KNOWLEDGE JAKARTA FEBRUARY 2008 THE. Jakarta Property Market Overview COLLIERS INTERNATIONAL QUARTERLY RESEARCH REPORT OFFICE SECTOR EXECUTIVE SUMMARY

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1 INDONESIA COLLIERS INTERNATIONAL Property Market Overview THE KNOWLEDGE OFFICE SECTOR EXECUTIVE SUMMARY The office market showed consistent performance during 2007 and will most likely continue to do well in This was evidenced by growing rental rates and steady occupancy rates. The projected increase in the total supply in the CBD in 2008 will be 35% higher than the increase in 2007 from 242,962 sq m to 329,426 sq m. Rental rates quoted in US$ for grade A office buildings rose quite significantly. Occupancy levels for this quarter dropped moderately as a result of incoming new office buildings with low physical occupancy levels. Most under-construction projects enjoyed relatively high commitment levels before the buildings were ready for occupation. SUPPLY The office market closed the year with the addition of four new office buildings in the CBD area Menara Prima, SCTV Tower, Sentral Senayan 2 and Permata Kuningan. Outside the CBD area, one office building was completed Menara Kencana, previously known as Graha Meruya located in Meruya. The four office buildings in the CBD completed at year-end added 131,270 sq m of new office space, mostly from Menara Prima. Over the entire year, the increase in the total office stock in the CBD totaled 242,962 sq m from 7 office buildings. Meanwhile, outside the CBD area, another 7 office buildings were completed in 2007 adding 111,800 sq m. Thus, 14 buildings added an additional 354,762 sq m of new office stock in. The total now stands at 5.15 million sq m. Around 70%, or 3.59 million sq m, of s total supply is contributed to by buildings in the CBD area. LIST OF UNDER-CONSTRUCTION OFFICE BUILDINGS IN THE CBD Expected Completion Building's Name Location 2008 BCA Tower (Grand Indonesia) Thamrin Menara Palma Rasuna Said Thamrin Nine Thamrin Senayan City (ex Hotel Tower) Senayan The Energy SCBD Menara DEA II Mega Kuningan City Tower (strata-title & lease) Thamrin The East (strata-title) Mega Kuningan Total Space 329,426 sq m 2009 Bakrie Tower (strata-title) Rasuna Said Cyber 2 (strata-title & lease) Rasuna Said Sudirman Tower Sudirman Kota Kasablanka Casablanca The Plaza Tower Thamrin Total Space 271,250 sq m Kuningan City Office Tower Satrio 2010 (strata-title) Total Space 30,000 sq m LIST OF UNDER-CONSTRUCTION OFFICE BUILDINGS OUTSIDE THE CBD Expected Completion Building's Name Location 2008 Treva Kebayoran Baru Recapital Kebayoran Baru Talavera TB Simatupang Menara 165 TB Simatupang Menteng Office Park Menteng (strata-title & Lease) The Boulevard (strata-title) Tanah Abang Total Space 85,391 sq m 2009 Gandaria Office (strata-title) Arteri Pondok Indah MT Haryono Office MT Haryono (strata-title) Total Space 71,814 sq m Satrio Tower, which was completed in 2Q07, was renamed Menara Standard Chartered due to significant take-up by the multinational bank Standard Chartered.

2 The East and BCA Tower, which were scheduled to open in 2007, postponed their openings until Both buildings are at their finishing stages. Other buildings which are currently under-construction and will likely be finished soon include The Energy and City Tower. Several other buildings in the pipeline and currently under-construction are Bakrie Tower, Menara Palma, Menara DEA 2, Cyber 2, Plaza Tower and Thamrin Nine. Thamrin Nine which is located on Jalan Thamrin was previously developed as a mixed-function building i.e. apartments, a hotel and offices. It was known as the Westin hotel development. PT UOB Property (a wholly owned subsidiary of UOB Ltd, Singapore) purchased levels 7-41 of the development which is scheduled for completion in October The lower floors will be owner-occupied by UOB bank while the mid-zone and high-zone floors are for lease. With ongoing under-construction developments, it is projected that around 329,426 sq m of office space will be added to the CBD in 2008 from 8 projects. This is a significant increase compared to the 2007 figure. Of the total increase, about 18% is office space for sale. Meanwhile, additional office space outside the CBD is projected to come from the completion of 6 projects totaling around 85,391 sq m. In 2007, the supply figure for outside the CBD increased by 111,800 sq m. Thus, should all of these projects, both in the CBD and outside the CBD, meet their expected completion dates, the total increase in office supply for 2008 in the area will be 17% higher than in 2007, or approximately 415,000 sq m. 500, , , , ,000 0 ANNUAL SUPPLY IN THE CBD & PROJECTION UP TO P For Lease For Sale DEMAND 2007 was a good year for the office sector with continued inquiries from the telecommunications, oil and gas services, mining, finance, and banking related industries. Tenants of these industries normally took sizeable space of more than 1,000 sq m. During the year, a large number of transactions were due to the relocation of existing tenants. Only a few transactions were conducted by new investors. In fact, new investors were mainly interested in acquiring space in future office towers like City Tower which will be occupied by Industrial and Commercial Bank of China (ICBC). Of the total increase in CBD stock in 2007, around 83% had been committed to by several tenants. Some of the committed tenants have yet to occupy their premises and, consequently, current physical occupancy is still low. Menara Standard Chartered was mainly absorbed by the bank of the same name, Standard Chartered Bank. Standard Chartered will move from their current location together with Pertamina, a national oil services company, and Star TV. Major lessees at One Pacific Place comprise Philip Morris; LG; CEO Suite, a serviced office provider, and Anadarko, a petroleum company. Meanwhile SCTV Tower was developed for SCTV, one of the national TV broadcasters. Menara Karya captured tenants like Adaro, a coal mining company; Valbury, a financial services company, and the Bosowa Group. Sentral Senayan 2, which was recently made ready for occupancy, has captivated major tenants like Mitsubishi; the New Zealand Embassy; JICA and most likely Chevron. Currently, there are only 5 floors available for lease. With 4 additional buildings being added to the CBD in the last quarter, and physical occupancy being low despite high commitment levels, overall occupancy in the CBD area eased from 92.07% to 89.23%. The occupancy level firmly established that the office market continued to perform well despite the influx of new office buildings. However, given the huge supply projection for 2008, and the fact that a large number of relocations will come about in the year, we anticipate that a large amount of office space will be abandoned. Therefore, our occupancy level projection for 2008 is slightly lower at around 87.5%, provided that the number of new investments is in the moderate level. As with the increase in CBD stock, around 70% of the increase in office space outside the CBD area was largely committed to by several big tenants during

3 CUMULATIVE SUPPLY, DEMAND AND OCCUPANCY RATE AVERAGE ASKING GROSS RENT (ALL CLASS) IN THE CBD 5,000,000 95% Rp150,000 $ ,000,000 90% Rp140,000 $ ,000,000 85% Rp130,000 $ ,000,000 80% Rp120,000 $ ,000,000 75% Rp110,000 $ % Rp100,000 $ P 1Q05 3Q05 1Q06 3Q06 1Q07 3Q07 Demand Supply Occupancy Rate BASE RENTAL RATE Rupiah SERVICE CHARGE US$ The office market continued to perform soundly by fetching higher rental rates quarter-to-quarter despite the influx of new office buildings. In the reviewed quarter, the CBD commanded an average monthly base rent of Rp83,888/sq m, edging up slightly from last quarters level of Rp83,311/sq m. A significant increase in rental rates was experienced by buildings quoted in US$. Office rents in US$ buildings surged by 9.3% in the final quarter of the year, with the highest growth of 9.6% attributed to Grade A office space. During the final quarter, the grade A office market recorded an average of US$12.78/sq m/month compared to the previous quarter s figure of US$11.66/sq m/month. A similar increase, although not significant, was observed for grade B office buildings which recorded an average of US$9.40/sq m/month compared to the previous quarters US$9.35/sq m/month. Overall, the average rental rate for buildings quoted in US$ (all classes) increased by around 9% to US$12.61 from a previous US$11.54/ sq m/month. The average service charge remained relatively stable QoQ. In the CBD, the average service charge hovered at Rp47,174/ sq m/month, not much different from last quarter s figure. The average service charge in US$ was also stable at US$6.58/sq m/month. Both tariffs, either in US$ or in Rupiah, were relatively stable across all classes of buildings. Outside the CBD area, we noted an upward movement in the average service charge from a previous Rp34,839/sq m/month to Rp35,478/sq m/month. The average rental rate outside the CBD area also rose to Rp60,593/sq m/month from Rp 59,509/sq m/month. This emphasized that the overall market both in the CBD and outside the CBD area showed an improving trend. 3

4 OUTLOOK Offices for lease, particularly those of good quality, will continue to capture tenants. Some grade A office buildings have introduced upward adjustments in their rental tariffs. This is mainly triggered by strong activity in the leasing market, particularly from existing tenants looking for newer buildings. Furthermore, the market is also anticipating spill-over from buildings with tenants reaching their leasing expiry. With numerous projects under-construction and an anticipation of significant supply over the next three years, we project that the occupancy level may drop a bit. However, we foresee that the market will remain at a healthy, positive level. Concern over global warming has drawn the attention of multinational companies as part of their corporate social responsibility. The next design trend appears to be buildings which will use the green concept. This will become a crucial point in winning a tough future market from the competition. Construction costs may rise 2 to 4% but operational costs can be curbed as much as 30% due to energy savings. RESIDENTIAL SECTOR STRATA-TITLE APARTMENTS EXECUTIVE SUMMARY With no additional supply and the closure of Taman Pluit Kencana for renovation, total units of strata-title apartments in 4Q07 decreased to 57,353. North provided the largest number of apartment units in. The take-up rate decreased to 74.68%. The average asking price reached Rp10.5 million/sq m, with the CBD area recording the highest price at around Rp15 million/sq m. SUPPLY Within the last quarter of 2007, there were no new projects starting operations. Several projects started the hand-over process to their buyers such as the Mediterania Marina (Tower C) and Hamptons Park (Tower A). Other projects were approaching the start of their operations in 2008 like Oakwood Premier Cozmo which plans a soft opening in January 2008 and Rasuna the 18 th which will hand-over units starting in January Amid tight market competition Taman Pluit Kencana apartments in North was closed and renovated. Developers plan to convert the project into serviced apartments. Given the closure, cumulative supply of stratatitle apartments in within the reviewed quarter decreased to 57,353 units. For several periods, developers have continued to build apartments for sale and have targeted the middle- to upper-income levels more heavily. Thus far, it has been hard to find developers that will build low-cost apartments for low-income consumers despite significant numbers of inquiries. On certain occasions the government has pushed developers to prioritize the development of low-cost, multi-family accommodations (Indonesian term: Rusunami, the abbreviation for Rumah Susun Sewa Milik). Kebagusan City in South is trying to attract the low- to middle-income class but their price is not low enough for those who are in need of low-cost accommodations. 4

5 According to our observations, some projects made noticeable progress including Pasar Baru Residence, Citiloft Gajah Mada, Star City apartments (all in Central ) and the redevelopment of Grand Champa apartments (in the Gandaria area of South ). Some under-construction developments in their completion stages include Sahid Metropolitan (within the CBD but located on a secondary street) and Nirvana Residence (South ). Both projects were at the topping-off stage. Other than that, new projects launched into the market include Kebagusan City (South ), Menara Cawang (East ) and Pasar Baru Residence (Central ) which will invigorate the market over the next two years. East 0.72% APARTMENT DISTRIBUTION BY UNIT NUMBER North 25.35% West 22.79% South 8.38% CBD 24.68% Central 18.08% 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 - SUPPLY GROWTH FROM 2004 TO (p) 2009(p) Existing Supply Annual Supply In general, apartment supply in 2007 grew by 37.3%. Total stock increased from around 41,700 units in 2006 to 57,353 units at the end of Most of the newly operating projects are located in the CBD and North areas, which share the market with 35% respectively. Other new projects are spread out in the greater area. In terms of project numbers, the CBD area has the largest number of developments at around 35 projects followed by South with more than 25 projects. However, in terms of unit numbers, 14,500 units are located in North followed by the CBD area with around 14,000 units. DEMAND Due to significant supply coming into the market, demand for apartments showed a declining trend during the year. The market also weakened as some projects delayed their completion dates which, indeed, gave an unsound impression. The apartment market has been enjoying a glorious time as buyers, dominated by investors, purchased apartments looking for better yields or capital gains. Now, it seems that the number of such buyers is limited. They are focusing on either disposing their assets for higher profit margins or looking for lessees to occupy the units. Given this condition, the history of a developer s reputation is quite crucial. Projects developed by reputable developers received positive responses from the market such as Kemang Village (by the Lippo Group), The Mansion at Kemang (by Agung Sedayu), Pacific Place (by Dua Mutiara) and Belezza Permata Hijau (by Gapura Prima). Kemang Village is one of the large scale projects in South. It is packaged as a mixed-use commercial and residential development consisting of apartments, retail outlets, a hotel, hospital and education center. The project, strategically located in Kemang (famous as an expatriate community), had good response from the market. According to the developer, around 60% of the 3 apartment towers in the project were booked since it was launched. Another project called Thamrin Residence recorded good sales in As with the previous project Residence, Thamrin Residence achieved a high take-up rate mainly due to its strategic location in the heart of the CBD area and competitive pricing. 5

6 85% 80% 75% 70% 65% TAKE UP RATE OF STRATA-TITLE APARTMENT 1Q06 2Q06 3Q06 4Q Q07 2Q07 3Q07 4Q07 Given the expected completion dates of several developments over the next two years, we anticipate a further drop in the take-up rate should the market continue to rely on the existing demand generator. PRICING The downward trend in the take-up rate was not followed with a decline in the average asking price. The increasing cost of construction was one of the factors which buoyed prices. In the chart below, it can be seen that the average asking price was relatively stable during 2007, particularly for apartments located in the CBD and South. The average asking price outside the CBD area showed a slight upward trend and the average asking price for the entire region also moved upward slightly. There is always a price discrepancy between the initial price when projects are introduced and when the projects come to the completion stage (topping-off stage). During the year, the average asking price gradually increased by 2.6% per quarter. As outlined below, projects located outside the CBD area showed an upward trend quarter-to-quarter due to numerous projects located within the area. The pricing trend of projects available in South was relatively stable at Rp11 million/sq m, while the CBD area captured the highest average price of around Rp15 million/sq m. APARTMENT PRICE (RUPIAH PER SQ M) 20,000,000 18,000,000 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000-1Q07 2Q07 3Q07 4Q07 CBD Non CBD South Average The average asking price for all areas in the reviewed quarter was quite stable at around Rp10.6 million/sq m up from the previous Rp10.5 million/sq m last quarter. Despite relatively stable prices, the apartment market will see very tight competition with many projects available in the market. 6

7 LEASED AND SERVICED APARTMENTS EXECUTIVE SUMMARY The cumulative supply of leased and serviced apartments climbed to 6,802 in 4Q07. About eight serviced apartment projects are projected to enter the market in the period. The occupancy rate reached 72.9%. The average rental rate decreased to US$1,870/unit/month or around US$13.5/sq m/month. SUPPLY The opening of Pacific Place serviced apartments increased the total supply of leased and serviced apartments to 6,802 units as of 4Q07. Of this number, leased apartments continued to lead the market at around 53%. During 2007, there was only a small increase in the number of new, leased apartments in the market. In addition, a small amount of additional stock for serviced apartments was generated from two projects in the first and fourth quarters. With these new additions, total stock of leased and serviced apartments grew by 3.6% in It is expected that around eight future serviced apartment projects with a total of around 1,000 units will begin operating in 2008 and Some of them are offered with a strataservice scheme with rental guarantees and the rest are purely offered as serviced apartments. By location, leased apartments are mainly concentrated in South (48%) and the CBD area (36%), while serviced apartments are mainly found in the CBD area (58%). With growing commercial development in the CBD and South areas, particularly along the TB Simatupang corridor and in the Pondok Indah area, South will continue to see residential development including leased and serviced apartment projects. APARTMENTS BASED ON LOCATION North 2.49% South 47.89% LEASED APARTMENT East 1.40% West 6.73% Central 5.36% CBD 36.13% SUPPLY GROWTH FROM 2004 TO ,000 7,000 6,000 5,000 4,000 3,000 2,000 1, (p) 2009(p) South 22.22% Central 12.65% SERVICED APARTMENT West 7.32% CBD 57.81% 7

8 DEMAND The occupancy rate YoY was quite stable ranging from 72% to 74%. In 2Q07, the occupancy rate for serviced apartments was a bit lower than leased apartments but recovered at year end. Both types of apartments ended up with similar occupancy rates for the year at around 73%. When measured by total number of units, the leased and serviced apartment market may be small. Yet, this type of apartment market still faces competition not only between the two types but also from converted units of strata-title apartments offered for lease. 78% 76% 74% 72% 70% OCCUPANCY RATE OF LEASED AND SERVICED APARTMENT AVERAGE RENTAL RATE OF LEASED AND SERVICED APARTMENT Area Leased Apartment (in US$) Serviced Apartment (in US$) /Unit/month /sq m/month /Unit/month /sq m/month CBD 1,800-4, , Non CBD 1,425-3, , Beginning in 2005, the average rental rate for leased and serviced apartments was US$13.70/sq m/month. The rental rate increased in 2006 and then decreased to around US$13.50/ sq m/month in The adjustment mainly occurred for leased apartments, particularly old projects that tried to compete with newly built projects. $14.0 $13.5 $13.0 $12.5 AVERAGE RENTAL RATE OF LEASED AND SERVICED IN US$, In the last quarter of 2007, the average occupancy rate for leased and serviced apartments experienced a minor decrease to 72.9% from a previous 72.7% in the prior quarter. Similar to the previous quarter, the occupancy rate of the projects within the CBD proximity recorded a healthy occupancy rate (76.2%) followed by the rate for those located in South (75.7%). $ RENTAL RATES The average rental rate for leased and serviced apartments was relatively stable. A minor decline was triggered by the increasing value of the Rupiah against the greenback. The average asking rental rate for a typical unit moved downward a bit to US$1,870/unit/month (equivalent to US$13.50/ sq m/month) in 4Q07 compared to the previous quarter s figure which reached US$1,880/unit/month (or US$13.60/sq m/month). Due to the high concentration of upper-class apartments in the CBD, the area captured the highest asking rental rate of US$17.60/sq m/month or about US$2,573/unit/month. 8

9 OUTLOOK Total supply of strata-title apartments was at an historic tenyear high. With around 15,000 units coming in, the market is burdened to dispose of available stock. Further, another 12,000 strata-title units and 800 leased and serviced units are projected to be completed in Given this fact, a bubble situation, where supply is not well absorbed, is viable. In fact, it has been obvious that apartment buyers have been dominated by investors who are not the real occupiers. In addition, apartment prices have not decreased amidst bulky supply which also restrains the appetite of buyers. Apartment dwellers are largely composed of expatriates. Nevertheless, current regulations will not allow foreigners to buy Indonesian property under non-indonesian individual names. The market continues to expect a revision of these regulations which would allow foreigners to own Indonesian property directly. Should this materialize, the current problem could be eased. Property prices in Indonesia would still be interesting to foreign investors, particularly when compared to prices in Singapore. Furthermore, the yield would also be better and COLLIERS INTERNATIONAL EXPATRIATE HOUSING AND APARTMENT EXPATRIATE HOUSING RENTAL RATE In general, the rental rate for expatriate housing trended higher due to a shortage of supply. Landlords are now more aware of the increasing number of expatriates looking for accommodations which is in line with the current expansion of operations at several MNCs. Company budgets for housing ranged from US$3,500 to US$5,000 per unit while the average rental rate for typical expatriate housing in several regions was between US$2,600 and US$4,600. More detailed figures are presented in the table below. EXPATRIATE HOUSING* Asking US$ Rent/Unit/Month Average Size (sq m) Area more appealing. Low High Average Land Building Menteng US$3,000 US$10,000 US$4, Kuningan US$2,000 US$10,000 US$3, Kebayoran US$2,000 US$11,000 US$3, Kemang US$1,500 US$6,000 US$2,715 1, Pondok Indah US$2,000 US$8,500 US$3, Permata Hijau US$1,500 US$6,000 US$2, Lebak Bulus US$1,500 US$4,500 US$2,564 1, Pejaten US$1,500 US$7,000 US$3, Cipete US$1,500 US$5,500 US$2, Cilandak US$1,500 US$6,000 US$2,633 1, * majority unfurnished DEMAND In 2H07, the expatriate housing market saw higher demand compared to the previous semester. Consequently, rental prices tended to go up as well. Owing to continued demand from expanding multi-national companies like oil & gas and financial institutions, supply of expatriate-standard housing is becoming more limited. Locations around international schools have always been preferred by expatriates. The numbers of landlords who build houses of expatriate-standard have recently been limited despite the increasing demand. Prospective lessees are quite meticulous when choosing a potential home. Size matters for most of the expatriates. Houses with spacious living rooms, high ceilings and big open kitchens with an island are wanted the most. 9

10 OUTLOOK With limited houses available on the market, landlords are in a relatively advantageous position. Quite a few landlords are now asking for a 3-year leasing period instead of the common 2 year lease. This is mostly applicable to either brand new or fully renovated houses. EXPATRIATE APARTMENT RENTAL RATE Apartments for lease were offered at between US$1,500 and US$4,500/unit/month (for 2 and 3 bedroom types). Most of the leased units are unfurnished except for serviced units which provide complete furnishings. The rates are exclusive of a 10% government tax plus another 11% tax for serviced apartments. Landlords normally request a deposit as a security guarantee, depending on the lease period. A 3-month security deposit is commonly needed for a minimum lease of 12 months or a smaller amount is required for a short-term lease. Area Dharmawangsa Residence*, Sailendra* Four Seasons Plaza Senayan, Plaza Residence EXPATRIATE APARTMENT* 2BR Unit 3BR Unit 4BR Unit NA 3,500 4,750 4,500-5, % NA Average US$ Asking Rent/Month 2,150-4,500 Average Occupancy 3,275-5,000 4,150 8, % The Residence, Pondok Indah*, Bukit Golf*, Ascott, Menteng 2,800-5,000 2,500-5,000 4,500-10, % Executive Aston, Batavia, Pavilion Park, Permata Hijau*, Puri 1,200-3,100 1,700-3,500 3,500-3, % Casablanca, Casablanca Taman Rasuna, Semanggi*, Slipi*, Kintamani*, Taman 472-1,300 Pasadenia*, Puri ,400-4, % Imperium* All 472-5, ,000 2,400 10, % * 1 US$ = IDR 9,435 as of February 2008 OCCUPANCY Selected leased apartments for expatriates experienced a decrease in the average occupancy rate to 73%. On the contrary, the average occupancy rate for serviced apartments increased to 71% by benefiting from visits by short-term guests. Expatriates still prefer apartment projects located in the CBD and South areas for their accommodations. SUPPLY AND DEMAND Not all projects available meet expatriate standards and expectations. Most of the developments that meet expatriate requirements are commonly located in the CBD and South such as Plaza Senayan, The Ascott, Golf Pondok Indah and The Plaza Residence. Western expatriates continue to choose the South area, particularly Pondok Indah and Kemang, while the preferred location for Asian expatriates is in the CBD secondary ring area such as Permata Hijau, Casablanca, and Senayan. SELECTED APARTMENT MARKETED AS STRATA-TITLE Name Units Location Price Range / Unit Sudirman Mansion 216 Sudirman The Peak 310 Sudirman Senayan Residence 369 Senayan Rp1.3 Rp5.5 billion US$137,785 US$582,936 Rp2.1 Rp8.3 billion US$220,456 US$879,703 SCBD Suite 70 Sudirman Rp3.0 Rp3.6 billion CBD US$321,145 US$381,558 The Pakubuwono 639 Kebayoran Rp3.0 Rp5.0 billion Baru US$317,965 US$529, Pacific Place 80 Sudirman Rp9.1 Rp18.3 billion CBD 2007 US$964,494 US$1.94 million The Capital 258 Sudirman Rp3.1 Rp7.0 billion CBD US$328,564 US$741,918 Oakwood Premier Cozmo 225 Mega Rp2.4 Rp3.5 billion Kuningan US$254,372 US$370, Somerset Berlian 185 Permata Hijau Rp1.5 Rp2.2 billion 2006 * 1 US$ = IDR 9,435 as of February 2008 OUTLOOK US$158,983 US$ 233,174 Rp1.5 Rp2.5 billion US$158,983 US$264,971 Completion Date With limited stock of leased and serviced apartments that meet expatriate standards, converting strata-title units into leased/serviced units is an option. However, with quite a few options still available for apartments, competition within this market is quite tough. Furthermore, expatriates usually opt for landed houses instead of apartments, particularly when they need to accommodate colleagues and require outdoor activities. Definition of Terms The houses reviewed are expatriate type houses which have at least 3+ bedrooms and a pool. The housing rents represent the minimum, maximum adn average rental figures, excluding any possible taxes of up to 12.5%. The expatriate apartment market comprises selected condominiums and apartments located in the Central Business District and South. The apartment rents represent average monthly rental rates and can fluctuate depending on applicable taxes and service charge. The apartment occupancy represents the average occupancy rate of the apartment buildings. 10

11 RETAIL SECTOR EXECUTIVE SUMMARY One premium retail center entered the market in the quarter. The occupancy rate moved upward, bringing the quarter s figure to 91.5%. Due to adjustments in the pegged rate, the overall average rental rate rose modestly to Rp314,334/sq m/month. Following an increase in the occupancy rate, the retail market now has to face the challenge of how to increase traffic within retail centers. SUPPLY Pacific Place Mall was one of the shopping centers opening at year end. It was probably the retail icon during 2007 in terms of retail concept and tenancy mix. With an additional supply of around 78,000 sq m provided by Pacific Place Mall, total retail stock in stood at 2.92 million sq m. Another project, the former Sudirman Place (which was renamed as FX Sudirman), is in the pipeline and will likely be ready to open by 2Q08. The project was taken over by Plaza Indonesia management and is being rejuvenated with a different concept after the project s opening fiasco in early During the year, retail space in was mainly added to by Pacific Place Mall, but also diminished by around 31,000 sq m following the closing down of Sudirman Place. Also in 2007, Jatinegara Plaza was reopened with a different concept which changed from mall-for-lease to strata-title center and it was renamed Pusat Grosir Jatinegara. However, we have not yet included this into our stock figure since the grand opening is scheduled for early this year. On the fringe of, the market is anticipating the opening of Buaran Indah Plaza located within the neighborhood of Taman Buaran Indah, East. The project will definitely invigorate the surrounding area, particularly since its direct competitors within the area are becoming less popular. Outside or in DeBoTaBek (Depok, Bogor, Tangerang and Bekasi), Bekasi Cyber Park, built in the former Hero Plaza, opened in West Bekasi. Currently, the DeBoTaBek area has around 1.55 million sq m. Thus, total retail space in and the surrounding area (JaDeBoTaBek) is 4.46 million sq m. 3,000,000 2,500,000 2,000,000 1,500,000 1,000, ,000 0 CUMULATIVE RETAIL SUPPLY P Leased Strata-title LIST OF UNDER-CONSTRUCTION SHOPPING CENTERS IN AND DEBOTABEK Shopping Centre Location Scheme Status Grand Paragon (Gajah Mada Square) Central Leased Finishing Kelapa Gading Mal Phase 4 North Leased Under Construction Mal Of Indonesia (Kelapa Gading Square) North Strata Under Construction Pluit Junction North Leased Under Construction Pusat Grosir Cililitan 2 East Strata Finishing Emporium Pluit (CBD Pluit) North Leased Under Construction Grand Indonesia Central Leased Finishing Koja Trade Mal North Strata Under Construction City Walk Central Leased Finishing Blok M Square South Strata Under Construction Rasuna Epicentrum (Emperium Walk) South Leased Under Construction Gandaria Main Street South Leased Under Construction Galeria Glodok Central Leased Under Construction Total Space 596,225 sq m DEBOTABEK Plaza Pondok Gede 2 Bekasi Strata Finishing Plaza Dua Raja Bogor Strata Finishing Pamulang Square Tangerang Strata Under Construction Summarecon Mal Tangerang Leased Under Construction Bekasi Square Bekasi Strata Finishing Tangerang City Tangerang Strata Under Construction Total Space 240,000 sq m DEMAND Pacific Place Mall was well accepted in the market, not only due to its concept but also because of its location. Being strategically located in the SCBD, and surrounded by high class commercial and residential buildings, the mall has captivated a number of prestigious tenants. One tenant, which is now becoming the talk of the city, is Kidzania a theme park from Mexico which combines entertainment and education for kids. So far it has become quite famous since this branch is the third built in the world after successful operations in Mexico and Japan. Further, Pacific Place Mall also captured major tenants like Kemchicks superstore and other branded fashion stores. 11

12 It was also noted that premium shopping centers like Plaza Indonesia continue to keep up with dynamic changes in the market by re-mixing their tenancies. Plaza Indonesia maintained its image as an upper-class shopping center by removing its department stores and replacing them with branded stores. This measure was probably taken given that its direct competitor, Grand Indonesia is positioned as an upper-class target as well. The Grand Indonesia mall opened with Seibu and other branded outlets yet to enter the market. Despite operating with several tenants, the grand opening of this mall has been postponed until the opening of Harvey Nicholls and Gramedia book store. Shopping centers introduced this quarter experienced high absorption rates including the Bekasi Cyber Park which captured major tenants like Hari Hari supermarket, McDonalds, Rumah Kita, Helios Fitness Center and the Electronic Store. The Matahari Group introduced their new department store, Parisian, aimed at the middle- to upper-class. The name was created to counterbalance the operations of stores like Seibu, for example. The first Parisian stores were opened at the end of 2007 in Mall Taman Anggrek. The occupancy rate in for this quarter again rose to 91.5% from 89.5%. We recorded that quite a few strata-title shopping centers experienced high absorption rates due to interesting packages offered by developers. Developers of strata-title retail centers are now becoming aware of the inadequate performance of their projects which had lower occupancies despite high take-up rates. Kiosk buyers have more leeway about whether they want to operate or not and, therefore, many strata-title retail centers were quiet. By giving interesting incentives like free rent for several periods or offering low service charges, some strata-title retail centers have managed to reduce vacancies. This has helped to increase the overall occupancy rate. However, the market did not entirely recover. Even though vacancy levels may have been lower QoQ, some retail centers suffered from low visitation. A new mall may be highly occupied or a strata-title retail center may use leasing options to increase occupancy. However, time is needed to produce consistent clientele. Some successful shopping centers have needed to operate for several years before they have become a favorite destination. 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000, ,000 - CUMULATIVE SUPPLY, DEMAND AND OCCUPANCY Supply (sq m) Demand (sq m) Occ 96% 94% 92% 90% 88% 86% 84% 82% 80% RENTAL RATES AND SERVICE CHARGES A number of shopping centers in South and North adjusted rental rates upward. The adjustment was mainly due to a shortage of retail space. Further, we also recorded an increase in the average pegged rate which affected the average rental rate calculation. Some shopping centers continue to charge in US$ pegged to a certain value which is normally lower than the current exchange rate. The pegged rate for this quarter was registered at Rp6,993, up from Rp6,969/US$ last quarter. In, rental rates for the quarter stood at Rp314,334/sq m/month which rose from Rp306,404/sq m/month. In the DeBoTaBek area, the average rental rate was relatively stagnant QoQ and only climbed very modestly to Rp270,415/sq m/month. Rp350,000 Rp300,000 Rp250,000 Rp200,000 Rp150,000 Rp100,000 Rp50,000 RENTAL RATES AND SERVICE CHARGES Rp70,000 Rp60,000 Rp50,000 Rp40,000 Rp30,000 Rp20,000 Rp10,000 Rp- Rp- Rental Service Charge 12

13 Around eight shopping centers adjusted their service charge tariffs during the last quarter. They are ITC Cipulir, Pasar Festival, Pondok Indah Mall 2, Mangga Dua Square, Pasar Pagi Mangga Dua, Mall Puri Indah, Daan Mogot Mall and Glodok Plaza. The increase ranged between 5 and 10%. As a result, the average service charge in climbed by 1.3% to Rp59,645 from a previous Rp58,864/sq m/month. On the other hand, service charge tariffs in the DeBoTaBek area remained flat at Rp49,694/sq m/month. OUTLOOK There were good signs from the retail sector amidst a fear of oversupply. As can be witnessed in the early part of 2007, many shopping centers (in particular strata-title retail centers) had high vacancies as a result of abandoned kiosks left by dormant buyers. During this trying time, developers found it difficult to sell the remaining units. As this became more obvious, developers were open to leasing options. Some even bought back sold kiosks from buyers and re-conceptualized some areas with specific themes. For example, WTC Mangga Dua, which was previously designed to be a wholesale shopping center, converted some floors to be used as car shops. With flexible leasing payments and cost exemptions, the center experienced higher occupancy. The remaining problem is how to draw crowds since it takes time to create an attractive image. Other shopping centers have not chosen options like the one above. For example, STC Senayan, which was previously sold as a strata-title retail center, gradually repositioned itself as an office tower. The Senayan area is surrounded by upper-class shopping malls and grade A office towers and may not be suitable for the old strata-title concept. Currently, the office concept seems to be working for this location. HOTEL SECTOR EXECUTIVE SUMMARY A new 5-star hotel was launched in the quarter adding 62 rooms. About eight hotel developments will begin operations this year, adding around 1990 rooms to the hotel market. AOR and ARR dropped modestly this quarter as a result of the holiday season at year-end which suggests that people traveled outside the city. The outlook for 2008 is positive. SUPPLY One new 5-star hotel opened in, The Ritz Carlton, which is part of the Pacific Place commercial and residential complex located in the SCBD (Sudirman CBD) area with 62 rooms. This is the second Ritz-Carlton hotel in. The first one is located in the Mega Kuningan area. With this addition, total hotel room stock in by star category became 5,001 rooms for 3-star hotels, 8,119 rooms for 4-star hotels and 8,307 rooms for 5-star hotels. We feel that, the CBD area in particular, has enough shopping centers. The competition may not only come from locations specifically built as shopping centers, but also from shopping arcades provided by office or apartment buildings like Oakwood Apartments, City Walk and Menara Standard Chartered (Satrio Tower). In short, the retail market will remain tough although opportunities await those promoting unique concepts. 13

14 SUPPLY OF 3, 4 AND 5-STAR HOTELS IN IN TERMS OF NUMBER Q07 2Q07 3Q07 4Q07 3 star 4 star 5 star There are some hotels in the pipeline which are projected to be completed in These include three 3-star hotels including the Harris, a hotel at the Mall of Indonesia complex, and the Patria Park hotel which will be operated by Ibis. Should these developments finalize according to schedule, supply in 2008 will increase by 592 rooms. The market is also anticipating the addition of new 4-star hotels including the Grand Aston Soho, Aston Marina Ancol and Aston Mangga Dua. If these three hotels meet their deadlines for this year, the 4-star hotel market in will receive another 988 rooms. Further, the 5-star hotel category is also quite active and highlighted by the rejuvenation of Hotel Indonesia which is now part of the integrated development of Grand Indonesia. This hotel will be operated by Kempinski. In addition, another 5-star hotel in South is expected to be launched by mid year The Grand Aston Albergo in Bellezza. The 5-star hotel market will see another 410 rooms added this year. With the number of star-rated hotels that are projected to begin operating this year, the total number of rooms will be 1990 which is the highest growth rate per year seen over the last ten years. LIST OF FUTURE HOTELS IN Name of Hotel Year of Operation Location 3 Star Harris Hotel 2008 North Hotel at Mall of Indonesia 2008 North Patria Park - Ibis Hotel 2008 East Jakart Harco Hotel TBA Central Rawa Bening TBA East Jakart Treva TBA Central Total Rooms 1,032 4 Star Grand Aston Soho, Hotel & Residence Jul-08 West Aston Marina Ancol (Mediternia Marina Residences, Tower A) May-08 North Aston Mangga Dua, Hotel & Residence Sep-08 Central Hotel at Emporium Pluit 2009 North Four Points Hotel at Rasuna Said 2009 South Hotel by Menteng Group 2009 South Novotel Simatupang 2009 South Hotel at Gandaria Main Street 2009 South Hotel Sabang TBA Central Swiss-BelHotel (Grand Kartini) TBA Central Total Rooms 3,037 5 Star Kempinski Hotel Indonesia mid 2008 CBD The Grand Aston Albergo in Bellezza Jun-08 South Hotel at Kota Kasablanka 2009 South The Aryaduta Regency Hotel 2009 South Hotel at Ciputra World 2010 CBD St Regis Hotel and Residence 2011 CBD The Regatta TBA North The Acacia [Extension] TBA Central Hotel at Essence Dharmawangsa [Bulgary/Armani class] TBA South Total Rooms 2,007 AVERAGE OCCUPANCY RATE The total number of visitors arriving in through Soekarno Hatta Airport decreased by 2.02% in 4Q07 compared to the last quarter. For several years the hotel market in has been fueled by the domestic market. However, there is a correlation between inbound visitors and the average occupancy rate. Most middle- to upper-class ns travel to other areas like Bali for their holiday festivities at year-end. During the reviewed quarter, the occupancy rate for 3, 4 and 5-star hotels decreased between 3.7% and 9% compared to the previous quarter. Nevertheless, the following hotels achieved an occupancy rate of above 70 percent: 114

15 3 star hotels: Ibis Tamarin, Putri Duyung Cottages, Patra Jasa, Grand Menteng, Ibis Slipi, Cipta II, Harris Tebet, Ibis Kemayoran, Bintang Griyawisata, Ibis Mangga Dua, Quality, Sparks, Willtop and Ibis Arcadia 4 star hotels: Le Grandeur Mangga Dua, Sari Pan Pacific, Ciputra, Mercure Rekso, Aston Atrium, Menara Peninsula, Sun Lake, Atlet Century Park and Nikko, Alila 5 star hotels: Imperial Century 1,400,000 1,200,000 1,000, , , , ,000 - VISITOR ARRIVALS TO AND INDONESIA Source: Central Bureau Statistics 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 Soekarno Hatta Indonesia 100% 90% 80% 70% 60% 50% 40% OCCUPANCY RATE OF HOTELS IN 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 3 Star 4 Star 5 Star Average Rp800,000 Rp600,000 Rp400,000 Rp200,000 AVERAGE ROOM RATE OF HOTELS IN 81% 78% 75% 72% 69% 66% 63% 60% OCCUPANCY RATES vs VISITOR ARRIVALS 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 Source: Central Bureau Statistics AOR Visitors 310, , , , , , , ,000 Rp0 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 3 Star 4 Star 5 Star Average AVERAGE ROOM RATE Generally, the average room rate for 3, 4 and 5-star hotels dropped by 1.37% from the previous quarter. Among the starred hotel categories, only 4-star hotels moved upward by 5% to Rp 419,831 from last quarter. The 3 and 5-star hotel ARR decreased by 0.02% and 5.3% respectively. The ARR for 3-star hotels was recorded at Rp295,200 this quarter, lower than the 3Q07 figure of around Rp295,255. Meanwhile, the ARR for 5-star hotels also dropped to Rp707,137 from a previous Rp746,751. For this quarter, the top 5 hotels which achieved a high ARR for the 3, 4 and 5-star hotel categories are as follows. o 3 star hotels : Putri Duyung Cottages, Harris Tebet, Bumi Karsa, Ibis Arcadia and Ibis Tamarin o 4 star hotels : Ambhara, Nikko, Menara Peninsula, Sari Pan Pacific and Alila o 5 star hotels : Grand Hyatt, Ritz Carlton, Shangri-La, JW Marriott, InterContinental MidPlaza 15

16 RevPAR In accordance with the decrease in AOR and ARR, RevPAR (Revenue Per Available Room) also declined in all categories by 3.9% to 11.63%. RevPar for 3-star hotels was Rp204,249, down 11.63% from a previous figure. RevPAR for 4-star hotels dropped moderately by 3.91% to Rp288,241. Meanwhile, RevPAR for the 5-star category plummeted significantly this quarter to Rp396,283 or down by 11.18%. Rp500,000 Rp400,000 Rp300,000 Rp200,000 Rp100,000 Rp0 OUTLOOK RevPar OF HOTELS IN 1Q06 2Q06 3Q06 4Q06 1Q07 2Q07 3Q07 4Q07 3 Star 4 Star 5 Star The occupancy rate for 2007 moved upward to 66.38% from 62.65% in On a national scale, the average occupancy rate reached around 65%. The market is expecting escalating performance this year in line with a government program to boost the tourism industry through Visit Indonesia Year Furthermore, an improvement in the country s stability is expected to positively promote the country as a tourist destination. Visit Indonesia Year 2008 was officially launched with the main aim of luring up to 7 million foreign tourists and booking US$6.4 billion in foreign exchange income. To help reach this target, the government is setting aside $15 million for a domestic and international advertising blitz. In 2008 the ministry is set to organize more than 100 international events and cultural festivals across the country. INDUSTRIAL ESTATE SECTOR EXECUTIVE SUMMARY An influx of new industrial land of around 40 hectares brought the cumulative supply to 8,606 hectares The absorption rate in the last quarter was higher than the previous quarter. However, this did not increase overall yearly performance Land prices and maintenance costs were stable. Fluctuations only occurred due to volatility in the exchange rate The automotive sector revived and contributed to most of the transactions during the reviewed quarter 2008 is expected to be a better year for the industrial sector SUPPLY Due to escalating inquiries at industrial estates in Serang, Modern Cikande expanded by around 80 hectares of which around 40 hectares are saleable industrial land. The expansion was the only new supply added this year which brought total industrial land for the six regions i.e., Bogor, Bekasi, Tangerang, Karawang and Serang to 8,606 hectares. Additional industrial land may materialize from the potential expansion of three industrial estates in Bekasi. The Bekasi region has been enjoying growth in the manufacturing sector, particularly the auto-related industry. This includes the expansion of around 100 hectares at MM2100, another 300 hectares at the Greenland and around 200 hectares at Delta Silicon. However, there is no definite date of availability for the above mentioned. Most industrial estates are still focusing on disposing their remaining unsold land parcels. However, expansion plans are a priority, particularly in anticipation of inquiries for bigger land plots. In short, we have a positive view going forward to the year The performance indicators like AOR and ARR have continued to trend upward for several years, albeit slightly. 116

17 THE DISTRIBUTION OF INDUSTRIAL LAND IN SEVERAL REGIONS Serang 21% 10% Bogor 1% Bekasi 26% During the reviewed period MM2100 was the star performer with transactions amounting to hectares, followed by Jababeka, KIIC and Modern Cikande. INDUSTRIAL LAND TRANSACTIONS DURING 4Q07 (in Ha) MM2100 Industrial Town Karawang 37% Tangerang 5% Jababeka Industrial Estate KIIC DEMAND With proximity to downtown and instant access to a toll road, industrial estates in Bekasi continued to perform well. During 2007, the region recorded the highest land transactions amounting to hectares with MM2100 being the main contributor for the region. Serang performed quite well and was supported by two active estates Modern Cikande and KIEC with total land sales of hectares during Karawang followed with hectares, mostly contributed to by KIIC and Suryacipta. INDUSTRIAL LAND TRANSACTIONS DURING 2007 (in Ha) Krakatau Industrial Estate Cilegon Modern Cikande Jababeka Industrial Estate Modern Cikande KBN Cakung Delta Silicon Krakatau Industrial Estate Cilegon Kota Bukit Indah (Indotaisei) Greenland (Kota Delta Mas) Bekasi Fajar Suryacipta Nevertheless, the figure presented above did not help the growth of industrial land sales YoY. Total sales in 2007 were only 81% of the total sales in In other words, there has been negative growth YoY from hectares in 2006 to only 147 hectares in MM2100 Industrial Town KIIC Bekasi Fajar Suryacipta Greenland (Kota Delta Mas) KBN Cakung Delta Silicon CCIE Kota Bukit Indah (Indotaisei) Kota Bukit Indah ANNUAL INDUSTRIAL LAND SALES (in Ha)

18 Despite recording the highest sales for the year, the Bekasi region s MM2100 was in the fourth position for total transactions. Two prominent industrial estates in Serang had the largest transaction volume this year. KIEC, located in Cilegon, benefited from the growth of the food-related and chemical industries while Modern Cikande benefited from the expansion of motorcycle manufacturers from Japan in the earlier part of the year. During the quarter, Modern Cikande also benefited from the expansion of operations from other locations by companies in the Korean chemical-related industry. Significant transactions of around 4.2 hectares materialized from the expansion of an LPG tube manufacturer. Also, a small transaction occurred in the quarter with a steel manufacturer from China. It was revealed that more industries from China, particularly steel-related industries, are eyeing the location. Automotive-related industries continued to expand during the last period of the year. Two automotive companies expanded while one company new to the industry acquired a total of around 5.4 hectares at KIIC. The auto-related industry was also active in Greenland IE, taking three SFBs (Standard Factory Buildings) and a small land plot. The automotive industry was very active at MM2100 this quarter with around 6.2 hectares of land transactions. Other sectors showing strong activity during the year were logistics and warehousing. During the quarter around 3 logistics, warehouse and distribution centers made around 5.9 hectares of land transactions. The remaining transactions during the year were made by several companies from the metal, gas, wood panel, pet nutrition, electric, stationery and F&B industries. The combined factors of additional land supply and the quarter s absorption rate brought the overall take-up rate to around 65.3%, slightly higher than last year s rate of around 63.9%. 10,000 8,000 6,000 4,000 2,000 - CUMULATIVE SUPPLY, DEMAND & TAKE-UP RATE Cum Supply (ha) Take-up Rate (%) 70% 65% 60% 55% 50% Cum Demand (ha) INDUSTRIAL PRICES AND MAINTENAN- CE COSTS There were no changes this quarter either in land price or for typical industrial buildings. Even for industrial estates, which recorded good sales, prices remained stable given the fact that there were many options for industrial land in the market. Those with high prices tried to curb price escalation in order to be competitive. On the maintenance cost side, prices have been stable much longer than land prices. Land prices and maintenance costs only fluctuated due to the volatility of the exchange rate (Rupiah against US$) since some of the industrial estates used US$ for their land prices while some use Rupiah. INDUSTRIAL LAND PRICES AND MAINTENANCE COSTS FOR SEVERAL REGIONS LAND PRICE (/sq m) MAINTENANCE COST (/sq m/month) REGION lowest highest average (Rp) lowest highest average (Rp) Bekasi Rp400,000 Rp750,000 Rp596,312 US$0.05 US$0.07 Rp590 Karawang US$32.00 US$49.05 Rp377,178 US$0.05 US$0.05 Rp462 Bogor US$45.00 Rp650,000 Rp580,497 US$0.06 Rp600 Rp564 Serang Rp300,000 US$45.00 Rp393,172 US$0.02 Rp220 Rp198 Tangerang US$60.00 Rp1.26 mil Rp614,403 US$0.04 Rp1,000 Rp529 18