Retail space market faces oversupply

Anissa S. Febrina, The Jakarta Post, Jakarta

Jakarta will face an oversupply in strata-title retail space by the end of this year with an additional 250,000 square meters entering the market, a property research company says.

"By the end of 2005, supply in Jakarta will be abundant while the demand will decline due to the current economic condition," Jones Lang LaSalle research manager Anton Sitorus said on Thursday.

With several economic turn offs -- particularly higher inflation and increasing interest rates -- the occupancy rate in the subsector, which is aimed primarily at middle-lower bracket customers, is estimated to decline.

The central bank predicts that the country will see double digit inflation until October 2006. The government was expecting a full-year inflation of 8 percent this year and 8.6 percent next year.

Indonesian Retail Merchants Association (Aprindo) reported that small- and medium-scale retailers were hit hard by the high inflation rate, not to mention the planned increase in electricity rates next year.

In the first nine months of this year, developers supplied a total of 791,244 sqm in new strata-title retail space, of which only 72 percent is occupied.

As construction on some trade centers is expected to be completed by the end of this year, there will be a new supply of more than 250,000 sqm.

"Since demand is less, the occupancy level will decline to around 63 percent," Anton said.

Data from Coldwell Banker Commercial (CBC) shows a higher estimated new space of 412,500 sqm by the end of this year.

According to CBC, the new supply will come from the completion of Taman Palem Mall and Mega Glodok in North Jakarta; Lindeteves Trade Center and Gajah Mada Square in Kota, West Jakarta; as well as Pasar Cibubur and Cibubur Point in East Jakarta.

LaSalle's study in the retail space market revealed that vacancies in trade centers was expected to decrease in the next three years with lower supply and increasing demand.

However, it said the occupancy level would unlikely increase above the current level.

In 2002, the strata-title retail space market boomed, with investment in the subsector able to break even in just a couple of years.

However, as more space became available as demand waned, developers have had to work harder to profit.

"They used to only have to sell 60 percent of their projects to profit. Now, they have to sell at least 75 percent," LaSalle strategic consulting and investment head Bayu Utomo said.

"Actually, some trade centers could still have an occupancy rate of more than 80 percent. However, it depends on the location and the scale of the project," Anton added.

He explained that developers should not carelessly pick any location where there was obviously no market and downscale their projects in order to avoid a higher vacancy rate.