Oversupply of office space taking its toll

Oversupply of office space taking its toll

JAKARTA (JP): A huge oversupply of office space in the capital
is forcing building owners to exercise a great deal of
flexibility in quoting rates to absorb the shrinking market,
according to property consultant PT Procon Indah.

Procon, in association with Jones Lang Wootton, said on
Wednesday that the oversupply might reach about 853,400 square
meters by the end of the year, resulting in an average occupancy
rate of 71 percent.

Procon Director Luke Beadle said the continuing sluggish
market had compelled some commercial property operators to lower
their U.S.-dollar denominated rental rates.

But many others were resisting compromising as they were still
burdened by foreign debts run up while developing the buildings,
he said.

He cited the differences underlying the financial structures
within the commercial business district markets in Jakarta.

"At one end of the spectrum you have buildings constructed
with pension funds without any loan exposure, and therefore
viewed in a different way than a developer who may have had to
borrow money to construct a commercial building," he said.

The former had greater financial flexibility, and thus could
secure a number of tenants in the first eight months of the year
by offering extremely lower base rentals and service charge rates
for longer periods of time.

This benefited many foreign and joint-venture companies with
either U.S. dollar incomes or long-term commitments in Indonesia,
he said.

"In many cases, they are taking the position that now is the
best time to commit long term to premises that perhaps in the
past would have been unaffordable for their business," he said.

This would allow the companies to reduce bottom-line
occupation costs and increase the quality and efficiency of their
operational office space, he said.

Grade A prime buildings such as the Jakarta Stock Exchange
building, Sentral Senayan, Plaza Mutiara, Arkadia Office Park,
and Deutsche Bank had reduced their U.S. dollar rental rates
significantly to attract tenants with U.S. dollar-based income
that "12 months ago would not had been able to consider such a
move."

However, not all building owners exercised greater
flexibility with existing or new leases, Beadle said.

"At the other end of the spectrum, a number of groups are
maintaining their U.S. dollar-based rentals and service charges,
preferring vacancies to rupiah," he said.

Some landlords were not even willing to compromises on service
charges, it said, leading to the mass exoduses.

"A number of tenants have actually closed down operations,
hoping to walk away from existing leases," he said, adding that
some of the leases were not due to end for many years.

He said some landlords were currently in the process of
pursuing such tenants legally, but they were concerns about how
the country's existing court system would deal with the landlord-
tenants dispute, he said.

"As in other similar contractual disagreements currently being
worked through, clarity is difficult," he said, citing state-
owned electricity company PT PLN's current disputes with
independent power producing partners as an example.

PLN is currently seeking renegotiations of power purchase
contracts with its private partners.

Procon also estimated that much of the projected future supply
had been canceled, and no projects were expected to be completed
in 2000. (das)