3Q 2013 i the knowledge research & forecast report OFFICE SECTOR office sector After experiencing high absorption during 2011 and 2012, office demand dropped moderately during 3Q 2013 amid Indonesia s recent economic woes. Occupancy rate in the CBD dropped somewhat in 3Q 2013 to 96.3% from 97.0% in the previous quarter. In contrast, the occupancy level outside CBD rose from 93.8% last quarter to 95.2% benefiting from the competitive rental rates offered within this location when compared to the CBD. In the CBD, however, asking base rental rates continued to edge higher by 6% q-o-q to an average of IDR 227,259/sq m/month while for US dollar buildings rent increased by 1.6% to US$35.08/sq m/month. Supply cbd cbd office cumulative supply 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013YTD The quarter saw one new office building officially start to operate in the CBD. Menara Prima 2, in Mega Kuningan, added around 40,000 sq m of semi-gross area, taking the cumulative supply in the CBD to 4.75 million sq m in 3Q 2013. Total supply for 2013 in the CBD reached 135,692 sq m as at 3Q 2013. In the remainder of the year, Tempo Pavilion II is projected to be the last office supply. Going forward, there will be an additional 1.83 million sq m up to 2016 in the CBD. Thus far, construction has started on 74% of the upcoming office buildings. The majority of new supply that will be operational in 2014-15 (88%) has entered the construction stage, while three office buildings are still in the planning stage. One of the office buildings at the planning stage is the Lippo Thamrin Office Tower. This building will be marketed for sale and will add 16,500 sq m to the market, and is the only future supply in Thamrin. The highest annual supply in the CBD will occur in 2016, when 1.07 million sq m will enter the market; construction has started on 63% of the supply. Recently, it was announced that another office building, The Tower, is projected to be finished in 2016. The 67,000 sq m building will be located in Jalan Jenderal Gatot Subroto and will be offered for sale as strata-title office space. www.colliers.com
future supply in cbd based on construction progress 2016F 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 Operate Under Construction Under Planning The economic slowdown has not yet affected construction activity. Ongoing building is continuing at several under-construction projects in areas such as Gatot Subroto, Mega Kuningan and Sudirman. Despite the lack of land supply, construction activity in Sudirman will continue, with several old projects planned for demolition. The Toyota showroom will be replaced with tall and modern buildings and a similar plan for existing and operating projects will take place in the near future. As the main business corridor in Jakarta, and with the initiation of the MRT project along Jalan Sudirman, this sub-market continues to see more projects. With the MRT project, the plot ratio has become higher, and this will trigger landowners to replace their existing old projects with modern, taller and bigger buildings. future supply in cbd based on area Rasuna Said Gatot Subroto Mega Kuningan Satrio Thamrin Sudirman 0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 800,000 outside cbd In the Outside CBD Area, only one new office building was recognised as complete in the TB Smatupang area. The small office building, in the TB Smatupang area, only brought 9,597 sq m to the market, taking the cumulative supply to 2.23 million sq m in 3Q 2013. Moving ahead, it is projected that there will 1.18 million sq m of new supply in the Outside CBD Area during the remainder of 2013 and until 2016. future supply in outside cbd based on construction progress 2016F 0 100,000 200,000 300,000 400,000 500,000 Operate Under Construction Under Planning p. 2 Colliers International
Annual office space grew between 100,000 sq m and 200,000 sq m. However, it is projected that in 2014-15 there will be a total of 882,982 sq m of new office supply entering the market. In 2014 alone, there will be 419,654 sq m of new supply. Construction has started on 77% of the total space scheduled to enter the market in 2014-15, indicating that the target completion dates for the projected buildings will be met. During 3Q 2013, One Tower, an office building, entered the market. The office building is located in Kemayoran, Central Jakarta. It will contribute 21,400 sq m of office space and is being marketed as strata-title office space for sale. A large proportion of the projected office supply in the Outside CBD Area is in South Jakarta. Based on the total future office buildings projected to operate during 2013-16, 70% are in South Jakarta. West Jakarta is the second most popular area, with 15% of future office buildings located in the area, especially in S. Parman and Puri Indah. future supply in outside cbd based on area Central Jakarta East Jakarta West Jakarta North Jakarta South Jakarta TB Simatupang 0 100,000 200,000 300,000 400,000 500,000 600,000 TB SIMATUPANG The TB Simatupang area is, basically, part of the Outside CBD Area. However, since this area is quite active and the tenant characteristic in this area is unique, we put TB Simatupang in a different section. Following Oleos 2 and Alamanda Tower becoming operational earlier, the Beltway Office Park officially started to operate in 3Q 2013. The influx of new office buildings in Jalan TB Simatupang will continue with the Talavera Suite, Gedung Aneka Tambang 2 and The CEO, which are projected to be in operation by the end of 2013. If these buildings meet the target completion dates, the annual office supply during 2013 in TB Simatupang will be 84,976 sq m, representing 51% of the total annual supply in the Outside CBD Area. In 2014, TB Simatupang will see the largest supply of office buildings. Almost all future office buildings have achieved significant construction progress. future supply in tb simatupang based on construction progress 2016F 0 50,000 100,000 150,000 200,000 250,000 300,000 Operate Under Construction Under Planning p. 3 Colliers International
TB Simatupang has been growing into a developed area. In 2010, the cumulative supply was recorded at 309,905 sq m, and this is expected to grow by 63% to 504,206 sq m by the end of 2013. Nevertheless, the arterial road infrastructure continues to be an important issue that needs to be quickly solved. The MRT construction is expected to offer only a partial solution to reducing the traffic density that often occurs after office hours, because the MRT will not serve the whole of the Jalan TB Simatupang area. With such heavy traffic conditions, office buildings with alternative back access will be attractive to tenants. EXISTING AND ANNUAL SUPPLY OF OFFICE SPACE IN TB SIMATUPANG 1,000,000 800,000 600,000 400,000 200,000 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013YTD Existing Supply Annual Supply new supply pipeline projected completion CBD AREA building name location SGA (SQ M) marketing scheme 2013 DBS Tower Satrio 64,000 For Lease and Sale Operate 2013 Menara Prima 2 Mega Kuningan 40,000 For Lease Operate 2013 18 PARK Tower A Sudirman 4,814 For Lease Operate 2013 18 PARK Tower B Sudirman 4,570 For Lease Operate 2013 18 PARK Tower E Sudirman 4,233 For Lease Operate 2013 MD Entertainment HR Rasuna Said 11,000 For Lease Operate 2013 Tempo Pavilion 1 (ex Bina Mulia 2) HR Rasuna Said 7,075 For Lease Operate status development 2013 Tempo Pavilion 2 (ex Bina Mulia 1) HR Rasuna Said 9,640 For Lease Under Construction 2014 Sinarmas MSIG (Chase Tower) Sudirman 75,000 For Lease Under Construction 2014 Lippo Kuningan HR Rasuna Said 30.500 For Lease Under Construction 2014 The Noble House Office Tower Mega Kuningan 45,000 For Lease Under Construction 2014 Telkom Landmark Tower I Gatot Subroto 45,000 For Lease Under Construction 2014 Telkom Landmark Tower II Gatot Subroto 65,000 For Lease Under Construction 2014 Gran Rubina Tower 1 HR Rasuna Said 31,438 For Lease Under Construction 2014 Satrio Square Satrio 24,600 For Lease and Sale Under Construction 2015 Ciputra World Jakarta 2 Satrio 70,000 For Lease and Sale Under Construction 2015 Mangkuluhur Tower Gatot Subroto 39,356 For Lease Planned 2015 International Financial Center 2 Sudirman 50,000 For Lease Under Construction 2015 AIA Center (Menara Selaras) Sudirman 36,596 For Lease Under Construction 2015 Cemindo Tower (Rasuna Tower) HR Rasuna Said 60,995 For Lease Under Construction 2015 Tower Two at The City Center Sudirman 39,204 For Lease Planned 2015 Office Tower @St Regis Gatot Subroto 88,914 For Lease and Sale Under Construction continued Colliers International p. 4
projected completion building name location SGA (SQ M) marketing scheme status development continuation 2015 Bahana Office Tower Mega Kuningan 50,000 For Sale Under Construction 2015 Lippo Thamrin Office Tower MH Thamrin 16,500 For Sale Planned 2016 SSI Tower (Graha Surya Internusa) HR Rasuna Said 100,000 For Lease Planned 2016 Sahid Sudirman Center Sudirman 138,500 For Sale Under Construction 2016 Prosperity Tower @District 8 Sudirman 71,545 For Sale Under Construction 2016 Menara Palma 2 HR Rasuna Said 50,000 For Lease Under Construction 2016 Gran Rubina Tower 2 HR Rasuna Said 32,000 For Sale Planned 2016 World Capital Tower Mega Kuningan 72,000 For Sale Planned 2016 World Trade Center III Sudirman 70,000 For Lease Planned 2016 Sequis Life Tower 2 Sudirman 80,000 For Lease Planned 2016 Treausry Tower @District 8 Sudirman 139,000 For Sale Under Construction 2016 Centennial Tower Gatot Subroto 100,000 For Sale Under Construction 2016 Satrio Tower Satrio 36,400 For Lease Planned 2016 Icon Tower Sudirman 72,500 For Lease Under Construction 2016 Wisma Mulia 2 Gatot Subroto 40,000 For Lease Under Construction 2016 The Tower Gatot Subroto 67,000 For Sale Under Construction OUTSIDE CBD AREA 2013 Blue Green Office Boutique Meruya 20,000 For Lease Operate 2013 DIPO Business Park Slipi 19,600 For Sale Under Construction 2013 The Vida Kebon Jeruk 11,000 For Lease Under Construction 2014 GP Plaza Slipi 12,204 For Sale Under Construction 2014 Menara Sentraya Blok M 52,072 For Sale Under Construction 2014 The Suites Pantai Indah Kapuk 13,200 For Lease Under Construction 2014 Wisma 77 Tower 2 Slipi 24,200 For Sale Under Construction 2014 Kirana Two Kelapa Gading 17,563 For Sale Under Construction 2014 Altira Yos Sudarso 40,000 For Sale Under Construction 2015 St Moritz Office Tower Puri Indah 19,500 For Sale Under Construction 2015 Puri Indah Financial Tower Puri Indah 38,500 For Sale Under Construction 2015 Gallery West Kebon Jeruk 29,000 For Sale Under Construction 2015 Sky 18 Tower Kalibata 27,500 For Sale Under Construction 2015 Jakarta Box Tower Kebon Sirih 36,000 For Lease Under Construction 2015 SOHO Capital S. Parman 36,000 For Sale Under Construction 2015 Maxima Tower Kelapa Gading 8,000 For Lease Under Construction 2015 Holland Village Cempaka Putih 27,000 For Sale Under Construction 2015 One Tower Kemayoran 21,400 For Sale Under Construction 2015 L Venue Pasar Minggu 41,597 For Sale Planned 2015 MNC Tower II Kebon Sirih 20,000 For Lease Planned 2016 SOHO Pancoran Pancoran 48,911 For Sale Under Construction continued p. 5 Colliers International
projected completion building name location SGA (SQ M) marketing scheme status development continuation TB SIMATUPANG AREA 2013 Prudential Centre Casablanca 31,000 For Lease Operate 2013 Oleos 2 TB Simatupang 4,181 For Lease Operate 2013 Talavera Suite TB Simatupang 17,172 For Lease Under Construction 2013 Gedung Aneka Tambang Tower 2 TB Simatupang 16,000 For Lease Under Construction 2013 The CEO TB Simatupang 5,023 For Lease Under Construction 2014 Green Kosmo Mansion (GKM) Tower TB Simatupang 23,000 For Sale Under Construction 2014 The Manhattan Square TB Simatupang 39,375 For Lease & Sale Under Construction 2014 18 Office Park (Cityland Tower) TB Simatupang 40,000 For Sale Under Construction 2014 South Quarter Tower 1 TB Simatupang 40,778 For Sale Under Construction 2014 Plaza Oleos TB Simatupang 39,778 For Sale Under Construction 2014 Metropolitan Tower TB Simatupang 44,000 For Sale Under Construction 2014 Palma Tower TB Simatupang 20,484 For Lease Under Construction 2014 Graha MRA TB Simatupang 13,000 For Lease Under Construction 2015 AD Premier TB Simatupang 18,900 For Lease Under Construction 2015 The Manhattan Square Tower 2 TB Simatupang 39,375 For Lease & Sale Planned 2015 Naras Tower TB Simatupang 19,000 For Lease Planned 2015 South Quarter Tower 2 TB Simatupang 40,778 For Lease Planned 2015 South Quarter Tower 3 TB Simatupang 40,778 For Lease Planned 2016 The Manhattan Square Tower 3 TB Simatupang 39,375 For Lease Planned 2016 Signum North Tower TB Simatupang 18,000 For Lease Planned 2016 Beltway Office Park Tower 4 TB Simatupang 25,600 For Lease Planned *) Under Construction: where construction activity is in progress, including either foundation or superstructure. In Planning: no contruction activities on site but all permits have been approved by the Government. Demand occupancy rate in cbd and outside cbd 100% 95% 90% 85% 80% 75% 70% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013YTD CBD Outside CBD Colliers International p. 6
annual supply and demand in cbd 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 2007 2008 2009 2010 2011 2012 2013YTD Annual Supply Annual Demand After experiencing very high absorption during 2011-2012, the demand in the CBD has dwindled, mainly since 2Q 2013. It is recorded that annual office space absorption during 2011 and 2012 was around 300,000-400,000 sq m annually. Year-to-date figures for 2013 indicate that total office space absorbed is around 111,000 sq m. Nevertheless, the limited available space has worked in favour of the overall performance of the office market in the CBD, where the occupancy rate, despite edging down moderately q-o-q, stabilised at 96.3% as of 3Q 2013. It is inevitable that Indonesia s recent economic woes may dampen office space absorption. Fortunately, limited office supply during the year has helped maintain occupancy rates at a solid level. In fact, the depreciation of the Indonesian Rupiah has held up decisions regarding office expansion in the CBD. Office demand tapered off along with the increasing cost of US Dollar spending. If expansion plans are unavoidable while costs climb, tenants generally overcome the situation by maximising their existing space. Grade A office buildings contributed to the slowdown in overall occupancy. This quarter, the occupancy of Grade A buildings slipped modestly by 1% to 96.8%. Premium Grade office buildings performed better, with the highest increase q-o-q, with average occupancy rates recorded at 97.2%, a 1.1% growth. Likewise, Grade C office buildings recorded an increase of 0.6% q-o-q. The mounting occupancy cost has been a blessing for the office market in the Outside CBD Area. Offering lower rental costs compared to the CBD, the Outside CBD Area office market has been performing well with improving occupancy rates. Earlier in the year, the occupancy rate of the Outside CBD Area was recorded at 93.5%, and in 3Q 2013 it was recorded at 95.2%. Office buildings located in South Jakarta showed the lowest average occupancy rates compared with other municipalities. In 3Q 2013, the average office building occupancy rate in South Jakarta was 94.8%, which was lower that the occupancy rate in the North, East and West Jakarta areas. The main reason behind the slowing occupancy rate was the continued influx of new office buildings in the South Jakarta area. In the past two years, office space in South Jakarta has accounted for 62% of the total Outside CBD Area supply. p. 7 Colliers International
demand for new offices The office market in the CBD is anticipated to soften in the coming year. Office buildings scheduled to enter the market in 2014 have 47% pre-commitment levels. Pre-committed occupancy for 2014 is very much underpinned by owner-occupation, such as in the buildings belonging to Telkom and the Sinarmas MSIG Group. PRE-COMMITTED DEMAND FOR FUTURE OFFICE FOR LEASE IN CBD 2016F 0 200,000 400,000 600,000 800,000 1,000,000 1,200,000 Annual Supply Space Absorbed Meanwhile, the Outside CBD Area showed a similar condition. The substantial amount of office space projected to complete in 2014 is a challenge given the anticipated wait and see attitude of buyers. Further, as at 3Q 2013, the total space pre-absorbed in 2014 only represents 20%, while 2015, with the most office space influx scheduled, has so far recorded 10% pre-committed absorption. PRE-COMMITTED DEMAND FOR FUTURE OFFICE FOR LEASE IN outside CBD 2016F 0 100,000 200,000 300,000 400,000 500,000 Annual Supply Space Absorbed p. 8 Colliers International
Asking Rental Rates and Service Charge asking rental rates The average asking base rental rates for office buildings in the CBD continued to edge higher during the quarter. Office buildings categorised as Premium Grade were being offered in the range of US$40-US$55/sq m/month; using the current exchange rate, this is equivalent to IDR400,000-IDR600,000/sq m/month, which is very high. New office buildings charging in local currency offer rentals in the range IDR300,000- IDR400,000/sq m/month. However, among the buildings with high rent, there are office buildings that are being offered at below IDR100,000/sq m/month. These buildings represent 19% of the 113 office buildings that charge in Indonesian Rupiah. With the big gap mentioned above, the average asking base rental rates in the CBD (for all classes) was recorded at IDR227,259/sq m/ month in 3Q 2013. This average rate climbed by 43% within a year, but only rose 6% compared to the previous quarter. For office buildings charging in US Dollars, despite edging up, the growth was much lower when compared to office buildings charging in Indonesian Rupiah. Office buildings that quoted in US Dollars increased just 1.6% q-o-q to US$35.08/sq m/ month in 3Q 2013. Overall, the average rental rates during 3Q 2013 continued to climb, but compared to the previous period, the current increase was slower. average asking base rental rates in the cbd IDR 400,000 IDR 350,000 IDR 300,000 IDR 250,000 IDR 200,000 IDR 150,000 IDR 100,000 IDR 50,000 IDR 0 $40.00 $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 1995 1996 1997 1998 1999 2000 2001 2002 2003 IDR 2004 2005 2006 2007 2008 US$ 2009 2010 2011 2012 2013YTD In the Outside CBD Area, the rental growth of office buildings charging in Indonesian Rupiah continued to move upward. By recording IDR153,379/sq m/month in 3Q 2013, the asking base rental rates in the Outside CBD Area increased 12.7% q-o-q. This growth is slightly higher than the 1Q and 2Q periods, which only reached 10%. However, in office buildings quoting rent in US Dollars, rents were stagnant. The asking base rental rates for office buildings charging in US Dollars only grew 6.5% q-o-q to US$20.42/sq m/month. p. 9 Colliers International
average asking base rental rates in the outside cbd IDR 210,000 IDR 180,000 IDR 150,000 IDR 120,000 IDR 90,000 IDR 60,000 IDR 30,000 IDR 0 2005 2006 2007 2008 2009 2010 2011 2012 2013YTD $21.00 $18.00 $15.00 $12.00 $9.00 $6.00 $3.00 $0.00 IDR US$ The weakening growth of base rental rates was also seen in TB Simatupang. The average asking base rental rates in the area was recorded at IDR137,776/sq m/month in 3Q 2013, growth of below 1% q-o-q. Meanwhile, for office buildings quoting rents in US Dollars, the average rental rate was recorded at US$18.00/sq m/month, a 2.1% q-o-q growth. average asking base rental rates in TB SIMATUPANG IDR 200,000 $20.00 IDR 160,000 $16.00 IDR 120,000 $12.00 IDR 80,000 $8.00 IDR 40,000 $4.00 IDR 0 2005 2006 2007 2008 2009 2010 2011 2012 2013YTD $0.00 IDR US$ service charge The increasing cost of service charges during the quarter was mainly due to the start of the adjustment of minimum wages, the fuel price hike and the basic electricity tariff. In 3Q 2013, the service charge for office buildings in the CBD was recorded at IDR60,213/sq m/month, a climb of 5.8% since the end of 2012. Meanwhile, over the same period, the service charge in the Outside CBD Area was recorded at IDR44,357/ sq m/month, a 4.6% growth. Colliers International p. 10
service charges IDR 70,000 IDR 60,000 IDR 50,000 IDR 40,000 IDR 30,000 IDR 20,000 IDR 10,000 IDR 0 2007 2008 2009 2010 2011 2012 2013YTD CBD outside CBD Strata-Title Offices Due to the limited office space for sale, the overall take-up rate was maintained at 99.4%, leaving only around 4,600 sq m of unsold space. Similarly, the take-up rate in the Outside CBD Area was also very high, at 98.3%. This means that the market can only provide 6,900 sq m of unsold space. Such a condition suggests that the office market for sale in Jakarta remains resilient. The asking price of strata-title office space in the CBD was recorded at an average of IDR33.4 million/sq m, while in the Outside CBD Area, it was an average of IDR28.4 million/sq m. The rapidly increasing Indonesian Rupiah exchange rate against the US Dollar, resulting in adjusted conversion for prices quoting in US Dollars, triggered the rise. asking prices in cbd IDR 35,000,000 IDR 30,000,000 IDR 25,000,000 IDR 20,000,000 IDR 15,000,000 IDR 10,000,000 IDR 5,000,000 IDR 0 2008 2009 2010 2011 2012 2013YTD $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 IDR US$ p. 11 Colliers International
asking prices in outside cbd IDR 35,000,000 IDR 30,000,000 IDR 25,000,000 IDR 20,000,000 IDR 15,000,000 IDR 10,000,000 IDR 5,000,000 IDR 0 2008 2009 2010 2011 2012 2013YTD $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0 IDR US$ Sales activity appears to be slowing, particularly for the purchase of future office buildings. Nevertheless, slower sales do not necessarily impact prices. Inflation has become the push factor for developers to continue raising the offering price. Some future office buildings, especially those located in TB Simatupang, are having their selling prices adjusted upward by 10%-20% q-o-q. The average price of existing office buildings in TB Simatupang was IDR28.1 million/sq m in the quarter. ANNUAL supply and absorption of strata title office IN CBD 200,000 160,000 120,000 80,000 40,000 0 2007 2008 2009 2010 2011 2012 2013YTD Annual Supply Annual Demand ANNUAL supply and absorption of strata title office IN OUTSIDE CBD 200,000 160,000 120,000 80,000 40,000 0 2007 2008 2009 2010 2011 2012 2013YTD Annual Supply Annual Demand p. 12 Colliers International
Concluding Thoughts For the office market, 2014 will be a challenging year, because not only will the current economic downturn continue in the New Year, but also because 2014 is an election year and investors will be cautious while waiting for the result. Nevertheless, the positive side of the current economic slowdown is that rental rates will be curbed and prices will not be excessively inflated, which will maintain the market equilibrium. The other good thing about the current situation is that there will be a balance in office absorption between the CBD and the Outside CBD Area, and even the Greater Jakarta Area. As both the office price and rental rates in the CBD continue to peak, the Outside CBD Area and Greater Jakarta Area offer a competitive rate. A number of companies will start to move to areas with affordable rates or relocate part of their space (backup office) to areas outside the CBD. 482 offices in 62 countries on 6 continents United States: 140 Canada: 40 Latin America: 20 Asia Pacific: 195 EMEA: 85 $2.0 billion in annual revenue 2012 1.1 billion square feet under management Over 13,500 professionals COLLIERS INTERNATIONAL INDONESIA: World Trade Centre 10th & 14th floor Jalan Jenderal Sudirman Kav. 29-31 Jakarta 12920 Indonesia tel 62 21 521 1400 FAX 62 21 521 1411 Michael Broomell Managing Director World Trade Centre 10th & 14th floor Jalan Jenderal Sudirman Kav. 29-31 Jakarta 12920 Indonesia tel 62 21 521 1400 ext 131 FAX 62 21 521 1411 Ferry Salanto Associate Director, Research World Trade Centre 10th & 14th floor Jalan Jenderal Sudirman Kav. 29-31 Jakarta 12920 Indonesia tel 62 21 521 1400 ext 134 FAX 62 21 521 1411 Email: Ferry.Salanto@colliers.com Copyright 2013 Colliers International The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has bee 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. www.colliers.com