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.