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)