Colliers Quarterly 31102016 GREATER JAKARTA INDUSTRIAL ESTATE Accelerating success. Industrial Estate Sector Ferry Salanto Senior Associate Director Research Since early 2016, the industrial market has been generally characterised by slow absorption. Despite recording higher sales volume during the third quarter, the overall sales performance does not suggest an improvement, particularly when compared to the total sales registered in the previous years. Nevertheless, the long-term outlook for the industrial market is still vibrant, especially when looking at the potential pentup demand. Forecast at a glance Supply There will be no immediate decision for the opening of sizeable new industrial land. Most of the potential raw land to be developed will need to wait for a committed big buyer before initiating the expansion. Demand Going forward, the logistics sector will remain the main driver for the industrial market to grow. Other sectors that will help underpin the industrial sector include automotive, food, consumer goods and electronics. Prices Prices will remain stagnant at least by the end of this year, because some industrial estates with sound sales performance have already increased prices. Early 2017 will likely become the momentum of the industrial market to move forward, and to sustain this, prices will be maintained at their current level. Industrial Land Supply Currently, industrial estates with huge potential land for development opt to retain the stock until they see interested big buyers. If the scale of potential enquiries is relatively small, they will not release the stock. In general, the industrial market needs sizeable and anchor-type buyers as a trigger to boost industrial sales. Potential land expansion may come from one operating industrial estate in the east area, which holds a permit to open about 210 hectares of land in the future. Currently, there is no definite decision from the management to initiate expansion work, most probably because they need to secure big buyers prior to the opening of the next stage of their development. Similarly, Trans Hexa Karawang, a consortium of several major industrial developers that hold the biggest land banks to be developed, is still waiting for big investors before they totally start operating the estate. Big buyers/investors are catalysts for most of the new industrial estates to confidently open in the area, because the existence of such big industries will lure smaller supporting industries. For several quarters, Delta Silicon industrial estate has focused on selling its latest product, Delta Silicon 8. Total gross area at Delta Silicon 8 is around 257 hectares. Of the saleable industrial land, about 40% has been taken up, leaving around 90 hectares net area offered for sale. From the four active industrial estates in Bekasi, a total of 204 hectares is ready to be sold. There are a number of industrial estates in Karawang holding big parcels of land for future market expansion. Most of these land banks will remain as stock until there is a trigger from big companies that require sizeable land. Similarly, the two industrial estates in Serang have also introduced the next stage of their development. In general, much like in other sectors, industrial landlords will wait for serious investors with commitment to buy before initiating any development work on their land.
Industrial Land Stock Status in Some Active and Future Industrial Estates Hectares 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Existing Stock Absorption Bogor Tangerang Karawang Bekasi Serang Potential Land To Be Developed Land Absorption in Q3 2016 Greenland International Industrial Centre Krakatau Industrial Estate Cilegon Jababeka Bekasi Fajar Modern Cikande Delta Silicon KIIC Millennium Remaining Unsold Land 0 10 20 30 40 50 hectares Amidst a general sluggish sales performance, Greenland International Industrial Center (GIIC) broke the deadlock by recording significant transactions this quarter, making it the industrial estate with the highest sales volume in 2016 YTD. GIIC s reported total sales for the quarter was 42.6 hectares, comprising four transactions to two companies in the logistics and warehouse business, one automotive company, and one food industry company. The 42.6 hectares of land transacted in GIIC composed 76% of the total sales this quarter, which implies a lackadaisical industrial market. As the overall transaction volume was mainly underpinned by GIIC s good performance, the remaining 24% of the total transaction was composed by small deals. 4.3 hectares of land were handed over by KIEC industrial estate to a smelter company, which converts raw nickel to a more ready-to-use material. The deal became the biggest for KIEC for the year, although they are anticipating for a significant amount of sales going forward. In Bekasi, Bekasi Fajar (BFIE) concluded the smallest sales volume (2.5 hectares) this quarter. In the previous two quarters, BFIE recorded 16.7 hectares of industrial land. The existing tenant that expands the business and plans to utilise the land for logistics purpose concluded the latest transaction in BFIE. Jababeka in Bekasi reported a total of 2.8 hectares sold to logistics and trading companies. Albeit lower than last quarter s figure, total sales in Jababeka are quite good, concerning the current slowdown in market situation. Meanwhile, a 2.2-hectare deal with Modern Cikande industrial estate was composed of three transactions chemical company, plastic injection and pharmaceutical. For several quarters, sales performance in Modern Cikande has been relatively stable. Still dominated by logistics, Delta Silicon sold 1.6 hectares of land to a company in the cool storage business. Another smaller deal was concluded in Delta Silicon to an auto-parts company, which together with the previous deal, closed the quarter with a total of 2 hectares. Another small land transaction was closed by KIIC, although this industrial estate has consistently recorded sales in every quarter in 2016 YTD. Meanwhile, a new investment arrived to this estate a single 1.4-hectare transaction driven by an auto-parts company from Japan. Twelve units of ready-to-use warehouses with a land size of approximately 1,000 sq m each were sold to several companies at Millennium industrial estate in Tangerang. Total land size of these transactions was around 1.2 hectares. 2 Colliers Quarterly 31102016 Greater Jakarta Industrial Estate Colliers International
Land Absorption Greenland International Bekasi Fajar Modern Cikande Jababeka KIIC Millennium Krakatau Industrial Estate Delta Silicon Annual Industrial Land Absorption Hectares 1,400 1,200 1,000 800 600 400 200 0 Suryacipta 0 10 20 30 40 50 hectares Jakarta Bogor Tangerang Karawang Bekasi Serang Total land transaction during the quarter in the greater Jakarta area constitutes 59 hectares, which was the highest for the last three consecutive quarters. Total industrial land 2016 YTD accounted for 107.41 hectares, still far (only around 30%) from the total 347.5 hectares made last year. To catch up with last year s total sales performance, more than 200 hectares of land should be transacted; this is unlikely to be achieved within the remaining three months. Like in the previous quarter, from logistics and warehouse, the most active remaining industrial sectors are those who purposely build for their clients or companies for their internal use. Year-to-date figure showed that 48% or about 51 hectares of the total industrial land transactions are for warehouse or logistics purposes. This has been the general trend since last year, after the domination of the automotive sector. There were still some automotive-related transactions, but we have not seen any transactions made by anchor buyers in order to pull other supporting industries related to automotive. Despite small, the market is still anticipating a number of expanding automotive industries in the future, as reported by some industrial estates. Enquiries from this sector still exist. Active Sectors Acquiring Industrial Land Logistics/ Warehousing 48% Manufacturing Oil & Gas Related 0% Chemicals Steel-related 3% Plastics Pharmaceutical 2% 3% Food & Beverage 10% Packaging Metal 4% Molding 2% Developer Others 3% Automotive 2 Another active sector is the food industry, which has always been a demand generator for industrial land, together with the consumer goods industry. Since they address consumers basic needs, food and consumer goods industries will always expand in the future. 3 Colliers Quarterly 31102016 Greater Jakarta Industrial Estate Colliers International
Land Prices Greater Jakarta Industrial Land Prices USD/sq m USD250.00 USD225.00 USD200.00 USD175.00 USD150.00 USD125.00 USD100.00 USD75.00 USD50.00 USD25.00 USD0.00 The shortage in the land stock generally triggered price adjustment. This happened to Millennium industrial estate in Karawang on the back of limited land supply. For the last quarters, they have revised the land price three times, i.e. from IDR1.9 million to IDR2.1 million, and now at IDR2.5 million/sq m as the current offering price. The adjustment was in line with a quite impressive sales performance in Millennium, particularly for those buying warehouses or standard factory buildings. Other than Millennium, prices of industrial land have been relatively flat, and there is a tendency of offering bigger discounts (although this is not entirely applicable in all industrial estates) for prominent transactions. Last quarter, we have witnessed two industrial estates cut their offering price, and today, industrial landlords generally tend to be more accommodative, amidst a sluggish market. Prices within the same estate might be offered differently depending on the shape, contour and location of the land. In general, the price gap between a good land in a strategic location and the least preferred land is around 10%. Since, industrial prices in several regions have reached a plateau, with minor volatility mainly due to the adjustment in the exchange rate. Although there were some minor price increases, there were no price surges in the last four years. Bogor Bekasi Tangerang Karawang Serang Industrial Land Prices and Maintenance Costs (in USD equivalent) region Land price (in USD/sq m) *1USD = Rp 13,136 maintenance costs (in usd/sq m/month) lowest highest average lowest highest average Bogor 120.0 213.2 166.6 0.06 0.06 0.06 Bekasi 190.3 243.6 222.1 0.06 0.08 0.07 Tangerang 159.9 152.3 156.1 0.03 0.08 0.06 Karawang 170.0 200.0 188.8 0.05 0.10 0.06 Serang 152.3 167.5 159.9 0.03 0.05 0.04 Leasing Activities The main three industrial estates with products for lease (land and buildings) reported a dormant leasing activity during the quarter. Since the second quarter of, CCIE in Bogor has reported zero leasing transactions. This suggests that market has been relatively inactive in the region. Likewise, Kota Bukit Indah in Karawang also indicated a slow market, highlighted only by a lease renewal of the existing tenants. Rental tariff for both land and building remained unchanged as of Q3 2016. Maintenance Cost Greater Jakarta Industrial Maintenance Costs USD/sq m/month USD0.10 USD0.09 USD0.08 USD0.07 USD0.06 USD0.05 USD0.04 USD0.03 USD0.02 USD0.01 USD0.00 Bogor Bekasi Tangerang Karawang Serang Going ahead, it is unlikely to see price adjustment in the remaining three months to close the year. Industrial landlords will remain cautious about the market, although some are anticipating a brisk sale, which would materialise either this year or early next year. 4 Colliers Quarterly 31102016 Greater Jakarta Industrial Estate Colliers International
Until now, service charge remained flat. Landlords will likely to maintain the rate for some periods going ahead. Next year, we anticipate an increase in clean water tariff, apart from the service charge. Thus far, majority of industrial estates are still quoting maintenance tariff in US dollars. Concluding Thought Amid a gloomy, short-term industrial market outlook, a potential pent-up demand would materialise probably at the yearend or early next year. Several industrial estates have identified potential enquiries particularly from the logistics, consumer goods, food and automotive sectors. The needs for warehouse would increase mainly due to the needs of the automotive industry and the expansion of electronic manufacturers, most of which are from China. Industries such as food processing, chemicals and other heavy industries will likely expand further in the western part of Jakarta. As Japan fell deeper into deflation, funds will flow overseas, including emerging markets, such as Indonesia. We felt that a number of investment funds from developed Asian countries would pour into the market, and as a result will help grow the industrial sector as well. For more information: Ferry Salanto Senior Asociate Director Research +62 21 3043 6888 ferry.salanto@colliers.com Copyright 2016 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. Accelerating success.