SURABAYA PROPERTY MARKET REPORT

Transcription

1 Colliers Half Year Report H2 21 March SURABAYA PROPERTY MARKET REPORT Accelerating success.

2 Colliers Quarterly SURABAYA OFFICE H2 21 March Office Ferry Salanto Senior Associate Director Without additional office spaces, occupancy only improved very moderately YOY and registered at 75% in. Most office buildings maintained their base rents and service charges relatively stable. Nevertheless, we observed that an office building s rent adjustment caused the average asking rents down almost 10% YOY. s office market is still facing the classic problem against office spaces that were provided by the shop-houses and rukan. Potential tenants still assume that occupying office spaces in shophouses/rukan is simpler than in office buildings. Meanwhile, those with growing businesses (and have more money) prefer to construct their own office building. This trend has stagnated the level of demand for office spaces in and has pushed most landlords to maintain their base rental, particularly within the last two years. Forecast at a glance Demand Demand for office buildings is still expected to be centralised in the CBD area of. Insurances and banking remain to be potential business lines, where recently they conducted a lot of investigations for office spaces in. In addition, the market for service offices and co-working spaces are also expected to grow in. Supply Five office buildings are scheduled to finish in and will bring around 125,000 sq m of new additional office spaces in. Out of these, two buildings will begin to officially operate in. There will be more strata-title office buildings in over the next three years. Lease Supply Vacancy rate With office supply projected to inflate in and enquiries for office space to grow only moderately, occupancy rate is forecasted to decline from around 2% to 3%. Rent Amidst the downturn in new office space enquiries, landlords will retain their current rental tariff. However, the overall rent will only climb in due to the future operation of two office buildings that offer higher rents compared to operating office buildings. Price Investment in property, especially in strata-title office buildings in, was still not strong as that in Jakarta. Investors prefer to refrain from purchasing strata-title office buildings whilst observing the progress of an office building s construction. In addition, they also want to see the track record of developers. Coupled with a low level in the take-up rate of newly operating strata-title office buildings, we predict landlords to offer the prices for the vacant spaces starting at IDR25 million to IDR40 million/sq m in. The office market in closed without any supplies after having around 78,000 sq m additional office space last year. Cumulative office supply remained at 347,333 sq m. In -2020, we anticipate 124,347 sq m of additional office space to enter the market, of which two office buildings, namely Praxis and Voza will begin operation in.

3 sq m 2010 F 2019F 2020F sq m 2010 F 2019F 2020F sq m Cumulative Office Supply 500, , ,000 pushes infrastructure development in West in order to transform the area into a vast growing residential and commercial area in the region. Up to 2020, total office space in West will triple. Existing and Future Supply in Several Regions 200, ,000 0 Central South West Existing Supply Annual Supply East North 0 100, , ,000 Going forward, there will be more strata-title office buildings for sale. Existing Supply Total Supply F F Based on marketing scheme, the performance of stratatitle office buildings in improved in -. Coupled with expectations of getting faster profit return than rental system, the pioneer developers began to look at the possibility of building strata-title office buildings in. As a result, the supply of strata-title office buildings is expected to grow in from to Based on their current progress, almost all of these strata-title office buildings are under construction. Cumulative Office Supply Based on Marketing Scheme 320, ,000 Annual Supply 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10, ,000 80,000 In Operation Under In Planning F 2020F For Lease For Sale The CBD in (mainly concentrated in Central ) will still captivate business activities. By the end of, the total office supply in Central was already beyond the total office supply in other areas in. Given the supply pipeline, West is expected to become the other next commercial area in the area. The city government of continuously 2 Colliers Quarterly 21 March Office Colliers International

4 2010 E NEW SUPPLY PIPELINE OFFICE BUILDING LOCATION REGION DEVELOPER SGA (SQ M) MARKETING SCHEME DEVELOPMENT STATUS Praxis Office Panglima Sudirman Central Intiland Development 12,000 For Lease & Sale Under Voza Office Tower HR Muhammad West Avia Avian 18,607 For Sale Under 2019 Pakuwon Tower Basuki Rahmat Central Pakuwon Jati 39,740 For Lease & Sale Under Spazio Tower Bukit Darmo West Intiland Development 20,000 For Sale Under 2020 Satoria Tower HR Muhammad West Satoria Group 34,000 For Sale Under Performance Occupancy Rates The absence of new office supply in only helped lift occupancy rates marginally and was recorded at 75.7% at the end of. In general, office market in has yet to perform better; even the lack of supply this year did not impact the overall occupancy performance. The 5.3% GDP growth projection for seems insufficient to propel the office space business in, considering that the average annual office space absorption for the last three years was only around 3,200 sq m, far below the average annual supply of around 26,000 sq m in the same period. Furthermore, the operation of several future office buildings in would bring down occupancy by around 2-3%. Businesses related to finance industries, such as banking and insurance, remained major office occupiers particularly in the central business district of. Overseas occupiers recorded were from East Asia, including China, Korea and Japan. They have actively penetrated, either for their representative office operation or for initial observation over the business climate before officially opening and/or expanding their offices. This situation is capitalised by service offices and operators of co-working spaces to provide private office spaces for business with a shorter lease period than conventional office spaces. Today, service offices and co-working spaces are continuously growing in. Operators, such as Nin3 Space, Revio, SUB, Regus, Forward Factory and Digital Hub, have opened co-working space facilities in. Average Occupancy Rates and GDP Growth Trend 100% 90% 80% 70% 60% 50% Occupancy Occupancy Rates in Different Regions in 100% 90% 80% 70% 60% 50% Central South West GDP 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% East 3 Colliers Quarterly 21 March Office Colliers International

5 2010 E 2010 E 2010 E Average Asking Base Rent Average Asking Base Rents IDR 150,000 IDR 125,000 IDR 100,000 IDR 75,000 IDR 50,000 IDR 25,000 Average Service Charges IDR 80,000 IDR 70,000 IDR 60,000 IDR 50,000 IDR 40,000 IDR 30,000 IDR 20,000 IDR 10,000 IDR 0 IDR 0 Average Asking Base Rents in Different Regions in IDR300,000 IDR250,000 IDR200,000 IDR150,000 IDR100,000 Regional Minimum Wages and Inflation Rate IDR 4,000 IDR 3,500 IDR 3,000 IDR 2,500 IDR 2,000 IDR 1,500 IDR 1,000 IDR 500 9% 8% 7% 6% 5% 4% 3% 2% IDR50,000 IDR0 Central Service Charges South West East The majority of office buildings in still maintain service charges between IDR50,000 and IDR100,000/sq m/month, whilst two newly operating office buildings only quote tariffs below market prices, i.e. IDR45,000 and IDR55,000/sq m/month. The average service charge was registered at IDR65,172/sq m/month in, increased very modestly YOY. Two strata-title office buildings that are expected to meet completion in would likely peg their service charges below market prices. However, regional minimum wages (UMR) are expected to increase around 9.5% in. Contributed by this UMR projection, we predict the average service charge to increase around 10% in. Regional Minimum Wages (in million) Strata-title Inflation Based on available spaces, the average asking prices were recorded at IDR29.2 million/sq m by the end of. Some future strata-title office buildings are currently offering asking prices starting at IDR23 million up to IDR38 million/sq m. Meanwhile, due to location and those that have not been sold yet caused prices of two operating office buildings to be lower than market prices. In our view, s strata-title office market will continue to struggle against headwind from the oversupply and lacklustre market performance. Thus, we anticipate office space prices to continue to hover in. In alone, the absorption of strata-title office spaces in experienced a slowdown, and this has pushed landlords to be more negotiable in setting the prices lower. In our record, from around 150,000 sq m of future office spaces for sale available between and 2020, currently only 15% has been absorbed and 4 Colliers Quarterly 21 March Office Colliers International

6 this has not taken into consideration the unsold units from the supply available before. Concluding Thought Amidst the continuing building construction over the next three years and limited market capacity to absorb it, we expect increasing vacancy rates to lead s office market to a period of recession. Nevertheless, there is always hope particularly when Indonesia improves its rank in the World Bank Survey of Easy of Doing Business (OEDB) report, which put Indonesia as a less costly business place. For more information: Ferry Salanto Senior Associate Director Research ferry.salanto@colliers.com Contributors: Eko Arfianto Senior Manager Research Copyright Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report. 5 Colliers Quarterly 21 March Office Colliers International

7 Colliers Quarterly SURABAYA APARTMENT H2 21 March Ferry Salanto Senior Associate Director Investor-type of buyers in tends to be more responsive to the new property projects, especially those built by reputable developers. On the other hand, as buyers are currently more selective in spending their money particularly on apartment projects, the products that have strategic location, unique concept and offer flexible payment method are still able to thrive despite the current market condition. On the other hand, regarding the apartment-for-lease market, although supply is increasing and tenant s budget continues to compress, the rental market has been very resilient and should stay at this level, even if more serviced apartment projects arrive. Furthermore, it is expected that rents will remain soft in the near term. Nevertheless, it may still take a few more quarters before rents start to show any broad based improvement. Thus, for H1, rental rate may still be expected to hover around current levels. Forecast at a glance Demand With the economic outlook in the next year to be up slightly from s level to 5.3%, we expect the take-up rate of the apartment market in to remain relatively stable at 82-84%. Supply Up to 2021, we expect the total new strata-title apartment supply to reach 33,535 units or additional new supplies at an average of 8,384 units per annum, which is 164% higher than the average of the last five years. In addition, 56.3% of the total units will target the middlelower segment. Rent In, the short-term lease would be the demand generator for apartments for lease. We projected the average asking rental rate of apartments for lease to be relatively stable until H1 amid the softer long-stay demand. Price Whilst strata apartments continue to face challenges from stiff market competition, we expect the average asking price to grow by 5-6% in the end of. Apartment for Strata-title Supply Three new apartment projects, with a total of 1,732 units, were officially handed over during H2 and increased the total number of apartment units in by 11% YOY to 30,619. The newly completed projects range from middle to upper market segment, but the overall apartment market in is still dominated by middle-lower segment projects with 57.2%. Apartment Segment Based on Number of Units Mid-up 24.7% Upper 3.7% Low 14.4% Mid-low 57.2%

8 NEW SUPPLY PIPELINE APARTMENT LOCATION REGION #UNITS ASKING PRICE/SQ M 2020 Biz Square Apartment Jl. K. Abdul Karim East 400 IDR12,500, Eastcovia (Zaha Tower) Jl. Kejawan Putih Tambak East 750 IDR12,550,000 Springville Residence (2 towers) Jl. Raya Kedung Asem East 474 IDR9,800,000 The Tunjungan Boulevard Jl. Tunjungan Central 292 IDR30,000,000 The Grand Stand Jl. Raya Darmo Permai Selatan West 307 IDR16,500,000 Apartment Location Based on Number of Units West 45% South 6% Central 3% East 46% Future Apartment Segment Based on Number of Units (E 2021E) Mid-up 24.4% Upper 3.6% Low 15.7% Mid-low 56.3% A total of 33,535 new strata-title apartment units are now in the pipeline and scheduled for completion between and 2021, reflecting an average of 8,384 additional units per annum. These upcoming projects will be mainly concentrated in East (50.4%) and West (29.7%). The domination of middle-lower segment apartments over the next four years is aimed to target students and first home buyers. Demand Overall, we do not see much improvement in the demand side during the second semester of. The overall demand remains patchy. Enquiry remains strong for new apartment projects in excellent locations, built by reputable developers or those that offer a bunch of attractive benefits such as long instalment scheme, free service charge for a certain period and special price discounts. The profile of buyers in is quite similar to that in Jakarta. High-profile investors in tend to be more responsive to new property projects, especially those constructed by reputable developers. In addition, with the end of the tax amnesty, buyers tend to purchase apartments without fear of prosecution in relation to a previous tax period. The typical high-profile investors generally opt hard cash or cash instalment payment scheme for existing properties, which has happened in some apartments located in Central. Despite having projects that performed well in sales, the excess supply of new apartment projects has exerted downward pressure on the average take-up rate in West and East. 2 Colliers Quarterly 21 March Apartment Colliers International

9 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 Average Take-up Rate West East South Central H2 H1 H2 HOH YOY 88.0% 88.3% 87.8% -0.5% -0.2% 80.1% 78.7% 80.3% 1.6% 0.2% 70.6% 81.3% 83.0% 1.8% 12.5% 64.2% 63.0% 67.6% 4.6% 3.4% price may still eke out a return; not high, but still enough turnaround of 5-6% gain YOY. Average Asking Price of Apartment in IDR25,000,000 IDR20,000,000 IDR15,000,000 IDR10,000,000 H2 H1 H2 HOH YOY IDR5,000,000 Existing projects 97.6% 97.4% 97.9% 0.5% 0.3% IDR0 Underconstruction projects 67.2% 67.4% 68.6% 1.2% 1.4% Total 81.2% 81.3% 82.4% 1.1% 1.2% Asking Price The overall increment in the asking prices during the reviewed period is mainly driven by the addition of newly launched apartment projects with a higher price than the average market into our calculation, as well as the continuing construction works. Furthermore, as at H2, the average asking price of apartments in increased by 1.6%, compared to the prior semester or 4.2% YOY, to an average of IDR20.4 million/sq m. Average Asking Price (in IDR/SQ m) of Apartment in, Based on Region Region H2 H1 H2 HoH YoY West 20,688,296 20,868,577 21,398, % 3.4% East 15,853,113 16,201,929 16,465, % 3.9% South 17,458,480 18,025,147 18,025, % 3.2% Central 28,351,203 29,123,333 29,550, % 4.2% Apartment for Lease Along the second half of, Vasa Hotel located at Jl. HR Muhammad, West opened 42 serviced apartment units, offering one-bedroom to three-bedroom types of units ranging from 66 to 132 sq m. With the operation of this project, the total supply of apartments for lease in increased by 6.5% to 691 units. The existence of this newly operating apartment continues to underline that West remains to be the favourite location for apartments for lease, particularly for serviced apartments. Individual investors signalled that they are still keen to committing to purchase, but are still concerned about the capital gain and delivery time of the project. Ultimately, if developers and agents play their roles well next year, which we believe they will, we are of the opinion that sales activity will grow, and thus the overall 3 Colliers Quarterly 21 March Apartment Colliers International

10 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 NEW SUPPLY PIPELINE APARTMENT LOCATION REGION YEAR OF OPERATION Oakwood at One East Residence Jl. Raya Kertajaya Indah East 144 Graha Golf Serviced Apartment Graha Family West TBA* TBA* *TBA: to be announced #UNITS Location of Apartment Based on Number of Units West 74% South 4% Central 22% Occupancy Rate 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Occupancy Overall, occupancy of apartments for lease in was slightly down by 1.4% to 57.8%, compared to the previous semester. The newly operating serviced apartment units from Vasa Hotel lowered the overall occupancy calculation. Furthermore, the slowdown of new enquiries from long-stay guests has also contributed to the overall sluggish performance of apartments for lease in. Nonetheless, we are of the opinion that occupancy rate should be higher going forward, given the fact that is the second-largest city after Jakarta and the busiest in eastern Indonesia. Average Occupancy Rate Based on Region 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Central West South 4 Colliers Quarterly 21 March Apartment Colliers International

11 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 Rental Rate The average asking rental rates for serviced apartment in reached IDR257,839/sq m/month, showing an increase of 8.4% compared to the previous semester or 13.8% YOY. The opening of a new upscale serviced apartment, Vasa Hotel, which set a higher rent than the overall market, has changed the overall rental figure in the region. In addition to that, rental adjustments have been implemented in some apartment projects in line with inflation rate. Average Rental Rate IDR300,000 IDR250,000 IDR200,000 IDR150,000 IDR100,000 IDR50,000 longer-term prospect of s apartment market. > is the economic hub of eastern Indonesia. In our observation, most apartment buyers are businessmen coming from the eastern part of Indonesia. > There are at least 81 universities in, creating a student market for apartments in the city. has been a Mecca for quality higher education in eastern Indonesia. > Big-scale companies located in the surrounding cities in the cement, fertiliser, oil, gas, mining, smelter and many other industries create more jobs and pull intensive skilled labour for both locals and foreigners. This triggers the need for decent living accommodations that are relatively limited in the surrounding cities. > As a highly urbanised city with industries centralised in the city as well as homes for students, is now progressing its transportation infrastructures to cope with the current heavy traffic. IDR0 Concluding Thought Going forward, despite the better outlook of Indonesia in terms of ease of doing business and macro-economic condition in the next year, occupancy rates of serviced apartments will potentially experience intense competition from the newly built upscale strata-title apartments. We expect the average occupancy rate of apartments for lease in to stay at 58-60% in. The short-term outlook projection for apartments in may not be rosy. However, the following issues should be taken into account in envisaging the For more information: Ferry Salanto Senior Associate Director Research ferry.salanto@colliers.com Contributors: Hern Rizal Gobi Manager Research Copyright Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report. 5 Colliers Quarterly 21 March Apartment Colliers International

12 2010 E 2019E 2020E sq m Colliers Quarterly SURABAYA RETAIL H2 21 March A modest supply projection in will help lift retail market performance Ferry Salanto Senior Associate Director Jakarta Retail market began to straighten up in. Despite the declining occupancy rate, newly opened shopping centres provided a new shopping atmosphere in, from mall concept to tenancy mix. As a result, other existing malls began to evolve and rejuvenate their malls as well. Forecast at a glance Demand In the future, retailers who occupy a space between 200 and 300 sq m are expected to continue. These days, a growing trend is that malls are becoming places for gathering, especially for young people, popularising the concept of a lifestyle mall and recreation. Food and beverage retailers are expected to still become attractive for visitors to. For large spaces, Transmart Group also began to expand to, but for the meantime they prefer to be free standing. Supply Additional supplies in will be quite considerable in number. Over the next three years, we only recorded four future shopping centres to bring around 103,000 new retail spaces. The next new shopping centre will be The Central Dharmahusada, which will start operating in. Vacancy rate A modest amount of future supply and high pre-committed take-up at newly operating malls will help push overall occupancy performance to reach 85% in. Supply Rent In the current market condition, there is no room for landlords to capitalise on adjusting asking rents higher. A moderate estimation of 1-2% rental increase in is primarily due to calculation adjustments that were very much influenced by middle-upper class malls in. Despite securing high occupancy rates, we predict middle-upper class shopping centres to prefer to maintain and boost their occupancy rates than increase base rents in. Despite experience such increase, we estimate a very thin rental growth in, around 1-1.5% YOY. Cumulative Retail Supply in 1,200,000 1,000, , , , ,000 0 Existing Supply Additional Supply The opening of two shopping centres, namely Pakuwon Indah Mall and Tunjungan Plaza 6, both under the management of Pakuwon Jati, marked the retail market in the second semester of. These two malls contributed 119,495 sq m of new retail space, and thus bringing the total retail space in to exceed

13 2010 E 2019E 2020E sq m 1 million sq m by the end of, showing an increase of 12.3% YOY. In, after recording a historic high in annual supply of almost 120,000 sq m, supply will grow very modestly in Colliers predicts only around 103,000 sq m additional retail spaces to enter the market in the next three years. Almost 80% of the future retail spaces in will be contributed by shopping centres within One Galaxy and Ciputra World. State-owned developer, PT. PP Properti is now an active player in developing shopping centre in with two upcoming lifestyle malls built within their mixed-use projects of Grand Dharmahusada and Sungkono Lagoon. Based on construction progress, these two malls will meet completion consecutively in 2020 and The rapid increase in the need to have modern urban society activities currently encourages the typology of city development to be more multifunctional. This trend evolves with the many community activities such as jobs, shopping and recreation. This concept is expected to tidy up the congestion and organise the city chaos. Annual Retail Supply in 125, ,000 75,000 50,000 25,000 Distribution of Existing and Future Retail Space in 0 West In Operation Under East North South Central 0 100, , , ,000 sq m Existing Supply Future Supply As one of those components, the existence of new shopping centres in the future is predicted to increase in line with the integrated development in. With the congestion of the city centre, the development of shopping centres in the suburbs can also be an attractive option for developers by offering a mall concept not only for shopping but also recreation. Of course, this is supported by the development of infrastructure such as major roads and outer ring roads to support the distribution of visitors both from inside and outside. Source: Colliers International NEW SUPPLY PIPELINE SHOPPING CENTER LOCATION REGION DEVELOPER NLA (SQ M) MARKETING SCHEME DEVELOPMENT STATUS The Central Kertajaya Indah Timur Central Gunawangsa 10,000 For Lease Under 2019 One Galaxy Mall Dharmahusada Indah East Puri Galaxy (Sinar Galaxy Group) 40,000 For Lease Under 2020 Ciputra World Mall 2 Mayjen Sungkono South Ciputra Group 40,000 For Lease Under Lagoon Avenue Dharmahusada Dharmahusada East PP Properti 12,545 For Lease Under 2 Colliers Quarterly 21 March Retail Colliers International

14 E 2010 E The government of supports such developments by transforming the surrounding road areas into trading and commercial zones in accordance with the city planning. Performance Demand and Occupancy The overall occupancy rate dropped 4.2% YOY to 78.4%, mainly highlighted by the closure of some stores at two middle upper class shopping centres in. Over the last five years, the amount of annual space absorption showed a decreasing trend from to. Thanks to the two newly operating shopping centres that opened with already good take-up, occupancy improved 1.5% compared to the first semester of. Average Occupancy Rate 100% 90% 80% From the F&B line, brands such as ChicKing Group of Restaurants from Dubai, Uni Emirat Arab, launched their first store at Plaza. Average Occupancy Rates in Different Region of 100% 90% 80% 70% 60% 50% Central North West South East 70% 60% 50% 40% 30% 20% 10% 0% Asking Rental Rates The two newly operating malls are upper class shopping establishments that offer higher than-average market rents and thus, brought the overall asking rents up by 9% YOY to IDR480,542/sq m/month. Today, most of shopping centres in ask rental tariff starting at IDR300,000 to IDR425,000/sq m/month. Only the top five shopping centres offer rents above market rate, around IDR500,000 up to IDR700,000/sq m/month. Average Rental Rates in Different Regions IDR600,000 Given a reasonable supply projection in, we expect vacancy rate to drop. Furthermore, most committed tenants at Tunjungan Plaza 6 and Pakuwon Mall will open immediately as they are progressing in fitting-out their stores. The vacated space at the above-mentioned middle upper class mall will likely be replaced by newer tenants and thus, we think occupancy may jump to 84-85% in. IDR500,000 IDR400,000 IDR300,000 IDR200,000 In, some new retailers indicated to further penetrate with more stores in. After occupying a space at Pakuwon Mall, H&M opened its second store at Tunjungan Plaza 6. Miniso, the Japanese fashion designer brand for household and consumer goods including cosmetics, stationery, toys and kitchenware, also landed for the first time in in. Consecutively, Miniso opened at Grand City, Ciputra World Mall and recently at Pakuwon Mall. IDR100,000 IDR0 3 Colliers Quarterly 21 March Retail Colliers International

15 Central North East West South Central North East West South We estimate asking rents to increase moderately in, between 1% and 2%. A future shopping centre that will open in is expected to offer the asking base rental relatively lower than market prices. In addition, we project the top five shopping centres to maintain their asking base rents and keep them relatively stable in. Nevertheless, some middle to lower classes shopping centres still recorded the same rental rates within the last three years. These shopping centres possibility adjust the base rents particularly for the available spaces at primary areas. Range and Average Asking Rents in Different Regions Average Service Charges IDR140,000 IDR120,000 IDR100,000 IDR80,000 IDR60,000 IDR40,000 IDR20,000 IDR IDR900,000 IDR750,000 IDR600,000 IDR450,000 Range of Service Charges in Different Regions IDR300,000 IDR180,000 IDR150,000 IDR0 IDR150,000 IDR120,000 IDR90,000 IDR60,000 IDR30,000 IDR0 Service Charges There are two main reasons why service costs increased during the semester. Several shopping centres adjusted the tariff up by IDR10,000 to IDR30,000/ sq m/month. Besides, two newly operating shopping centres charge higher maintenance tariff than the average market rate. This resulted in a 13.9% increase YOY, which brought the average service charges in to register at IDR123,085/sq m/month. The determinant factor that might impact the service charge cost in will be the plan of the city government of to increase regional minimum wages by 8.7%. Other determining factors, including electricity tariff, are expected to be stable next year and thus, service charges increase will only be in line with the change in the regional minimum wages. Concluding Thought The decrease in purchasing power is also recognised by some major retailers in (particularly Matahari). This was affected not only by online retail growth, but also more due to newly opening tenants that began operation and put more competition to existing retailers. Nevertheless, s retail market still remains prospect in. Trends in purchasing power remain high in conventional retailers rather than online. The existence of online retail will help bring convenience for shoppers because everything is on hand to get information about any merchandise. 4 Colliers Quarterly 21 March Retail Colliers International

16 Economic growth is projected to be relatively stable, and might even increase. The increase in economy can be an indicator of the increasing level of consumption. Of course, it is also a necessary role of the government to stabilise other expenses, including electricity costs and other basic living expenses. With so, more visitors are expected go to the malls for shopping.. For more information: Ferry Salanto Senior Associate Director Research ferry.salanto@colliers.com Contributors: Eko Arfianto Senior Manager Research Copyright Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report. 5 Colliers Quarterly 21 March Retail Colliers International

17 Colliers Quarterly SURABAYA HOTEL H2 21 March Hotel Ferry Salanto Senior Associate Director Jakarta In the second semester, experienced an increase in performance. MICE market became the biggest contributor during the semester, especially from the government sector. Forecast at a glance Demand will still be dominated by business coming from the manufacturing industry in the region and surrounding areas. The government sector will also be another market in, especially during the mid-year up to November or early December. Meanwhile, the leisure market mostly involves only the transit to visit areas in East Java, including Banyuwangi, Jember, Malang and other cities. Supply is expecting another 2,035 rooms in, consisting of 1,008 3-star hotel rooms and 1,027 4-star hotel rooms. There are no upcoming 5-star hotels in. Supply Subsequent to the closure of Satellite hotel (154 rooms) in H1, the number of new hotel rooms only grew by 483 rooms during the last semester of. This was the smallest amount of annual room supply since. For some years, the hotel market in has been in oversupply with a substantial addition of new hotel rooms every year. In and alone, the total annual hotel room supply reached its highest with 1,805 and 1,564 rooms respectively. As a business city, is the main hub for other cities in eastern Indonesia. The hotel market is typically for business and is therefore highly dependable on the economic condition of the city in particular and Indonesia in general. Many hoteliers consider the business condition in as stable, but for hoteliers, this implies that the city needs more growth to lift its overall performance, as the market continues to become more competitive with continued influx of hotel supply. will be a more challenging year for s hotel market with the number of on-going hotel projects reaching 2,035 rooms from 12 hotels; the highest number so far in the city. Occupancy Although additional hotel rooms in are limited, if there are no additions in business or other sectors, increasing occupancy rate will be a bit difficult. In, occupancy rate ranged between 52% and 53%. Room Rate The ADR might still experience a decreasing trend in, bringing it to a range between USD42 and USD44.

18 NEW HOTEL PROJECTS DURING H2 HOTEL NAME STARRED RATING STR CHAIN SCALE RATE LOCATION REGION NO. OF ROOMS I&M Hotel 3-star Undefined Argopuro South 142 Prime Biz Hotel 3-star Undefined Gayung Kebonsari South 162 Namira Syariah 3-star Undefined Jl. Wisam Pagesangan South 71 Dafam Psifik Caesar Hotel 3-star Undefined Jl. Ir. H. Soekarno East 108 NEW PIPELINE HOTEL NAME STARRED RATING STR CHAIN SCALE RATE LOCATION REGION NO OF ROOMS PROJECT STATUS PROJECTED COMPLETION TIME One Galaxy Hotel 3-star Undefined MERR II C East 110 Under Puncak Dharmahusada 3-star Undefined MERR II C East 400 Under Continent My Tower 3-star Undefined Rungkut East 134 Under Premier Inn HR Muhammad 3-star Undefined Jl. HR Muhammad West 163 Under Life Hotel 3-star Undefined Jl. Sumatera East 100 Under Palm Park Hotel 3-star Undefined Jl. Kapas Krampung Central 101 Under Yello Rungkut 3-star Undefined Rungkut East 168 In Planning 2020 Arum Hotel 3-star Undefined Jl. Gunung Anyar East 120 In Planning 2020 Novotel Hotel 4-star Upscale Jl. Kedung Baruk East 172 Under 4-star Upscale Embong Sonokembang Central 288 Under Grand Dafam Kayun 4-star Midscale Kayon Central 169 Under Swiss-Belhotel Darmo 4-star Upscale Darmo Central 140 Under Great Hotel 4-star Undefined Diponegoro South 90 In Planning Harris HR Muhammad 4-star Upper Midscale Jl. HR Muhammad West 168 Under Four Points by Sheraton 4-star Upscale Jl. Puncak Indah Lontar West 316 Under 2019 Allium Hotel 4-star Undefined Jl. Gung Anyar East 110 In Planning 2020 Hilton Hotel 5-star Upper Upscale Jl. Gubeng East 200 Under 2019 The Westin 5-star Upper Upscale Jl. Puncak Indah Lontar West 204 In Planning Colliers Quarterly 21 March Hotel Colliers International

19 2010 E 2019E 2020E Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2010 E 2019E 2020E Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Cumulative Hotel Rooms Average Occupancy Rate (AOR) 7,000 6,000 5,000 4,000 3,000 2,000 1, % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 3-star 4-star 5-star Cumulative Hotel Projects Source: STR Average Daily Rate (ADR) USD70.00 USD60.00 USD50.00 USD40.00 USD30.00 USD20.00 USD USD star 4-star 5-star Performance Entering the second semester of, hotel performance was in an upward trend with occupancy starting to pick up, albeit moderately. As predicted, several MICE activities held by the government helped fuel demand for hotel accommodation in. The monthly occupancy performance during the first six months started with 46.2% and ended the semester with 51.1%. Although this was far from being an impressive figure, monthly occupancies during the second semester ranged slightly higher from 52.2% to 54.0%. Competition amongst hoteliers is still tough, despite the fact that supply for was limited. However, market has already been saturated with a lot of options that the market itself cannot entirely absorb. Source: STR The monthly ADR figure in was relatively about the same level of what was achieved in, which was still below the performance in the previous two years. For most hotel operators, there are not many options in this tight competition except to maintain their published room rates, because guests are becoming very price sensitive. Nowadays, hoteliers contend with an additional competitor the online travel agents (OTAs), which usually offer very interesting prices to prospective guests. This has brought a decrease in the number of people booking their stay through hotel websites. To anticipate this, several hotels have started offering interesting packages and prices that could compete against what OTAs are giving. Yet, OTAs have helped the hotels fill up their rooms. 3 Colliers Quarterly 21 March Hotel Colliers International

20 Several hotels near the industrial area or a toll road access to the industrial area benefit from having longstay guests, which guarantee occupancy and revenue. As the biggest city in East Java, serves as the hub for business and leisure in the area. There are so many interesting places nearby such as Madura, Banyuwangi, Bromo and others. It is not because there are no access points to those areas, it s just that the access is not as much as to. The richness of the culture and natural resources of East Java has attracted people to come and explore the place. may develop this market by collaborating with the local government and other stakeholders. The city should also create interesting tours and packages for people to explore East Java. For more information: Ferry Salanto Senior Associate Director Research ferry.salanto@colliers.com Contributors: Nurul Soraya Senior Research Executive Research Copyright Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report. 4 Colliers Quarterly 21 March Hotel Colliers International