The long and winding road

The long and winding road

By I. Christianto

JAKARTA (JP): The office market in the capital's Central
Business District (CBD), which was badly hit by the economic
crisis, is on a long and winding road to recovery.

The reluctance of many office building owners and operators in
CBD, also known as the Golden Triangle, to share their
experiences in the business shows that they are over cautious of
their rivals and do not want the public to know the real
condition of this sector.

The office building owners and operators sometimes, by
displaying a full list of tenants at the lobby, deceive the
public into believing that there is full occupancy at their
properties.

The property sector was the first sector to be affected by the
economic crisis that hit the country in mid-1997.

The country watched the sector falling into doldrums in the
following years. As a result, many firms defaulted on their debt
payments. Banks were forced to transfer the assets of heavily
indebted property developers to the Indonesian Bank Restructuring
Agency (IBRA).

Property and real estate consultants believe that office space
leasing in CBD, which covers Jl. Thamrin, Jl. Sudirman, Jl. Gatot
Subroto and Jl. Rasuna Said, will remain relatively sluggish
while vacancies will be high.

The latest report of the Center for Indonesian Property Study
(PSPI) shows that the vacancy level of office buildings in CBD
was 34 percent in 2000, slightly down from 35 percent in 1999.
PSPI predicts the figure will reach 32 percent this year.

According to the report, at the end of last year, office stock
in Jakarta stood at 4.56 million square meters, with 3.24 million
square meters in CBD and 1.32 million square meters outside CBD.

Out of 3.24 million square meters of office stock
in CBD, only 66 percent or 2.14 million square meters were
occupied as of the end of last year.

This year, there will be a new 19,000-square-meter office
space in CBD with the completion of Menara Jamsostek on Jl. Gatot
Subroto. Estimated total stock this year is 3.55 million square
meters, while take-up or occupancy is estimated to grow to 68
percent with some 1.03 million square meters space vacant.

Monthly rental rates of Jakarta's CBD offices will also remain
at some Rp 67,500 or approximately US$8 (with an exchange rate of
Rp 8,500 per U.S. dollar) per square meter. In 1999, the rate was
$9.

Figures of non-CBD office buildings are better. The occupancy
level is estimated to reach 80 percent this year from 74.6
percent in 2000. Monthly rental rates in this area is expected to
reach Rp 61,500 or approximately US$7.

Strategies

Office buildings in CBD also face another challenge: over
supply.

The average occupancy level in the sector increased by only
0.32 percent to 66.2 percent last year from 65 percent in 1999,
according to PSPI. For comparison, the occupancy level of office
buildings outside CBD rose to 74 percent, on average, last year
from 70 percent in 1999. This is because they absorbed those who
quitted their space in CBD.

The over supply and low occupancy levels have led to a
significant decrease in rental rates in CBD. This is also due to
the fact that many companies have consolidated and moved to
locations offering cheaper rates or to their headquarters in
other areas.

During the economic crisis, many tenants had difficulties
continuing leasing spaces in CBD because of their financial
problems. Most of them relocated after their leasing period
expired. To keep their businesses alive, they moved to shop
houses or lower grade commercial office buildings.

Thus, most owners or operators of office buildings in CBD have
taken measures to attract tenants and maintain existing ones.

Wisma Dharmala Sakti, for example, boasts as the only artistic
office building in CBD in terms of architecture and facilities.

"Dharmala Sakti, has a very accessible location. In addition,
their leasing rates are competitive," said Lukas Bong of
PT Dharmala Intiland, a company which owns the office building.

He said most office buildings in CBD offered facilities like
restaurants and banks, competitive leasing rates, which are
usually quoted in rupiah, and a good location.

"So each of them are now trying to provide something different
for their tenants. Dharmala hosts regular events related to the
arts, just as the building reflects art," he said.

For MidPlaza, another office building on Jl. Sudirman,
information technology and communications system-based facilities
are the key words for the tenants. Therefore facilities related
to IT are used for a competition edge in the sluggish sector.

Mulia Group which manages dozens of office buildings adopts a
unique approach. Each of the property they operate is run by a
separate management team. Therefore tenants will always get the
best service.

Strata-title

Besides leasing their office spaces, Jakarta's CBD strata-
title office buildings also face other challenges.

However, one strata-title office building, Menara Imperium, is
not facing much difficulties as most of its spaces were sold
before the economic crisis began.

Building manager of the Tenant Association of Menara Imperium
Tom F. Chandra, said most spaces at the building were occupied.

"If there are vacant spaces, it is primarily due to businesses
that have closed down. For instance there was a defunct bank
which was taken over by IBRA," he said, adding that current
occupancy level of the building is 2 percent.

PSPI said selling rate for Jakarta's CBD and non-CBD strata-
title offices remained at Rp 7.6 million or $880 (with an
exchange rate of Rp 8,500 per US dollar) per square meter.

The selling rate at Menara Imperium, which was opened in late
1996, is Rp 10 million per square meter due to its competitive
advantages, which includes its service and modern architecture.

Strata-titled office buildings may also face a problem when
owners lease a purchased space to a third party without notifying
the management.

The capital's office market will survive as there are signs of
recovery but the road will be long and windy. Building owners
would have to work harder if they want to reverse gloomy
forecasts that although the economy is predicted to grow over 4
percent this year, occupancy levels of office buildings in CBD
will be low this year.