Research & Forecast Report Jakarta Industrial Estate 4th Quarter 2013 Industrial Estate Market Report Accelerating success.
Contents Supply 3 Demand 4 Industrial Land Prices 5 Land Price 5 Maintenance Cost 6 Outlook 6 2 Research & Forecast Report 4Q 2013 Industrial Estate Colliers International
Supply By Ferry Salanto Associate Director Research Ferry.Salanto@colliers.com The industrial land transactions during 2013 totalled 442 hectares representing just 69% of the total recorded in 2012. The limited availability of developed land is the major reason total sales dampened during 2013. Industrial land prices were somewhat up in the first half of 2013 but were suppressed in the following half due to slowing land absorption. Overall industrial land prices only increased by an average of 18.9% y-o-y in all regions and reached US$159.32/sq m. - Ferry Salanto Colliers International is a leader in global real estate services, defined by our spirit of enterprise. Through a culture of service excellence and collaboration, we integrate the resources of real estate specialists worldwide to accelerate the success of our partners. We represent property investors, developers and occupiers in local and global markets. Our expertise spans all property sectors office, industrial, retail, residential, rural & agribusiness, healthcare & retirement living, hotels & leisure. The general situation in the industrial market remained the same for the last couple of years with supply availability becoming the major issue. There was no new industrial land opened during the quarter. Thus, the total serviceable industrial land in the six regions (Serang, Tangerang, Jakarta, Bekasi, Karawang and Bogor) remained 8,798 ha, which is 112 ha more than the total stock in 2012. The major issue in the industrial supply during 2013 was the limited stock of land on offer. Additional supply this year was basically sold out as pre-commitment sales occurred before the land was developed. This land issue has been a problem since 2011 when significant absorption of industrial land started to occur. Industrial land transactions were mainly active during the first half of 2013. During that period, buyers looking for industrial land had to search at several estates and most frequently could not decide because land is not available. This situation has put industrial landlords into a better bargaining position in offering adjusted prices and choosing the tenants they want. In some cases, some developers, particularly in the Bekasi or Karawang regions, are able to sell raw land at the price of ready-to-use land (even though the land is not ready for sale). This will be beneficial for both parties as landlords will receive some of the cash in advance while buyers will get the current price in anticipation of further increases when land is in a ready-to-use condition. The abovementioned situation mostly happened in the first half 2013. In the following half, transaction activity relatively softened and thus, limited land availability seems to have an insignificant impact. The situation when inquiries tapered off should be perceived as an opportunity for several industrial estates to speed up their expansion plans to be able to deliver land on schedule in 2014 and anticipate the rise of the industrial market, which is expected to occur after the elections. There are some plans for expansion at the existing industrial estates and for the opening of new industrial estates. The expansion of existing industrial estate seems to be a more realistic plan because the existing tenants would potentially become strong buyers. Other industries may eye the expansion of existing industrial estates because of their reputation and established infrastructure and facilities. New industrial estates will face more challenges in getting tenants. Having an anchor tenant with a big name allows industrial developers to attract more tenants. The availability of ready-to-build land was generally limited in 2013, however, some industrial developers actually hold a big parcel of undeveloped land for industrial location. There are some expansion plans scheduled to materialise in 2014, indicating that a significant amount of new land of around 628 ha at several industrial estates will potentially be ready in 2014. 3 Research & Forecast Report 4Q 2013 Industrial Estate Colliers International
Potential Newly Developed Industrial Land (Net Size in Ha) region number of industrial estates planning to provide new land total new land scheduled for 2014 (ha) total new land with indefinite schedule (ha) Bogor 1-3 Bekasi 4 300 29 Tangerang 1 50 - Karawang 3 10 313 Serang 2 268 200 Distribution of Industrial Land in Six Regions In the last quarter of 2013, the largest single transaction, a secured land transaction of 8 ha, occurred at one industrial estate located in the Karawang area. In total, in the Karawang area, 12.63 ha was sold, which was actually higher than the last quarter figure. All in all, the Bekasi region captured the highest amount of land sales this quarter with a total of 19.86 ha. Meanwhile, despite being lower than the abovementioned two regions, Serang consistently recorded land sales with almost 5 ha during the quarter. During 2013, Karawang Jabar Industrial Estate, ranked first in terms of amount of land being sold. The latest transaction to Toyota of around 150 ha made up all of the sales for this estate, even though the land will only be ready later. Green Land is ranked number two, selling around 75 ha during 2013 with the most transactions being in auto-related industries. Annual Industrial Land Sales 1400 Serang 21% Jakarta 10% Bogor 2% Bekasi 26% 1200 1000 Karawang 36% Tangerang 5% hectares 800 600 400 200 Demand The total industrial land transactions during 2013 reached 442.1 ha or only 69% of the total transactions recorded in 2012. Industrial sales reached a peak in 2011 when almost 1,250 ha of land was transacted. For the last two years, the total annual industrial transactions have been lessening; only 636.4 ha were sold in 2012 and it further dropped in 2013. The level of demand has been quite strong since 2010, however, limited land stock availability is the major issue that has dampened total sales during all of 2012 and 2013. Limited stock also changes the overall composition of land being transacted. The largest transaction occurring in 2013 was also a pre-commitment sale because land being transacted was not ready-to-build land. 0 2008 2009 2010 The largest land transaction during the quarter was recorded in Suryacipta with one steel-related company from Malaysia buying around 8 ha. Apart from that, another 3.4 ha were sold to a Japanese auto parts company. Other sizeable transactions occurred in Bekasi. Greenland International Industrial Center confirmed several transactions to the automotive industry from Japan and US with a total of 8.7 ha. In the same region, Bekasi Fajar saw a total of 6.1 ha sold to two automotive companies from Japan. The total land being transacted in Serang was only 4.96 ha with all operating industrial estates contributing to the sales. KIEC reported total sales of around 3 ha to the construction industry. Other industrial estates, like Modern Cikande has been consistently recording sales every quarter. This quarter, transactions were concluded by a food processing company of Singapore (for expansion), together with a local steel company and a chemical company from Malaysia. All three transactions during the quarter totalled almost 2 ha in Modern Cikande. This has been the smallest quarterly transaction for Modern Cikande during 2013. 2011 2012 2013 4 Research & Forecast Report 4Q 2013 Industrial Estate Colliers International
Other industrial land transactions were also monitored in Delta Silicon where around 5 ha of land were released to automotive companies and companies providing workshop facilities. Meanwhile, MM2100 reported that they only sold a small parcel of land to an automotive company from Japan. Similarly, Kota Bukit Indah in Karawang only recorded a single small transaction from a gas company. All in all, auto-related companies accounted for most of the transactions concluded during the quarter. Other active industries include steel, construction and chemicals. Land Sales Recorded During 2013 at Each Industrial Estate Karawang Jabar Industrial Greenland International Suryacipta Millenium Modern Cikande Bekasi Fajar Jababeka Delta Silicon KIIC Krakatau Industrial Estate Kota Bukit Indah Kota Bukit Indah (Indotaisei) Kawasan Industri Kujang MM2100 Industrial Town Cumulative Supply, Demand and Take-up Rates 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 0 20 40 60 80 100 120 140 160 2008 2009 2010 2011 2012 2013 Cumulative Supply (ha) Take-up Rate (%) hectares 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Cumulative Demand (ha) Similar to the composition in 2012, most transactions during 2013 were composed of automotive and related industries with 55% of the total sales. Up to 4Q 2013, transactions concluded by automotive industries accounted for a total of almost 243 ha. The majority of land transactions by automotive and related industries occurred in either the Bekasi or the Karawang areas. Other active industries during 2012 were the food and beverage industries, followed by logistics, building materials, SFB developers, chemicals, steel related, building materials and packaging. Types of Activities Industries During 2013 Printing 0.22% Steel-related 3.47% Food & Beverage 13.53% Chemicals 2.91% Electronics 0.11% Automotive 54.83% Oil & Gas Related 0.99% Manufacturing 0.70% Logistics/ Warehousing 5.42% Packaging 1.69% Industrial Land Prices and Maintenance Cost Land Price Metal Heavy 1.38% Equipment 0.68% Building Material 2.94% Medical 0.09% Developer 0.45% Others 10.58% In this report, although there are some industrial estates quote land prices in rupiah, the currency is converted into US dollar because most active industrial estates quote prices in US dollars. As a result, the average price has been quite volatile, particularly when the exchange rate fluctuates. For example, in Bogor and Serang, all industrial estates in these regions offer industrial land in rupiah. With a weakening rupiah against the US dollar, despite maintaining the price at the same level, the average prices in US dollars are somewhat weakening. 5 Research & Forecast Report 4Q 2013 Industrial Estate Colliers International
Industrial Land Prices Maintenance Cost USD/sq m $240 $210 $180 $150 $120 $90 $60 $30 Only one of all the operating industrial estates have reported an increase in service charges during the reviewed quarter. This industrial estate introduced 7% increase due to the adjustment over the increasing cost. Overall, service charges are fairly flat in all regions. Service charges will potentially increase in 2014 given the plan to increase electricity tariffs, which will affect operating costs. Industrial Land Prices and Maintenance Costs* region Land price (sq m) maintenance costs (/sq m/ month) lowest highest average lowest highest average $0 2008 2009 2010 2011 2012 2013 Bogor USD 120.0 USD 239.7 USD 206.0 USD 0.07 USD 0.08 USD 0.07 Bekasi USD 188.3 USD 256.8 USD 206.0 USD 0.06 USD 0.07 USD 0.06 Tangerang USD 102.7 USD 171.2 USD 112.7 USD 0.04 USD 0.11 USD 0.06 Bogor Karawang Tangerang Bekasi Karawang USD 160.0 USD 200.0 USD 182.5 USD 0.05 USD 0.06 USD 0.06 Serang USD 102.7 USD 128.4 USD 115.6 USD 0.03 USD 0.05 USD 0.04 *1USD = Rp 11,683 Compared to 2012, industrial land prices increased quite a bit in early 2013. In the second quarter of 2013, prices were somewhat adjusted with some industrial estates in both Bekasi and Karawang introducing new prices. Overall, the average land price in 2Q 2013 edged up mildly. In the third quarter of 2013, several industrial estates continued to quote new prices on the back of limited industrial land available. Nevertheless, since the overall price is presented in US dollars, the q-o-q change was somewhat different from the real trend. The q-o-q price trend in the last quarter of 2013 was relatively flat with only one industrial estate trying to introduce a new asking price for the remaining small plots of land available. Most of the industrial estates opted to maintain the current price amid the slowing market. Having experienced slowing sales coupled with a continued weakening rupiah during the year, average land prices in the greater Jakarta area only edged higher by 3% y-o-y. By region, Karawang recorded the highest jump of 17% y-o-y With prices presented in US dollars, the Serang area only registered less than a 1% increase but in rupiah, prices climbed by 17% y-o-y. Other areas recorded a downward trend due to the depreciating rupiah against the US dollar (given that some industrial estates quote in rupiah). Indeed, prices have increased compared to 2012. The upward trend was still seen in the first half of 2013 when the rupiah was still stable. One industrial estate in Bekasi reported that the strengthening US dollar has pushed them to reduce prices in US dollars by 10% this quarter in the midst of slowing business. However, this is going to be a temporary action and prices will return to the original numbers once the business climate improves. Outlook Quite a few industrialists still perceive that greater Jakarta locations are irreplaceable, notwithstanding the expensive land prices. Thus far, we have not seen an exodus of industries relocating from this location to other areas like Semarang (Central Java province) or Surabaya (East Java province). The issue of relocations to other areas outside greater Jakarta only appears at a very few companies, which mainly are sensitive to the increase in land cost. Industrial land prices may be suppressed in 2014, in particular during the first half of the year when most investors, both domestic and foreign, will likely take a wait and see attitude because they do not want to take big risks. This is partly because they realise that there is not much that can be done by the current government. Investment will continue to enter sectors that have already attracted investors, particularly sectors with heavy reliance on the domestic market, such as food and beverage, automotive, retail, telecommunications and transport. In the industrial market, we will still be seeing the expansion of automotiverelated companies and the food industry, albeit in smaller numbers than in 2013. Economic activities are expected to flat line in 2014, thus Indonesia expects a slowdown in direct investment. 6 Research & Forecast Report 4Q 2013 Industrial Estate Colliers International
Industrial developers are largely cutting back the growth of sales in 2014 and opting to focus on either committing to finishing land delivery or earning recurring income from the leasing market. Some estates have started allocating the remaining land to develop commercial compounds where they are building SFBs for rent. This will help maintain periodic income (not only from selling water, etc.) when the land sales activity slows down. One industrial estate in Bekasi will concentrate on selling warehouse buildings instead of selling land because of limited land stocks and better profit margins. It is interesting to note that, with the expectation that the industrial market will soften at least in the first half of the year, some industrial estates are projecting price increases in 2014. Two industrial estates in Serang plan to introduce new prices for different reasons. Due to the increasing construction material and labor cost to develop land, one industrial estate is projecting a 15 to 25% price increase in 2014. Meanwhile, another industrial estate is planning to increase by around 17% in 2014 because of the operation of Cikande exit interchange, which will give better access to location from the toll road. Overall, the average price in Serang is currently below the average market price. Compared to the prices in the two most active regions, i.e. Bekasi and Karawang, which range from USD160 to 256 psm, the prices in Serang were somewhat lower, ranging from USD103 to 128 psm (using the exchange rate of IDR12,000=USD1). Other than Serang, industrial land prices in other regions will stabilise at the current level. Since prices in some active industrial estates are offered in US dollars, the total land cost seems more expensive, particularly with the rupiah depreciating against the US dollar. 7 Research & Forecast Report 4Q 2013 Industrial Estate Colliers International
482 offices in 62 countries on 6 continents United States: 140 Canada: 42 Latin America: 20 Asia Pacific: 195 EMEA: 85 Primary Authors: Ferry Salanto Associate Director Jakarta 62 21 521 1400 ext 134 Ferry.Salanto@colliers.com $2 billion in annual revenue 104 million square meters under management Colliers International Indonesia Jakarta World Trade Centre 10th & 14th floor Jalan Jenderal Sudirman Kav. 29-31 Jakarta 12920 Indonesia TEL 62 21 521 1400 13,500 professionals and staff About Colliers International Colliers International is a global leader in commercial real estate services, with over 13,500 professionals operating out of more than 482 offices in 62 countries. A subsidiary of FirstService Corporation, Colliers International delivers a full range of services to real estate users, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services, mortgage banking and insightful research. The latest annual survey by the Lipsey Company ranked Colliers International as the secondmost recognized commercial real estate firm in the world. colliers.com Copyright 2013 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.