Soaring office rental rates 'strangle' tenants

Soaring office rental rates 'strangle' tenants

JAKARTA (JP): The practice of charging office rents in U.S.
dollars in the city's prime areas has driven many tenants to
consider alternative accommodation in shop-houses since the
rupiah plunged in value against the dollar, a firm of property
consultants has said.

PT First Pacific Davies Indonesia said in a statement
yesterday that shop-house developments were usually targeted by
companies which did not require the prestige of dedicated office
premises and had never before been considered a substitute for
prime office locations.

"It is understood that shop-houses are suitable for companies
with a limited target market, while dedicated office space in
prime areas is for domestic and international tenants who can
afford the U.S. dollar rents,' the property consultants said.

However, a sharp drop in the rupiah-U.S. dollar exchange rate
has forced many companies to relocate to shop-houses because
prime area rents have tripled in rupiah terms, the company said.

The rupiah has lost over 70 percent of its July 1997 value
against the U.S. dollar, falling from Rp 2,450 to around Rp
10,000.

The company said that before the crisis hit last year, the
rental rate in an A grade office building in the central business
district was US$16.6, or Rp 41,456, per square meter per month.

Now rents for the same standard of office are approximately Rp
149,166 per square meter, an increase of 260 percent, despite a
10 percent reduction in the dollar cost of the rent, to $14.90
per square meter per month.

"As a result, the occupancy rate has fallen severely, by 80
percent on the average, and it is expected to slip further,' the
company said.

Some tenants have been forced to liquidate their businesses,
while others have focused on minimizing costs in order to survive
the crisis, the company added.

As part of their cost cutting measures, some companies have
opted to move to shop-houses.

"The trend started in December 1997 when the rupiah was at
around Rp 5,000 to the American dollar," the company said,
pointing out that business activities have slowed down
dramatically since then.

The property consultants said that most tenants have shown a
preference for shop-houses located within complexes which offer
more security and provide access to a main road, such as Jl. RS
Fatmawati, Jl. Arteri, Jl. Sultan Iskandar Muda and Jl. Saharjo
in South Jakarta.

"Office tenants are most concerned about the quality and
facade of their property as they want to maintain their
prestigious image," the company said. (aly)