Colliers presents an overview of Jakarta’s office, apartment, retail, industrial estate, and hotel markets in its Quarterly Report Q2 2021.
Colliers states that the office sector in the Indonesian capital is prioritising tenant retention. Significant disruption to occupier demand has continued to swing in favour of the tenant market for the time being. Overall, the outlook for the year remains uncertain, considering uncertainties and underlying risks remain.
Some project completions were postponed due to construction delays, financing, or market conditions. The additional office supply in the CBD is also estimated to be relatively limited in the next two to three years.
The completion reschedule is indicative, giving construction activity continues to be impacted significantly during the second wave of the pandemic. Although the supply pipeline is relatively limited, at least for the next two to three years, several potential projects are currently in the planning stages.
The average occupancy rate has continued its downward trend. In the CBD, the average occupancy rate was at 79.2 percent in Q2 2021, a drop of 1.1 percent quarter-on-quarter and marks the first time the average occupancy rate in the CBD has fallen below 80 percent. Colliers expects the rate to decline up to the end of 2021.
Outside the CBD, the average occupancy rate was at 78.4 percent, a drop of 1.2 percent QOQ. Conversely, a relatively larger additional supply outside the CBD may result in a continuation of the decline in the average occupancy rate by 2-2.5 percent by the end of 2021.
On the flipside, Colliers noted that there have been several large-scale office tenant space reductions by companies in the insurance, technology, services, hospitality, travel, and retail industries. This does not mean a decrease in business performance, but is due to cost efficiencies.
Coworking space is also being re-optimised as a business model. Currently, several big players in the coworking space business are reducing expenses by seeking early terminations or renegotiations with landlords, especially in terms of lease periods.
However, the future of coworking space is expected to brighten because many companies impacted by the pandemic will adopt greater business flexibility in the future.
The current average rent in the CBD is Rp249,537. Colliers noted around 15 percent of total operating office buildings have reduced rental rates, which are forecasted to continue to decline.
Away from the CBD, the average rent has increased to Rp185,447 in Q2 2021. This growth was due to the operation of new office buildings that set higher rents than the market average for the area outside the CBD.
The average selling price is still relatively flat, in line with very low sale transactions recorded so far. Landlords or unit owners seem to be waiting for the right time to act. The average selling price is at Rp54.4 million in the CBD, and Rp35.1 million outside of the CBD.
Average selling prices are expected to be relatively stable up to the end of 2021. The leased office market is expected to improve after 2022, and likely will have an impact on the strata market.
Apartment and Expatriate Housing
More units can be completed this year but are still limited due to the rise in COVID-19 cases. Colliers predicts there will be more completed units in the third and fourth quarters of 2021, as the government has extended the VAT exemption on existing ready-to-use projects with prices below Rp5 billion until December 2021.
Developers will continue to have difficulty in raising their asking price, however. Not to mention that the number of COVID-19 cases in Jakarta is alarming, making consumers more cautious than before as conditions become even more uncertain.
Although Colliers predicts there will be more units completed this year, some delays on many projects will most likely occur. The Emergency PPKM is a temporary setback.
However, Colliers remains positive in the long-term outlook with visible, large, underlying housing demand from the rise of a young, middle-class population together with improvements in the global economic recovery, thus will support sales in the medium to long term.
Developers are tending to extend their programmes from last year; they have found this more effective to boost sales, especially for under-construction projects. For completed projects, they give additional discounts and gimmicks for customers too.
In general, only 575 units were sold until the first period of 2021. Most sales in this quarter were from completed units, but the number remains insignificant for the overall market.
For the first time ever, no projects raised their asking price in this quarter. Thus, the asking price remains at Rp35 million (+0.0 percent QOQ or +0.16% YO percent).
Many factors affect this; from the weaker sales performance to pressure from the VAT incentive programme that makes them unable to increase their asking price. In addition, tough competition from secondary properties also affects the stagnation of prices.
In the longer term, apartment prices in Jakarta should get back on track to the economic trend line growth of 4-5 percent per annum. This medium- to long-term forecast should hold if there are no returning waves of infections globally or serious political fallout in Indonesia.
Moreover, no new serviced apartments were completed. Thus, at the end of June 2021, the cumulative supply of serviced apartments stood at 6,221 units. Jakarta is expecting to see eight serviced apartment projects, totalling 1,189 units, in the next two years.
Serviced apartments seem to be struggling to fill their vacant units, especially with an extremely limited number of new expatriates entering the country. Leasing activity has come to rely on local demand, especially leisure travellers who spent the Eid al-Fitr holiday in serviced apartments due to the government prohibiting people from going outside Jakarta. Overall, the occupancy rate continues to record an upward trend, albeit at a moderate pace.
In terms of rental rate, all of the serviced apartments in Jakarta maintained steady rates and thus the average rental rate remained the same, at Rp398,731 per sqm per month in the CBD and Rp364,025 per sqm per month in South Jakarta.
The expatriates who newly arrived in Indonesia usually just came for site surveys before their working period starts. Only very few of them came and started their work right away, and most have not brought their families. Companies have urged them to come alone since it is too risky and too costly to bring a family in this current situation.
For expatriates who were already in Indonesia before the pandemic hit, most of them have renewed their current homes or have moved out to a different property. Regarding price, it is case by case.
In more popular areas, the asking price still sees a small rise; while in less popular areas, the price tends to decrease. Many companies have tightened their budgets, either by limiting the rental budget or limiting the number of family members that come. As a result, some current expatriates have moved out to smaller units too.
Jakarta’s industrial estate sector shows no signs of recovery in its sales performance. Sales volume may just be fair in number, but potential enquiries may still occur from traditional sectors like automotive, food, and logistics, not to mention other opportunities from rising data centre and high-tech industries.
The strategy to broaden industrial areas is necessary in this current sluggish market in anticipation of the rise of industrial sectors. Colliers thinks that the industrial market has touched the bottom of the cycle and will move on to the recovery phase once the pandemic can be contained and the economy starts to accelerate.
Land expansion continues, however. For example, Modern Cikande in Serang area reported the addition of a ready-to-build land parcel of circa 80 hectares. This basically reflects the optimism of the industrial outlook in that area.
The operation of elevated toll ways along with the existing highways connecting the capital to other cities in the eastern part of Java island should give better access for the distribution of goods. This also creates opportunities for industrial areas to grow, not only until Karawang or Purwakarta, but also to Subang, where the future main port of Patimban is underway.
In general, landlords have maintained prices and made them even more negotiable during transactions. Since 2020, the industrial market has been shadowed by rising concerns over the economic growth and particularly concerns over the pandemic, which have created a wait-and-see situation.
Colliers noticed certain industrial estates have lifted their asking price in response to the land scarcity and the prospect they have over potential enquiries in the future. For example, one industrial estate in Bogor adjusted its price due to a shortage in inventory by as much as 16 percent.
Landlords are able to consider creating more open-air spaces at malls to offer retailers the opportunity to do business there. Consumers tend to feel safer gathering outside with their friends and family compared to remaining in a closed environment too.
Temporary tenants or pop-up stores in a mall, preferably near residential areas, seem to be the solution due to lower financial risk. Fashion, cosmetics, personal care, books, toys, and food and beverage are among those who are increasingly in favour of this pop-up store concept.
It is undeniable that the pandemic has had an impact on shopping centre construction activities, especially in Jakarta. Three malls are expected to be completed in the remainder of 2021, which will bring the total retail supply in the greater area to register at 2.91 million sqm by the end of 2021, an increase of 2.5 percent YOY.
After the closure of several large grocery and department stores in the previous quarters, some big retailers have once again announced permanent closures of their other stores and changes in business models. Nevertheless, the retail business is expected to continue to be dynamic and some landlords are rejuvenating their tenant composition.
Inviting new retailers that relate to lifestyle, including sports centres, and upgrading the supermarkets, is expected to boost the number of visitors. Other than that, some fashion and food and beverage retailers have continued expanding, although in smaller volumes.
The trend is in a positive direction. Many business activities have started to be carried out in hotels, although with the concept of adjusting to existing health protocols. Staycations have become a rising trend, too.
New hotels are in the pipeline and most of these projects are expected to start operating in 2021, depending on the market condition. Toward the start of the Eid al-Fitr holiday, the government again issued a ban on mudik, or making homecoming trips.
Colliers predicted a positive impact on hotels in Jakarta as people would choose to have staycations in hotels because of limited mobility.
In April 2021, the hotel occupancy rate reached 51.18 percent. This is the highest achievement throughout 2021. Then, it slipped slightly to 49.41 percent in May 2021. The Eid al-Fitr holiday which fell in mid-May was expected to boost the staycation market but didn’t perhaps because guests were cautious before booking. Moreover, many people had already started their journey outside Jakarta.
Until now, hoteliers are still fiddling with their businesses to continue to survive by exploring potential markets for guests and trying to diversify their business by optimising business lines to get additional revenue.
Moreover, conditions in the field are still unstable, which causes changes in regulations and strategies to occur very quickly. Given the pandemic that has been going on for more than a year and the condition of the tourism industry, which is still struggling to survive, it is not impossible for hotel owners to sell their properties to reduce operational costs. SOURCE: Colliers