Property firm says business district hardest hit in crisis

JAKARTA (JP): The office market in the capital's central business district (CBD) has experienced the most severe adverse impacts of the monetary crisis, in terms of decreasing occupancy and rental rates, property consultant Procon Indah said yesterday.

Procon Indah, in cooperation with Jones Lang Wotton, said in the April edition of its Property Market Outlook that the average market occupancy rate decreased from 91 percent to 86 percent as of the end of last month, a much bigger drop than other property sectors.

Average office occupancy decreased 80,305 square meters during the first quarter -- the first negative growth in new demand since 1990 -- making a total vacant office space of 383,280 square meters.

"This reflects the fact that tenants are reducing in size and surrendering previously leased space ... Some companies have even vacated CBD office buildings to take up space at project sites or in shophouses," Procon said in the report.

The CBD is Jl. Sudirman, Jl. Rasuna Said and the area between the two streets in South Jakarta.

Procon research head Bayu Utomo predicted that office occupancy would decline by a further 110,000 square meters by the end of this year, meaning the average occupancy rate decrease to 77.5 percent by year end.

"Negative take-up is predicted to continue through 1999, with the prospects for recovery being in the hands of policymakers," he said.

Average occupancy rate is projected to drop to 72 percent in 1999.

Such a gloomy situation would pressure owners of office buildings in the CBD to further cut their rentals in both dollar and rupiah terms just to keep their existing tenants.

Average face rents in a basket of selected existing buildings decreased 18 percent to US$11 per square meter per month over the quarter.

But in terms of dollar value, based on the quarter-end exchange rate of Rp 8,325 per U.S. dollar, average rents dropped 48 percent.

Susan Pranata, a Procon Indah director for office leasing, said most office buildings in the CBD continued to offer face rentals in U.S. dollars but with a fixed exchange rate of between Rp 4,000 and Rp 6,000 to the dollar.

Because of the worsening situation, Susan said, several major office properties were being offered for sale and the interest from prospective investors was quite high. However, no sales were completed during the first quarter because of the differing price expectations from sellers and potential buyers.

Sellers were expecting capital values of $1,650 per square meter on average, a discount of about 25 percent from the pre- crisis level, but investors were seeking discounts of at least 40 percent.

"Sellers do, however, appear to be becoming slightly more realistic and transactions could well happen in the second and third quarters of this year," she said.

Susan predicted that more office properties would be offered for sale as the impacts of declining revenues, falling occupancy and sharply higher interest rates had started to bite.

The crisis has also affected the "metropolitan" office market, namely properties outside the CBD.

Here the average occupancy rate is projected to drop from the current 86 percent to 74 percent by year end.

Building owners would be forced to further discount rental rates to retain existing tenants and secure new occupiers.

Face rents decreased 25 percent to $7.18 per square meter per month but in U.S. dollar terms this represented a 56 percent decline as most owners fixed their exchange rate below market value.

Apartments

The Jakarta apartment rental market, however, continued to experience positive take-up, although it declined 42 percent in the first quarter to only 193 units.

Overall tenant-occupancy levels in the rental market declined from 72 percent to 68 percent by the end of March, mainly caused by additional supply and the termination of leases by expatriates.

Occupancy is predicted to decline further to 65 percent by year end.

This particular market saw 5,415 new units come on to the market during the quarter, at Menteng Park Apartment in Central Jakarta and Plaza Senayan Apartment and Aston Lippo Sudirman, both in the CBD area.

The overall supply of units available for rent increased from 12,263 units at the end of last year to 13,170 at the end of March. This figure, however, does not include an estimated 7,755 strata-title units offered for lease by individual owners.

Downward pressure on rentals is therefore likely to continue to be strong due to increased supply, competition from strata- title owners and declining demand.

Several purpose-built rental apartments in prime residential areas reduced their base rents by 25 percent for two-year leases.

Pressure was also felt by owners of strata-title condominiums. Sales activity dropped 27 percent, with 444 strata-title units sold during the quarter. Of this, 334 units were sold to a single investor, Procon said.

Of the remaining 110 individual sales, 90 units was in upper- middle and upper price segments.

Strata-title condominium sales in the lower-middle segment were subdued because of the unavailability of mortgage financing. Even those who had committed to buy strata-title units canceled their plans because they could not secure financing.

"Many developers are now offering attractive financial incentives, such as cash discounts, lower exchange rates for units sold in U.S. dollars or rupiah pricing," Procon said.

Prices of condominiums in dollar terms decreased 20 percent to 25 percent over the quarter.

Retail

The continued decline in consumer spending caused a sharp decline in overall occupancy in the retail market.

Average occupancy fell from 90 percent to 84 percent over the quarter and is projected to decline further to 81 percent by year end.

Overage rentals declined 44 percent in dollar terms. Owners of existing retail centers were temporarily adopting fixed exchange rates of between Rp 2,700 and Rp 3,200 to the dollar to retain tenants.

The industrial estate market also experienced a drastic slowdown. Sales of industrial estate units were very minimal.

"We found that investors continue to delay industrial investment decisions in response to slow government action on political and economic reform," Procon said.

Demand for industrial estate land is expected to continue to slow this year. Annual demand is predicted to decline 80 percent, and cumulative take-up is projected to decline to 77 percent by year end. (rid)