Jakarta office market: time to invest
Jakarta office market: time to invest
Oversupply in the Indonesian capital will not continue
By Mina Ondang
The imbalance between new supply and demand growths in the last two years has caused the office occupancy rate in Jakarta’s central business district to drop to 82 percent in Q2 2016 from 94 percent in 2014.
A total of more than 2 million square metres in office space is currently under construction and expected to be completed in the next 3 to 6 years, if developments go on schedule despite the weak market condition.
Oversupply in the CBD office segment may not last forever. One of the reasons is that a high development cost may not justify the feasibility of a new office project. For example, despite the MRT project providing incentives to the land owner within the Transport Oriented Development, the cost of increasing plot ratio virtually remains equivalent to buying new land in the same location to build the same office.
Rental is bottoming out
Our research forecasts CBD office occupancy will bottom out at slightly below 80 percent. We have seen projects sized more than a million sqm at design stage being postponed indefinitely as developers wait for the occupancy, rental rate, and sale price reach levels that justify the development cost.
The high cost of increasing plot ratio becomes a natural stop gate for an oversupply of office properties in the future.
A period of decline in asking rental prices has just passed, especially with landlords of newly completed buildings being more cautious and more willing to negotiate to meet tenants’ budget. We are starting to see that rental rate is bottoming out.
Time to invest
The market indicated that asking prices in the CBD office sector have stopped increasing in the last few quarters, while transacted prices have become more reasonable and shown a market correction. After the first phase of tax amnesty, investors are more actively searching for suitable property that will serve their diversification purposes.
As rental rates stop falling and investors become more active, capital values will start to increase. There are many strata-title office building options for either owner-occupiers or investors, but less than a handful en-bloc office buildings for sale especially within the CBD. This is a critical time to find the right property to invest.
About the author:
A senior member of Cushman & Wakefield Indonesia’s Investment team, Mina Ondang serves high net worth individuals across the archipelago and abroad. Among other accomplishments, she was instrumental in successful sales of Office 8 and Multivision Tower in Jakarta. She also successfully represented Redplanet Hotels in acquiring hotel sites across the country. Ondang is a central panel judge of the Indonesia Property Awards and moderated the panel discussion “How the MRT could transform Jakarta real estate” at the first Property Report Congress Indonesia held on 13 October 2016 at Fairmont Jakarta.
Source: Property Report