Half Year Report SURABAYA RETAIL H1 2016 Accelerating success. Retail Sector Ferry Salanto Senior Associate Director Research Marvel City Shopping Mall (15,000 sq m net area) became a newly operating shopping centre during H1 2016. Conversely, Golden City has ceased operation since early 2016 for renovation thus reducing the cumulative supply of shopping center space in by around 18,000 sq m to 967,808 sq m. The newly operating Tunjungan Plaza V and Marvel City that began operation in the last one year brought more vacant retail space onto the market and pressured occupancy rates down by 1.7% YoY to 82.4%. The average asking base rent was recorded at IDR439,770/sq m/month which confirmed that rates have been relatively flat over the last semester. Forecast at a glance Supply will see additional retail space of 40,000 sq m by end 2016 and will further receive 263,750 sq m during 2017 2018. Demand We anticipate more fashion and food retailers in. Occupancy Occupancy should slightly drop by 1% by end of 2016 owing to the commitment level of tenants in the new shopping centres. Rent The operation of new shopping centres, and their higher asking rates, will likely result in overall rent increases of 3% to 5%. Supply After the beginning of operation of Tunjungan Plaza V last year, Marvel City Shopping Mall became a newly operating shopping centre during H1 2016. This shopping centre is located in a mixed-use development project and provides around 15,000 sq m of net lettable area (NLA). Conversely, Golden City which is located at Jalan Wahab Siamin (South ) stopped operation early 2016 for renovation. By reducing around 18,000 sq m, cumulative supply of shopping centre space in was recorded at 967,808 sq m as of H1 2016. There are 30 operating shopping centres in since the opening of Pasar Atum in 1976 which means that the average annual supply until now is around 23,000 sq m. The retail market is expecting a huge additional retail of around 300,000 sq m from now up to the end of 2018. However, based on development status, most of these shopping centres ares in the planning stage which might be uncertain in the completion schedule. Three of the future shopping centres are already in the under construction stage, namely Supermal Pakuwon 2, Tunjungan Plaza VI and The Central Gunawangsa. These three shopping centres have been under construction since. Most future shopping centres in will be part of mixeduse development or as an expansion plan of the operating project. The developers aim at maximising the use of the land amidst land scarcity in most commercial areas in. The mixed-use concept has been quite successful in and this will be imitated in the future projects like Ciputra World Mall 2, Supermal Pakuwon 2, Tunjungan Plaza VI and One Galaxy Mall (third stage of the whole development). Another future shopping centre will likely come from a government project. Recently, the government of City confirmed to terminate lease agreement with the management of Hi-Tech Mall in North and that will end in 2019. The major issue arose mainly because the land value in the contract is lower than the current Tax Office Appraised Value (NJOP). The projects will be taken over by the government after the end of the contract and the city government will initiate a search for investors to re-develop that commercial area.
Cumulative Supply of Retail Centers in sq m 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 All regions in will actively contribute additional new retail spaces. Central and South will share around 160,000 sq m or 52% of total projected additional supply by 2018. South itself will become the most active region in providing future additional retail supply. As of H1 2016, four shopping centres which are located in A. Yani Mayjend Sungkono corridor are expected to meet completion time in 2017 2018. These four future shopping centres will bring 91,000 sq m of additional supply by 2018. Total Existing and Projected Retail Space in Several Regions in West 2010 2016F 2017F 2018F East Existing Supply Additional Supply Additional YTD Future Supply North When Supermal Pakuwon 2 gets to completion time, the cumulative retail supply will be circa one million sq m in as of 2016. Of the overall retail space stock in, around 36% is marketed as retail space for sale (strata-title). This proportion will decrease in line with the absence of additional strata-title shopping centres up to 2018. Total retail space for sale is expected to contribute only 29% of the total supply in 2018. Cumulative Supply of Retail Centers Based on Marketing Scheme South Central 0 90,000 180,000 270,000 360,000 450,000 sq m Existing Supply Future Supply 1,000,000 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 2010 2016YTD 2016F 2017F 2018F sq m For Lease For Sale 2 Half Year Report H1 2016 Retail Colliers International
New Supply Pipeline shopping centre developer region nla (sq m) marketing scheme development Status 2016 Supermal Pakuwon 2 Pakuwon Jati West 40,000 For Lease Under Construction 2017 Tunjungan Plaza VI Pakuwon Jati Central 33,000 For Lease Under Construction The Central Gunawangsa Tidar Warna Warni Advertising East 10,000 For Lease Under Construction Capital Square Greenwood Sejahtera Central 6,000 For Lease In Planning 2018 Praxis Intiland Development Central 22,750 For Lease In Planning The Frontage Panca Wira Usaha South 30,000 For Lease In Planning Ciputra World 2 Ciputra Central 40,000 For Lease In Planning Mall Pasar Atum 2 Senopati Perkasa North 40,000 For Lease In Planning One Galaxy Mall Sinar Galaxy Group East 60,000 For Lease In Planning Puncak CBD Surya Bumimegah Sejahtera West 30,000 For Lease In Planning Lippo Mall Gubeng Lippo Karawaci Central 12,000 For Lease In Planning Grand Sungkono Lagoon Pembangunan Perumahan South 15,000 For Lease In Planning Puri City Mahkota Berlian Cemerlang East 10,000 For Lease In Planning Performance Demand and Occupancy Occupancy Rates 100% 90% 80% In many cases, a new mall generally secures initial tenants precommitted occupation prior to the beginning of mall operation. It provides vacant spaces in the early years and thus affects the overall occupancy rates. Tunjungan Plaza V and Marvell City that began operation in the last year and the closure of Golden City provides more vacant retail space onto the market and bring pressure to the occupancy, which was down 1.7% YoY to 82.4% as of H1 2016. Furthermore, we anticipate a further decline in occupancy by the end of 2016 when Supermal Pakuwon 2 becomes officially operational. 70% 60% 50% 40% 30% 20% 10% 0% 2010 2016YT D Although the occupancy performance has been recorded in the downward trend, still becomes an attractive destination for both local and foreign retailers to expand business. We note several fitting out works in progress during the reviewed period which indicated a good signal for the prospect of retail business in.. During the period there were some newly committed tenants mostly selling fashion and accessories products such as H&M, Uniqlo and Cotton On. Imax and CGV are also expanding to currently. CGV is the largest cinema chain from South Korea and is in cooperation with the Blitz, a local cinema network. Meanwhile Trans Retail Indonesia that owned Transmart brand, is continuing expansion in the serviced areas. Shortly, Transmart will occupy around 9,000 sq m at a shopping centre in West. Some food and beverages retailers will also be brought to this mall which is located near Pakuwon Mall Project. 3 Half Year Report H1 2016 Retail Colliers International
Occupancy Rates of Shopping Centers in Different Regions in 100% 95% 90% 85% 80% 75% 70% 65% 60% The retail occupancy performance in three regions in including East, South and West has gradually decreased. A relatively low tenants commitment that opened at Marvell City brought the occupancy down 10.6% in East over the previous semester. As mentioned above, a temporary closure of Golden City Mall also caused the decreasing occupancy by 6% in South, but it was still below the occupancy drop in East by around 10%. A number of middle-upper class retailers in Supermal Pakuwon Indah 1 closed the stores particularly in anticipation of moving to the higher class Supermal Pakuwon Indah 2 which is now approaching the finishing works. As such, the occupancy level in West was down 2.5% HoH because of this. 55% 50% 2016YTD Central South North East West Tenants Commitment at New and Future Shopping Centres in shopping centre Marvell City COMMITTED TENANT CGV Blitz, LotteMart, Electronic Solution, Fun World Supermall Pakuwon Indah Extension H & M, Sogo, Zara, Stradivarius, Mango, Pull & Bear, Sephora, Cotton On, Bershka, Mark & Spencer, Miss Selfridge, Guess, Forever New, Bonia, Fossil, Lacoste, Pedro, Aldo, Lottemart, Charles & Keith, Bath & Body Works, Quik Silver, Ripcurl, Burger King, Toys Kingdom, Chipmunks, Braun Buffel, Uniqlo, Swaroski The Central Gunawangsa Hari Hari, My Gym, Nang Karaoke Tunjungan Plaza V Imax, Inul Vizta, Braun Buffel, Geox, Ecco, Bucheri, Nike, Madame Lie, Sushi Tei, Fish & Co, Duck King, Marks Spencer, Kidz Station, Mothercare, Tree House, Gingersnaps, Chipmunks, Burberry, Louis Vuitton, Ermenegildo Zegna, BOSS, Balenciaga, Yves Saint Laurent, Toni Dress, The Premiere, XXI, Cotton On, Aeropostale, American Eagle, Paul Frank Rental Rates Asking base rents was recorded at IDR439,770/sq m/month which implied that the rates have been relatively flat over the last semester. The only region with rental adjustment was East, albeit moderate. Marvel City as newly operating shopping centre located not far from the downtown of offers higher asking rents than the exiting shopping centres in the East. Still in the East, one established shopping centre in Jalan Dharmahusada adjusted the rents, particularly on the ground floor area due to continued inquiries for retail space. These two shopping centres helped bring the average asking rent in East to record IDR381,049/sq m/month. Nonetheless, the average asking rents in East was still lower than in West and Central. Central continued to maintain the highest asking rents among all regions in by recording IDR579,866/sq m/month. This figure was 70% more expensive than the lowest average asking rents in South as of H1 2016. Most shopping centres in South are categorised as middle lower class shopping centres. The majority of shopping centres in south still charge rents in the range of IDR200,000 to IDR400,000/ sq m/month. Overall, the average asking rent in South was slightly up by 5.2% to IDR341,814 this semester particularly subsequent to the cessation of Golden City (which quoted lower rent than the market average). In South area, Ciputra World Shopping Mall registered the highest rents which was around 50% higher compared to other shopping centres in East. 4 Half Year Report H1 2016 Retail Colliers International
Average Asking Base Rental Rates in Different Regions IDR600,000 IDR500,000 IDR400,000 IDR300,000 IDR200,000 The already-high rent in Central had been relatively flat over the last semester as the majority of landlords attempt to maintain tenants to keep occupancy high. Notwithstanding the forthcoming competitive market, we still foresee that the asking rent would increase albeit moderately. The high occupancy at the middle upper class malls would lead to the limited vacant spaces. In 2017, we are expecting another shopping centre that will be located in Tunjungan City and judging from its prime location the asking rents is anticipated to be higher than other existing shopping centres in and thus would bring the average rental rate to climb going forward. The Range of Asking Base Rent in Different Regions IDR900,000 Central South North East West 2016YTD Service Charge Average Service Charge in Different Regions IDR120,000 IDR80,000 IDR60,000 IDR40,000 IDR20,000 2016YTD Central South North East West The Range of Service Charge in Different Regions IDR140,000 IDR120,000 IDR80,000 IDR60,000 IDR40,000 IDR20,000 IDR800,000 IDR700,000 IDR600,000 Central South North East West IDR500,000 IDR400,000 IDR300,000 IDR200,000 Central South North East West 5 Half Year Report H1 2016 Retail Colliers International
The average service charge hovered at IDR99,385/sq m/month as of H1 2016, relatively unchanged compared to the previous semester. Central shows a wider range in the service charge as the area is not only the place of upper class malls but there is also one operating old mall in the downtown, and a trade centre that quote relatively low service charge. Most of upper class shopping centres in South and Central recorded the highest service charge at around IDR130,000/sq m/ month. Currently around 10 (out of total 30) shopping centres in quote for maintenance fee between and IDR130,000/sq m/month. Some of the old shopping centres and strata-title centres still charge maintenance cost below /sq m/month. For more information: Ferry Salanto Senior Asociate Director Research +62 21 3043 6888 ferry.salanto@colliers.com Contributors: Eko Arfianto Manager Research 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.