Property sector recovery to be led by retail market

JAKARTA (JP): The ailing property sector in the capital is expected to gradually recover this year with the retail market leading the process, according to property consultant Procon Indah/Jones Lang LaSalle.

The company warned, however, that the accelerated recovery to a certain extent would depend on the government's handling of current economic and political issues, including the uneasy development in the banking sector recovery, social unrest and disharmony between the government and the military.

The company's senior manager, head of research, Mina Ondang, said on Wednesday the retail space market had shown a significant improvement in 1999 with a total net take up of 134,704 square meters, compared to the negative take up of 156,964 square meters in 1998.

"The faster turn around of the retail sector is mainly caused by the fact that the retail business, especially hypermarkets, has been growing steadily amid the crisis because people cannot help but keep on buying their daily supplies from these stores," she said.

She said the increased demand on retail space last year resulted in an increase in occupancy levels, reaching 88.2 percent by end-1999 from approximately 80 percent in 1998.

New demand on retail space should continue rising this year in line with the expansion plans of some major retailers and speciality retail chains such as Matahari, Ramayana, Carrefour and Continent, she said.

Mina said a limited confirmed new supply for retail space this year of only about 89,500 square meters, mainly from properties damaged during the May 1998 riots and currently undergoing refurbishment, should drive the occupancy levels above 90 percent this year.

The other sector that has shown significant signs of improvement is the prime office space market, she said, adding that the market had bottomed out in the fourth quarter last year.

"Prime office space booked a total net take up of nearly 6,000 square meters last year after enduring negative take ups in the previous seven consecutive quarters," she said.

She said the sector had recorded a slim increase of 0.2 percent last year in the demand for new premium office space in the fourth quarter to reach 74.5 percent.

Inquiries for strata-title offices have increased following the relatively smooth presidential election last October, she said.

Mina said the demand on premium office space was expected to slowly improve this year to reach the pre-crisis level of close to 200,000 square meters in the next three or four years.

Business expansion of trading, insurance, securities and information technology would be the demand generator in 2000, she said.

"We have only one transaction on strata-title office space in Jakarta underway so far this year. Four others are expected to proceed later," she said.

She said there were actually a lot of foreign buyers interested in local properties, most of which were currently under control by the Indonesian Banking Recapitalization Agency (IBRA), but who had not pursued them because IBRA had set quite a high price.

She said premium office spaces which were not under control by IBRA were currently traded in rupiah between Rp 7 million (US$965) and Rp 8 million in average per square meter, compared to the pre-crisis rate of $2,000 per square meter.

Mina predicted that no new supply in prime office space would take place in the market until 2002 or 2003 since the sector was still facing an oversupply of about 735,000 square meters.

She said the gross rental fee for the premium office market would possibly increase this year in line with the government's plan to raise electricity tariffs in April. (cst)