.

Some grade A offices are now offering rents quoted in rupiah ranging from Rp 60,000 to Rp 80,000 per square metre per month.

The company said service charges characteristically remain at US$6 to $7 per square metre per month, which again are levied at similar fixed exchange rates.

Some building owners are also offering service charges in rupiah at levels ranging from Rp 25,000 to Rp 45,000 per square metre per month.

Shorter lease terms of two to three years are being offered for renewals and quarterly payment terms can be negotiated, the report said.

Almost all existing strata-title offices are now priced in rupiah and the average asking price for such accommodation has fallen by between 10 percent and 15 percent over the past quarter. Strata-title offices can now be found for between Rp 8 million and 11 million per square metre.

In U.S. dollar terms, strata-title rents have fallen in price by between 50 percent and 60 percent on their pre-crisis levels.

Industrial space

Separately, another firm of property consultants, Colliers Jardine Indonesia, said the industrial property market remained the most active.

The company's managing director, Piers Brunner, said Indonesia was extremely competitive and in this market and the low cost of acquiring property here made investments a very attractive proposition.

The capital cost of establishing an industrial facility in Greater Jakarta costs one-eight per square metre of floor space than it does in Sydney and Manila and one-thirtieth of what it costs in Taipei, Brunner said.

"Our observations are evidenced by a number of transactions we have concluded," he said.

In the last few months deals closed include leasing 24,000 square metres of land with a 7,000 square meters factory building to an American automobile component manufacturer, and a 55,000 square metre plot of land with an 8,000 square metre facility to a Taiwanese investor, he said.

Both transactions were concluded in the secondary market, which Brunner said was more active because of its realistic pricing and flexibility in negotiations.

Procon said investment in office space had remained sluggish because owners had not been prepared to dispose of their properties at the currently depressed values, despite the great interest shown by prospective foreign investors.

It estimated average capital values to have fallen by 30.7 percent from Rp 9.7 million per square metre in June to Rp 6.7 million per square metre in September. In dollar terms, this represents a 72.2 percent drop in capital values from pre-crisis levels. (das)