Property firm says business district hardest hit in crisis
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)