SURABAYA PROPERTY MARKET REPORT

Transcription

1 Colliers Half Year Report H September 2018 SURABAYA PROPERTY MARKET REPORT Accelerating success.

2 Colliers Quarterly SURABAYA OFFICE H September 2018 Ferry Salanto Senior Associate Director As the second largest city in Indonesia, is a business gateway for companies wishing to invest in the eastern part of the country. Despite the large opportunities, average office absorption was only around 14,000 sq m per annum from 2010 to. This modest absorption was offset by a relatively small increase in office space supply during that period, which brought the average occupancy rate to remain steady at 81%. The competition from shop-houses for lease, known as ruko and rukan, is still a challenge. Ruko and rukan offer cheaper rents than office buildings. In anticipation of a large upcoming supply in 2018, we expect landlords to maintain the current level of rents, especially for new office buildings with less than 50% occupancy. Large vacant spaces have already pushed the office market into a tenant s market. Landlords of existing office buildings should also need to be wary of relocating tenants to newer buildings that offer competitive rents. Forecast at a glance Occupancy rate We expect 2018 s supply projection to effect the occupancy at the end of 2018, pushing it to drop below 70%. We expect occupancy to decline continuously until Rents Large vacant spaces and additional new supply in the remainder of 2018 should push rents down by 2.6% to IDR128,138/sq m/month. In 2019, with limited new supply, rent is predicted to move upward by 4%, but could again see pressure from a substantial amount of new space in 2020, which could bring the average rent to IDR127,678/sq m/month. Prices In, the current slowdown in the economy has made investments in office property less attractive. Landlords are keeping their average prices at IDR30 million/sq m for the rest of We anticipate prices to climb in , albeit gradually at between 2.0% and 2.5%. Demand Total office space absorption in is scheduled to reach 13,000 sq m per annum in We expect forthcoming leasing or sales transactions to come from the insurance, finance and shipping industries. Supply Total office supply in should exceed 400,000 sq m by the end of 2018, which is an increase of 19.3% YOY. Between 2019 and 2020, total office space is planned to increase to 550,000 sq m.

3 E 2020E 2021E E 2020E 2021E Lease Annual Supply 120,000 Supply Cumulative Office Supply 700, , , , ,000 80,000 60,000 40,000 20, , , ,000 0 In Operation Under Construction In Planning Cumulative Office Supply by Region New office supply in is scheduled to be substantial between 2018 and 2021, with at least 11 new buildings bringing approximately 330,000 sq m of office spaces. During the first half of 2018, eight office buildings continue to be under construction, with four of these scheduled for completion in This will likely bring about 65,000 sq m of new office supply online. Future developments that are already under construction this year include Satoria, Pelindo Place and an office building within the Capital Square Complex. We expect these three establishments to be completed in Pelindo Place, located near Tanjung Perak Harbour, is planned to become the first commercial office building in North. We expect the growth of office supply to continue at least through 2021, however, three buildings that are scheduled to be completed in 2021 are still in the planning stages. Central South West East North Existing Supply 0 100, , ,000 Future Supply E Future office supply in is planned mainly in West, particularly in the HR Muhammad- Darmo area, which is in line with the government s spatial planning policy (RTRW) that designates the area for trade and residential use. 2 Colliers Quarterly 20 September 2018 Office Colliers International

4 YTD E 2020E 2021E NEW SUPPLY PIPELINE OFFICE BUILDING LOCATION DEVELOPER SGA (SQ M) MARKETING SCHEME 2018 Praxis Office Panglima Sudirman Intiland Development 12,000 For Lease & Sale Voza Office Tower HR Muhammad Avia Avian 18,607 For Sale Spazio Tower Bukit Darmo Boulevard Intiland Development 20,000 For Sale Tirta Kencana Kertomenanggal Tirta Kencana 15,000 For Lease 2019 Pakuwon Tower Basuki Rahmat Pakuwon Jati 39,740 For Lease & Sale 2020 Satoria Tower HR Muhammad Satoria Group 34,000 For Sale Capital Square HR Muhammad Greenwood 39,950 For Lease 2021 One Galaxy Dharmahusada Puri Galaxy (Sinar Galaxy Group) 31,450 For Lease Grand Sungkono Lagoon Abdul Wahab Siamin PP Property 38,250 For Lease Ciputra World Office Tower Mayjend Sungkono Ciputra Group 37,400 For Sale Cumulative Office Supply by Marketing Scheme 500, , , ,000 institutional investors continue to be the main targets of strata office buildings in. Performance Occupancy Occupancy Rates 100% 100,000 90% 0 80% 70% For Lease For Sale 60% Source: Colliers International Indonesia Research Since, strata-title offices regained popularity in, and three new strata-title office buildings composing about 100,000 sq m are scheduled to come online this year alone. This is a significant jump, almost double, from. We expect the strata-title office stock to double from 2018 to Both individual and 50% 3 Colliers Quarterly 20 September 2018 Office Colliers International

5 YTD YTD The pattern of declining occupancy in will likely recur at the end of 2018, given the substantial supply coming online. The absence of new office supply for the last 18 months has helped occupancy rates stabilise at around 76.7%. Leasing activity was still dominated by trading, shipping and freight forwarding business lines, particularly in the central business district. The occupancy performance of office buildings in Central still helps underpin the overall occupancy performance in. To date, the occupancy rate in Central was 83.2%, revealing a 1.7% increase from the previous period. We still see several local and overseas investment companies targeting for business expansion. Nevertheless, such companies only require relatively small office spaces (some needing below 100 sq m). Typically, these companies are commonly new or startup businesses that require some time before firming up their operations with a wider and permanent operation in. Having said that, we think that there is a great opportunity for flexible workspace operators that provide a more flexible scale of office spaces in. Similar to what we are seeing in Jakarta, these flexible workspace operators provide more options in the market. In line with this situation, we have identified that in the past year some flexible workspace operators have started to emerge in, such as Sub CO, Koridor and Revio. Occupancy Rates Based on Regions 100% 90% 80% 70% 60% The Rents Average Asking Base Rents, per sq m IDR160,000 IDR140,000 IDR120,000 IDR100,000 IDR80,000 IDR60,000 IDR40,000 IDR20,000 IDR0 Starting in early, we witnessed average rental rates declining, which continued in H A further downward trend will likely to occur in the remainder of Two office buildings located in Central announced they were lowering their rents by about 15% HOH, despite the fact that there were not many vacant spaces in these buildings. With this adjustment, the overall average rental rate in declined 2.1% YOY to register at IDR131,561/sq m/month. The average asking rental rates in were 55% lower than in Jakarta. The currently sluggish market coupled with a large number of additional office buildings pushed landlords of newer office buildings to refer to the market price as basis, in order to maintain their competitiveness. Average asking rental tariffs for new office buildings is currently ranging from IDR135,000 to IDR150,000/sq m/month. 50% Central West South East 4 Colliers Quarterly 20 September 2018 Office Colliers International

6 YTD 2018YTD Asking Base Rents Based on Region, per sq m IDR300,000 IDR250,000 IDR200,000 IDR150,000 IDR100,000 IDR50,000 IDR0 Central Service Charges South West Average Service Charges, per sq m IDR80,000 IDR70,000 IDR60,000 IDR50,000 IDR40,000 IDR30,000 IDR20,000 IDR10,000 IDR0 East Service Charges Based on Region, per sq m IDR120,000 IDR100,000 IDR80,000 IDR60,000 IDR40,000 IDR20,000 IDR0 Central Strata-title Average Asking Prices IDR35,000,000 IDR30,000,000 IDR25,000,000 IDR20,000,000 IDR15,000,000 IDR10,000,000 IDR5,000,000 IDR0 South West East Source: Colliers International Indonesia Research Over the last year, service charges have increased a slight 4.4%, with the majority of office buildings in increasing the tariff by IDR5,000. In the review period, average service charges were registered at IDR67,497/sq m/month. With more strata-title buildings in the pipeline, the average service charge is likely to increase moderately, mainly because strata-title office buildings generally quote lower tariff than buildings offered for lease. Source: Colliers International Indonesia Research In, asking prices have been relatively stable at IDR28 - IDR29 million/sq m since. Nevertheless, some landlords with limited availability of spaces confidently set the selling prices higher than the market prices. Some strata-title office buildings in saw good absorbtion in H1 2018, although it took about three to four years to achieve this level of absorption. Sales transactions for strata-title office buildings were still dominated by investors 5 Colliers Quarterly 20 September 2018 Office Colliers International

7 For more information: Ferry Salanto Senior Associate Director Research Contributors: Eko Arfianto Senior Manager Research Copyright 2018 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. 6 Colliers Quarterly 20 September 2018 Office Colliers International

8 Colliers Quarterly SURABAYA APARTMENT H September 2018 Ferry Salanto Senior Associate Director More stock in the market has led to a buyer s market, which will likely cap property price appreciation. Demand has improved somewhat but remained patchy. We believe market sentiment could remain soft in 2018, as the market continues to digest a large quantity of unsold inventory. We expect the strongest demand to be in small units with relatively affordable pricing. This year, the bulk of new launches from developers will likely come from midlow class apartments priced below IDR1.5 billion per unit. This typical unit type remains the most saleable product in this subdued apartment market. Forecast at a glance Demand Market sentiment in is yet to recover, particularly because of a large number of available units. By the end of 2018, the take-up rate may edge up modestly to 81-82%. A brisker outlook for 2019 and 2020 may allow the takeup rate to reach 84% and 85%, respectively. Supply The total number of strata-title apartments will reach 36,523 units by From now to 2020, supply is scheduled to grow by 9,251 units per annum. About 46% of all new units are scheduled in the mid-low segment. Rent In this competitive rental market, we see no room for rents to increase, particularly for local operators. We expect the average rent to increase by 1-2% per annum in Apartment for Strata-title Supply Following the completion of three projects in that brought a total of 4,379 units online, there are now 34,998 apartment units in stock, reflecting a 14.3% increase HOH and 21.2% YOY. These three newly completed projects are predominantly in the middle-low class. Overall, the middle-low segment still dominates the apartment market in, accounting for 53% of stock. We expect this domination to continue in the future. For the past three years, West continues to be a popular location for apartment development, as shown by numerous units launching in the region, especially within the areas surrounding Jl. Darmo, Jl. Mayjen Sungkono and Jl. HR. Muhammad, and also within upscale housing compounds such as Graha Family, Citra Indah and Pakuwon Indah. With massive commercial developments and the upcoming West Outer Ring Road providing better access to industrial areas in Gresik, Tuban and Mojokerto, there will likely be a wider target market, from employees to expatriates. Furthermore, in contrast with Jakarta, which is very much on the radar of overseas developers, most developers in are local players, such as Pakuwon, Intiland, Ciputra, Gunawangsa Group, Puncak Group and PT Pembangunan Property (PT.PP Property, Tbk). Price Asking prices should post modest growth over the next two years, increasing by 5-6%, as buyers may still need some convincing for them to overcome their inertness.

9 APARTMENT PROJECTS COMPLETED DURING H DEVELOPMENT LOCATION REGION DEVELOPER NAME #UNITS Puncak Dharmahusada (2 towers) Jl. Ir. Soekarno East Puncak Group 2,886 Praxis Jl. Panglima Sudirman Central Intiland 293 Gunawangsa Tidar (2 towers) Jl. Raya Tidar Central Gunawangsa Group 1,200 Market Segmentation of Existing Projects Mid-up 22% Upper 4% Low 21% The mixed-use development concept has been quite popular in as land availability becomes scarce. The mixed-use concept typically combines commercial and residential functions offers a practical and simple style of living. As such, this concept might attract the millennial market, which prioritises living in vibrant areas that are close to their work and leisure amenities. Market Segmentation of Future Apartments Upper 4% Low 7% Mid-low 53% Mid-up 41% Overall, the supply of apartment units in still continues to grow. Despite being pressured by low sales activity, developers still have positive expectations for the market, which translates into a number of projects being introduced and launched. Mid-low 48% NEWLY INTRODUCED/LAUNCHED APARTMENTS IN H APARTMENT LOCATION REGION #UNITS EXPECTED COMPLETION TIME ASKING PRICE/SQ M* The Trans Icon Apartment Jl. Frontage Ahmad Yani South 1, IDR23,000,000 Vertu Apartment Jl. Mayjen Sungkono West IDR32,000,000 Westown View Jl. Raya Wiyung West IDR17,500,000 Darmo Hill Residence (Rosewood Tower) Jl. Pakis Argosari West IDR25,000,000 Tierra Apartment (Star Tower) Jl. Darmo Harapan West IDR16,000,000 *Price excludes VAT 2 Colliers Quarterly 20 September 2018 Apartment Colliers International

10 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H Demand The general apartment market situation in remains unchanged, compared to the previous period. The overall take-up rate declined slightly HOH by 1.4%, to 81%. Whilst some projects are performing well in sales, a number of newly launched projects added downward pressure to the overall take-up rate. Prominent developers such as Ciputra, Pakuwon and PT PP Property still appeal to consumers in, for confidence in their overall reputation. In general, apartment products from reputable developers are relatively well-absorbed. Average Take-up Rate West East South Central H1 H2 H HOH YOY 88.3% 87.8% 86.8% -1.0% -1.4% 78.7% 80.3% 79.1% -1.2% 0.4% 81.3% 83.0% 72.2% -10.8% -9.1% 63.0% 67.6% 72.6% 4.9% 9.6% which will likely restrain apartment demand as mortgages become costlier. In the period when demand for apartment is low, the priority of developers lies in sustaining their properties sales momentum, which is increasingly being challenged by the currently tepid market. Therefore, attractive product offerings with strong value propositions, such as location, concept and a clear target market are critical to drive sales. Asking Price The sluggish sales performance of apartments in has resulted in a slower increase of apartment prices in H The average price of strata-title apartments in was IDR18.3 million/sq m, increasing by slightly less than 1% from the previous period (0.7% HOH and 2.3% YOY). The Average Price of Strata-title Apartment in IDR25,000,000 IDR20,000,000 IDR15,000,000 Existing projects Underconstruction projects H1 H2 H HOH YOY 97.4% 97.9% 94.7% -3.2% -2.7% 67.4% 68.6% 67.2% -1.5% -0.2% Total 81.3% 82.3% 80.9% -1.4% -0.4% IDR10,000,000 IDR5,000,000 IDR0 Ramadan and the new school year, which fell in May- June this year, marked the slow sales period particularly when people generally limit their spending for food, clothes and travel. On the other hand, PT. PP Property Tbk recorded bulk sales worth IDR2.1 trillion for three apartment projects, which are Grand Shamaya Lagoon (Tower 2), Grand Dharmahusada Lagoon (Tower 2) and Grand Sungkono Lagoon (Tower 4). The sale was made to a third party, Arvaca Investama, a Middle East-based investor company, as strategic partner. Similarly, we expect other bulk sales transactions that are still in the pipeline, but have yet to be finalised. All in all, we did not see any direct impact to the overall take-up rate, as the three towers are still in the planning stages. We expect market sentiment in to remain soft in 2018, particularly in the high-interest rate environment, The highest average asking price of IDR28.6 million/sq m is found at Central. However, it experienced the lowest price growth of 0.6% from the previous period and increased by a slight 2% from the previous year. The slow growth in apartment prices in Central was likely because the current market price had reached the accepted psychological price range, thus putting a drag on price increases. To stoke demand we have witnessed smaller units being offered with more accommodative payment schemes, such as very low or even 0% down payments, with a longer instalment period that could stretch to 100 months. Furthermore, with the number of unsold units in the market remaining high, developers will probably be 3 Colliers Quarterly 20 September 2018 Apartment Colliers International

11 more focused on clearing their inventory, thus leading to a buyers market. Asking Price (in IDR/SQ m) in Different Areas of Region H1 H2 H HOH YOY West 20,868,577 21,398,894 21,511, % 3.1% East 16,201,929 16,465,676 16,903, % 4.3% South 18,025,147 18,025,147 18,742, % 4.0% Central 29,123,333 29,550,900 29,631, % 1.7% East and West are still the most appealing locations as reflected in their continuing flow of newly launched projects, resulting in the increase in average prices. On the other hand, the increase in average prices in South was due to the launch of Trans Icon, which introduces a price higher than the overall market in the area. For individual investors, on the ground feedback hints that they are still keen to commit, but are still concerned about the potential for capital gains and delivery time. Buyers may still need some convincing for them to overcome their inertness. Marketing strategies are becoming even more important because without a focused and sustained marketing effort, market activity falls back into a slumber. However, the rising cost of raw materials due to the strengthening US dollar against the rupiah is harder to pass on to buyers with the current slow demand. Consequently, developers may suffer from lower margins, as they find it challenging to pass through incremental cost pressure via higher prices. Also, as land is becoming more expensive over time, we think developers may have to rethink strategies tapping into the premium market segment, as it is not likely to fare well in the current market condition. Apartment for Lease Supply As of H1 2018, the supply of apartments for lease has remained stable, mainly because there is no new supply in the market. The total stock of serviced apartments stayed at 691 units, with most of the units located in West (77.3%), followed by Central (22.7%). Furthermore, 144 additional serviced apartment units from Oakwood Hotel and Residence are scheduled to be ready for operation in July The project, as planned, is the first serviced apartment project located in East. Central and West have been known as premium locations where multinational companies and expatriates settle. Hence, these areas are still preferred locations for serviced apartments due to their neighbourhood profile, well-supported infrastructure and accessibility to the downtown and industrial areas such as Gresik, Tuban and Mojokerto. Occupancy Despite having no additional supply, leasing activity was still weak as the occupancy rate of the city s rental apartment market decreased by 6% HOH and 7% YOY to 52% by the end of the first half of Besides the sluggish economy and lack of national-scale projects that could bring expatriates to, demand for rental apartments has been pressured by the competition, both from privately owned strata-title apartments for rent and hotel rooms, which offer longstay accommodation. In recent years, demand for longstay occupation, particularly from expatriates, has increased alongside the presence of industrial estates located in East Java. Meanwhile, the hotel sector recorded weak performance, especially at four- to fivestar hotels, over the same period. As a result, many of the hotel projects adjusted their operating strategy by converting portions of their units to serviced apartments to improve returns. 4 Colliers Quarterly 20 September 2018 Apartment Colliers International

12 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H H1 H2 H1 H2 H1 H2 H1 H2 H1 H2 H % 80% 60% 40% Most operating serviced apartment projects choose to maintain their existing rates but are offering various rental concessions to entice prospective tenants, both for individual and corporate tenants. Currently, a typical one-bedroom serviced apartment in is offered at around IDR22.2 million/unit/month, whilst two- and three-bedroom units are offered at around IDR24.6 million/unit/month and IDR29.3 million/unit/month, respectively. 20% IDR300,000 0% IDR250,000 IDR200,000 IDR150,000 IDR100,000 Overall, in this environment with a combination of factors, such as slow influx of expatriates and increasing competition from individually owned strata-title apartments, landlords of apartments for lease require a clear marketing strategy to draw in tenants. Also, shortterm tenants that mostly come from individual business travellers and family holidays during the weekend continue to help lift overall occupancy rate. IDR50,000 IDR0 Rental Rate Overall, the serviced apartment market in experienced a slight rental increase of 0.7% HOH and 9.2% YOY to IDR259,700/sq m/month. As demand is still slow and the fact that apartments for lease are competing head-to-head against individually owned strata-title apartments, rental rates should ebb. For more information: Ferry Salanto Senior Associate Director Ferry.Salanto@colliers.com Contributors: Rizal Gobi Manager Copyright 2018 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 20 September 2018 Apartment Colliers International

13 YTD 2019E 2020E 2021E Colliers Quarterly SURABAYA RETAIL H September 2018 Ferry Salanto Senior Associate Director Jakarta Local fashion retailers continued to receive more pressure from the expansion of foreign retailers, which offer both quality and affordability, particularly for youngsters and millennials. Meanwhile, we also expect to see the expansion of F&B brands, in line with the developing lifestyle in. Supply Cumulative Retail Supply in 1,400,000 1,200,000 1,000, , ,000 We expect brick and moartar stores to survive in despite the growing online market. Even so, the current trend nowadays is that successful online merchants still need to have a display store in shopping malls. 400, ,000 0 Forecast at a glance Demand Apart from F&B, the health and beauty industries will likely become more active retailers looking for retail space in. Supply The addition of new retail space in is planned to reach around 140,000 sq m in , representing 12.8% of current stock. During that period, supply should grow by 4.3% per annum. Occupancy Our three-year occupancy projection is relatively stable at 81%, given that the quantity of supply coming online is moderate. is anticipating a limited quantity of new retail supply through the end of 2018; probably only one new shopping centre will be ready for operation this year. As of H1 2018, the lack of new shopping centres in for the last six months has maintained the total retail supply at 1.1 million sq m. Going ahead, we expect at least five shopping centres to be completed between 2019 and Four of these are currently under construction and will likely open in 2019 or An increasing number of shopping centres are part of an integrated development with residential and retail functions complementing each other, i.e. the retail adding more value to the residences, whilst the residential provides a captive market for the shopping centres. Rents We forecast the average rents of shopping centres in to increase by 5% from H1 to H and should further climb by 3.6% from early 2019 to the end of 2020.

14 E 2020E 2021E Annual Retail Supply in 140, , ,000 80,000 60,000 40,000 20,000 0 Distribution of Existing and Future Retail Spaces in Central South West North In Operation Under Construction In Planning East 0 200, ,000 Cumulative Supply in 2018YTD Supply E NEW SUPPLY PIPELINE SHOPPING CENTER REGION DEVELOPER NLA (SQ M) MARKETING SCHEME DEVELOPMENT STATUS 2018 The Central Central Gunawangsa 10,000 For Lease Under Construction 2019 One Galaxy Mall East Sinar Galaxy Group 40,000 For Lease Under Construction 2020 Ciputra World Mall 2 South Ciputra Group 40,000 For Lease Under Construction Lagoon Avenue Dharmahusada East PP Properti 12,545 For Lease Under Construction East Coast Center 2 East Pakuwon 36,920 For Lease Under Construction 2021 Grand Sungkono Lagoon Shopping Mall South PP Properti 15,000 For Lease In Planning More shopping centres are scheduled to be developed in East and South, underpinned by rapid residential development in the eastern region. 2 Colliers Quarterly 20 September 2018 Retail Colliers International

15 2018YTD YTD 2019E Performance Demand and Occupancy Average Occupancy Rate 100% 90% 80% 70% 60% 50% According to the Central Statistics Bureau (BPS), albeit moderate, East Java s Consumer Tendency Index (Indeks Tendensi Konsumen [ITH]) improved in Q1 2018, compared to that in Q4. The survey revealed the business and economic situation regarding purchasing plans for several product categories such as food, clothing, education, transportation, health and luxury goods. The BPS projects that the index is expected to improve in Q In addition, the Association of Indonesian Shopping Centres (APPBI) East Java continued to aggressively seek ways to encourage transactions in the malls. APPBI works closely with Bank Negara Indonesia (BNI) in applying for EDC (Electronic Data Capture) to improve a number of merchants in several shopping malls. Average Occupancy Rates in Different Regions of Above all, the average occupancy rate of shopping centres in was recorded to only edge up by 1.2% HOH to 79.6% this semester. Newly opened malls that bring fresh tenancy mix and offer attractive sales programmes have heightened the competition amongst shopping malls in an environment where we have seen some fashion and F&B retailers have closed shop. 100% 90% 80% 70% 60% 50% E-commerce trading has yet to erode the overall business of local retailers in. However, the immediate competition might come from international brands. Major foreign brands such as H&M and Uniqlo have added more challenge to retailers, competitionwise. Competitive prices, good product packaging and presentation are amongst the considerations for shoppers to accept the concept presented by most international brands. Central East South North West Bomb attacks that took place in in mid-may had a short-term impact on mall visitation, especially in restaurants. Several stores closed temporarily, reducing foot traffic for several days. According to the Association of Indonesian Café and Restaurant Entrepreneurs (APKRINDO), sales volume or the number of visitors in East Java was only around 10-20% than normal. In the same month, events such as the Shopping Festival 2018 effectively regained shoppers confidence to visit the malls. In addition to retailers, mall landlords also rearrange and refresh their tenancy mix in order to keep up with the competition. Some existing malls, including Grand City and Ciputra World, attempt to revivify their tenant composition by having more F&B retailers, in order to raise the number of visitors. Over the remainder of 2018 to the end of 2019, we estimate average occupancy to stay around 81-82%. This is mainly due to a positive consumer index and sound economic growth projections, as well as by a relatively regulated quantity of future supply over the coming years. 3 Colliers Quarterly 20 September 2018 Retail Colliers International

16 Central North East West South Central North East West South YTD YTD Rents Average Rental Rates Service Charges Average Service Charges IDR600,000 IDR500,000 IDR400,000 IDR300,000 IDR200,000 IDR100,000 IDR0 IDR160,000 IDR140,000 IDR120,000 IDR100,000 IDR80,000 IDR60,000 IDR40,000 IDR20,000 IDR0 Compared to the previous semester, average rent was stagnant at IDR480,542/sq m/month, as landlords generally focus on maintaining or even increasing their occupancy level. Even so, some malls with retail location in demand are confident in introducing a 15% rental increase for tenants whose lease contracts are expiring. Because of this, we expect to see the average rent adjusting ub by 5% YOY at the end of Ciputra World, Grand City, Galaxy Mall, Tunjungan Plaza and Pakuwon Mall are still the most expensive retail locations in, as they are categorised as upper-class shopping centres with asking rents starting from IDR500,000 up to IDR850,000/sq m/month. Average Rental Rates in Different Regions In the last six months, most of the shopping centres did not change their service charges; only a few adjusted the tariff higher by 1-5%, bringing the average cost to IDR124,614/sq m/month. Range of Service Charges in Different Regions IDR160,000 IDR120,000 IDR80,000 IDR40,000 IDR0 IDR1,000,000 IDR800,000 IDR600,000 IDR400,000 IDR200,000 IDR0 4 Colliers Quarterly 20 September 2018 Retail Colliers International

17 . For more information: Ferry Salanto Senior Associate Director Research Contributors: Eko Arfianto Senior Manager Research Copyright 2018 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 20 September 2018 Retail Colliers International

18 2010 H E 2020E 2010 H E 2020E Colliers Quarterly SURABAYA HOTEL H September 2018 Hotel Ferry Salanto Senior Associate Director Jakarta Supply In H1 2018, there were three new hotels that began operation, comprising of 426 rooms in 3-star hotels (with two hotel projects providing 177 rooms) and one 4-star hotel project with 249 rooms. The eruption of Mount Agung, in Bali, led to a spillover of hotel guests to in early Some hoteliers revealed that several MICE activities that were previously planned to be held in Bali were partially shifted to. Meanwhile, the month of Ramadan, followed by Eid al-fitr, making a long holiday from mid-may to mid-june, changed the timing for business travel mainly facilitated by the government. Cumulative Hotel Rooms 8,000 7,000 6,000 5,000 4,000 3,000 Forecast at a glance Demand The hotel industry will continue to be propelled by MICE activities, ultimately from government and corporate sources. 2,000 1, Star 4-Star 5-Star Supply Through 2020 in, 2,904 additional rooms will come online, consisting of 1,133 3-star hotel rooms, 1,167 4-star hotel rooms and star hotel rooms. Cumulative Hotel Projects 60 Occupancy The year-to-date occupancy (up to May 2018) was recorded at 55.8%, which is a 4% increase compared with the same period last year. The competition amongst hotels will likely remain intense in. Thus, we predict occupancy over the next two years to slightly drop to around 55.5%. Room Rate The monthly ADR of hotels in has been stable over the last three years. We expect the ADR to hover around USD46 over the next two years Star 4-Star 5-Star

19 NEW HOTEL PROJECTS DURING H HOTEL NAME STARRED RATING STR CHAIN SCALE RATE LOCATION REGION NO. OF ROOMS OPENING TIME Great Hotel 3-star Undefined Jl. Diponegoro South 90 March 2018 Batiqa Hotel 3-star Undefined Jl. Darmokali South 87 May 2018 Novotel Samator Timur Hotel 4-star Upscale Jl. Kedung Baruk East 249 February 2018 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 Construction 2018 Continent My Tower Rungkut 3-star Undefined Rungkut East 134 Under Construction 2018 Palm Park Hotel 3-star Undefined Jl. Kapas Krampung Central 101 Under Construction 2018 Life Hotel 3-star Undefined Jl. Sumatera East 100 Under Construction 2019 Yello Rungkut 3-star Undefined Rungkut East 168 In Planning 2020 Arum Hotel 3-star Undefined Jl. Gunung Anyar East 120 In Planning star Upscale Embong Sonokembang Central 288 Under Construction 2018 Grand Dafam Kayun 4-star Midscale Kayon Central 169 Under Construction 2018 Swiss-Belhotel Darmo 4-star Upscale Darmo Central 226 Under Construction 2018 Harris HR Muhammad 4-star Upper Midscale Jl. HR Muhammad West 168 Under Construction 2019 Four Points by Sheraton, Pakuwon Indah 4-star Upscale Jl. Puncak Indah Lontar West 316 Under Construction 2019 The Westin 5-star Upper Upscale Jl. Puncak Indah Lontar West 204 In Planning 2019 AKR Signature Gallery - Hilton Hotel 5-star Upper Upscale Jl. Gubeng East 200 Under Construction 2020 The Trans Luxury Hotel 5-star Undefined Jl. Ahmad Yani South 200 In Planning 2020 Supply growth from 2018 onward has declined, compared with that in -. This is in part due to the downturn in the overall hotel performance in, which resulted in the limited financial support for hotel development, as there is already oversupply in. The projected hotel supply in 2018 comes from delayed projects that were planned to be operational in - 2 Colliers Quarterly 20 September 2018 SURABAYA HOTEL Colliers International

20 Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec. These hotel projects were postponed due to various issues, including a delay in construction, financial or permitting issues. Most hotel projects in are located in Central, despite the fact that this area already has so many existing hotels. This is because remains the central business area, where government offices and most commercial office buildings are located. The city centre area is also considered a melting pot, especially for guests coming in from eastern Indonesia. Meanwhile, the southern and western parts of cater to hotel guests mainly coming from industrial locations outside, such as Sidoarjo and Gresik, as they are accessible from the toll road. Performance Average Occupancy Rate (AOR) 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: STR 2018 Occupancy in was good during the first quarter of 2018, benefiting from the spill-over of guests from Bali, shifting their location due to the eruption of Mount Agung. Several MICE events previously planned to take place in Bali were relocated to, as it is the closest and most comparable destination after Bali. On the other hand,, which has been known as a peaceful area, was disturbed by terrorist bombings in early May. This pushed several countries such as the UK, the US, Australia and France to issue travel warnings for. Thankfully, security measures were able to control the situation and the condition on the ground returned to normal after several days. The tense atmosphere after the bombing was reflected in the increasing security measures in spots where people gather, such as in malls, hotels, airports and office buildings. The downswing in hotel performance in May is more likely due to the slow month of Ramadan, highlighted by lower business activity, particularly from the government. After the long Eid al-fitr holiday, we expect to see market performance to rebound, and this has been the trend over the last couple years. Average Daily Rate (ADR) USD70 USD60 USD50 USD40 USD30 USD20 USD10 USD0 Source: STR 2018 The ADR figures for the first half this year are likely to be similar to the numbers recorded in and. The market remains price-sensitive, so that hoteliers would rather keep their rates steady, prioritising occupancy. Hotels need to maintain a competitive rate in order to continue attracting guests, especially with private corporations and the government as the major demand in. We have seen an increasing number of people using online travel agents, (OTA) as they offer a simpler processes, more practical use, competitive pricing and better promotions. Even now, the government and private corporations are booking through OTA. Competition in the accommodation business is not only amongst hotel operators but also from apartment units offered for lease, a comparison of which is available below. 3 Colliers Quarterly 20 September 2018 SURABAYA HOTEL Colliers International

21 GENERAL COMPARISON OF 3-STAR HOTEL ROOMS VERSUS APARTMENT UNITS IN SURABAYA HOTEL APARTMENT Room Size 20-30sqm (depend the room type) Approximately 20 to 60 sq m Room Type 1 BR with different size depending on hotel rate 1BR, 2BR or 3BR ranging from 21 to 57 sq m Room Rate (IDR)/day 300, ,000 (most affordable room type, depending upon the season) No standard price Room Capacity Maximum two Not regulated Kitchen No Yes Breakfast Yes No (yes for serviced apartment) Source: booking.com COMPARISON OF 3-STAR HOTELS AND APARTMENTS IN EAST SURABAYA Swiss-Belinn Manyar Educity Apartment Room size (sq m) Room type 1BR 3BR Room capacity 2 7 Room rate (IDR/day) 655, ,000 Facilities Kitchen No Yes Breakfast Yes No Swimming Pool & Fitness Centre Yes Remarks - Located in a superblock area (Pakuwon City) Source: booking.com Yes 4 Colliers Quarterly 20 September 2018 SURABAYA HOTEL Colliers International

22 COMPARISON OF 3-STAR HOTELS AND APARTMENTS IN WEST SURABAYA Whiz Prime Darmo Harapan Supermall Mansion Orchard Tower Supermall Mansion Tanglin Tower Room size (sq m) Room type 1BR 1BR 1BR (with living room) Room capacity Room rate (IDR/day) Facilities 350, , ,000 Kitchen No Yes Yes Breakfast Yes No No Swimming Pool & Fitness Centre Remarks - Source: booking.com Yes Yes Yes Located above Supermall PTC Located above Supermall PTC For more information: Ferry Salanto Senior Associate Director Research ferry.salanto@colliers.com Contributors: Nurul Soraya Senior Research Executive Research Copyright 2018 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 20 September 2018 SURABAYA HOTEL Colliers International