Jakarta’s property market should see better days this year after two years in the doldrums when weak economic growth particularly dented office building prospects.
New office space is expected to reach a new peak in 2016 following on from a boom four years ago, but demand has failed to match the expectations of developers, according to property consultants Jones Lang LaSalle (JLL).
An oversupply of new office space combined with tepid demand are likely to thin out occupancies of Jakarta’s top office buildings.
“A lot of developers were looking to build new projects in 2011 and 2012 to cater for the demand to move to new buildings,” says Todd Lauchlan, Indonesia Country Head for JLL. “They also forecasted that demand would continue to be pretty strong.”
According to JLL, demand peaked in the central business district in 2011 with over 400,000 sq. meters easily absorbed by the market. That figure fell back last year to around 50,000 sq. meters.
Supply is expected to hit 600,000 sq. meters in 2016, double last year’s figure and four times more than 2011.
“We do expect demand to pick up again starting from this year,” said James Taylor, JLL Indonesia’s head of research. “The problem is new supply will put downward pressure on occupancy rates.”
The company expects net take-ups to rise to 150,000 sq. meters this year and hold steady until 2018. The oversupply should drop average occupancy back from the 2014 peak of 95 percent to approximately 80 percent for the next few years.
The retail sector, dominated by shopping malls, has done better with 92 percent of the existing 2.72 million sq. meters of space in Jakarta occupied at the end of 2015. Supply was curbed by a moratorium on developing new shopping malls imposed by the Jakarta administration in 2011. Malls opened since then had all been previously approved.
The “very limited supply” has reduced annual net absorption from around 230,000 sq. meters in 2012 to 60,000 in 2015.
Lauchlan said major property players in Indonesia — including Bumi Serpong Damai (BSD), Ciputra Development and Lippo Karawaci — have weathered the weak office sector by maintaining good spreads across the retail and residential sectors.
Shares of all three developers dipped on Wednesday with BSD, Ciputra and Lippo all closing 3.9 percent, 6.3 percent and 4.8 percent lower at 1,710, 1,265 and 1,000 rupiah respectively. The benchmark Indonesia Stock Exchange composite index dropped only 1.4 percent in the same period.
This article originally appeared in the Nikkei Asian Review
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Country Head, JLL Indonesia