Research & Forecast Report Jakarta Industrial 2Q 2015 Accelerating success. The industrial sales have been generally sluggish; nevertheless, a substantial land transaction occurring in Modern Cikande did help to fuel the overall market performance in 2Q 2015. The expansion of an existing food industry tenant within this estate represented 72% of all the transactions in the greater Jakarta area totaling 150.13 hectares this quarter. Meanwhile, because sales have been slowing, land prices have been stagnant QoQ with the exception of those for the above mentioned industrial estate. Ferry Salanto Associate Director - Research Industrial Estate Sector Industrial Land Supply None of the under-construction industrial land was introduced as ready-to-build during the quarter. In general, industrial estate developers do not start developing their raw land stock unless they have pre-commitment agreement with buyers in advance. To date, industrial developers tend to postpone the construction of raw land with the expectation that the economy and business climate will gain strength and return on track. In Karawang, one active industrial estate stated that it still has around 100 hectares of raw land to be converted into industrial land plot with all the infrastructures, but it will not start until there is serious offer for the land. It feels that the overall market is at a more sedate pace, so it is unlikely that the expansion plan would materialise soon. Meanwhile, two other industrial estates located in the same region have yet to start further expansion, and would prefer focusing on selling the remaining limited stock. Apart from the active industrial estates, Karawang region holds a significantly sizeable industrial land stock from future industrial estates within the big consortium called Trans Hexa Karawang (THK). At least two industrial estates have started offering land, namely, Podomoro Industrial Park with potential 100 hectares to be developed (phase 1) and GT Techpark @ Karawang. The THK consortium will have more than 2,000 hectares to be developed into industrial land. Although some industrial estates in Bekasi reported that they do not have enough land for expansion, in truth, some still possess land banks to be converted into industrial plots. At least three industrial estates still hold sizeable land plots for sale. The biggest land stock of around 350 hectares is now at the planning stage for further development in one industrial estate in Bekasi. Many of the industrial estates indicate that they are not going to make new industrial land stocks available this year. With the hope that the economic condition would recover next year, the plan of delivery time is seemingly projected for 2016. For example, one industrial estate in Serang signals the expansion plan for 100 hectares to be available sometime next year. Overall, the availability of ready-to-build industrial land plots should not be a big issue in the short and long term. Unlike the condition in the last three years, wherein finding sizeable land was challenging, the next issue will be how to find enough demand amidst increasing competition in the future. Industrial Land Sales If Modern Cikande did not register epoch-making land sales this quarter, the total industrial land sales in the greater Jakarta area for this quarter will be very low. Modern Cikande helped lift the overall industrial market sales performance during the quarter. While the majority of industrial estates reported sluggish sales performance with total transactions below 3 hectares, Modern Cikande reported remarkable sales this year, repeating its peak moment back in the same period last year when it sold more than 100 hectares of land.
Annual Industrial Land Sales Hectares 1,400 1,200 1,000 800 600 400 200 0 Overall, the total industrial land transacted during this period accounted for 150.13 hectares, of which 72% were completed by Modern Cikande. Combined with the total sales of 82.16 hectares last quarter, the total sales of 232.29 hectares recorded as of 2015 YTD represents 53% of the total sales last year. Land Sales Recorded During 2Q 2015 in Each Industrial Estate Jakarta Bogor Bekasi Tangerang Karawang Serang Modern Cikande Greenland International Industrial Jababeka Krakatau Industrial Estate Cilegon KIIC Suryacipta Delta Silicon Millenium Kota Bukit Indah 0 20 40 60 80 100 120 hectares Total land sales during the quarter in Modern Cikande were 108.61 hectares, mainly contributed by the expansion of an existing tenant (F&B industry) from Thailand with a total acquisition of 94.5 hectares. Moreover, other transactions within this industrial estate were also quite sizeable in size. A local paint industry acquired 8.64 hectares as part of its expansion. Others mainly comprised new local companies, such as an industrial tool company that took 3.33 hectares, moving and storage services that took 1.01 hectares and a PVC pipe producer that took almost 1 hectare. Still in Serang area, KIEC continued to show consistent sales performance, albeit at much lower amount than Modern Cikande. An overseas company in the fabrication sector took over 4.5 hectares land as part of its new investment. Internally, KIEC also dealt with an existing local company in the chemical industry that bought 3 hectares of land as part of its expansion plan. In Bekasi, Greenland International Industrial Center (GIIC) at Kota Deltamas has consistently sold land for several periods. This quarter, GIIC concluded a total of 21.72 hectares the second largest transaction recorded by an industrial estate this quarter. Two major transactions were recorded involving automotive and heavy equipment companies. A total of around 8 hectares of land were sold to various companies, such as auto-related companies, logistics and electronics, and so on, in Jababeka industrial estate. This has been the biggest amount of quarterly transaction concluded since 1Q. No other significant transaction was recorded in Bekasi in other industrial estates thus far. Delta Silicon, for example, only reported a small transaction of below 1 hectare to an autoparts company. This was a significant drop compared to its performance last quarter; however, it is quite optimistic that sales should recover over the next quarters given that several serious deals are on the way. The sales trend in Karawang during the quarter was slower than in the previous period, with only Suryacipta and KIIC reportedly selling a total of 3.4 hectares. Sales in Suryacipta this quarter was only 26% of the sales in the previous quarter. A new steel company from China bought 1.4 hectares in Suryacipta. Meanwhile, KIIC reported two transactions made by a German company and a local company from an undisclosed industry, with a total land plot of 2 hectares. The Bogor region was quiet, without any leasing and selling transaction. With very limited industrial land that could become the object of purchase or leasing, we anticipate that the industrial market activity in this region will be slow, at least for the next couple of years. Further, the inquiry for industrial land in this region was at a minimum compared to the other regions in the east or west of the greater Jakarta area. 2 Research & Forecast Report 1Q 2015 Industrial Estate Colliers International
As the most active industrial estate in Tangerang, Millennium only recorded very limited transaction from the selling of around seven units of warehouses with respective land size of around 480 sq m. Like other industrial estates that completed pre-sales transactions, Millennium is now on the process of delivering the sold land to be a ready-to-build land as part of its sales commitment. Types of Active Industries During 2Q 2015 Electronics 0.9% Chemicals 4.1% Steel-related 0.6% Plastics 0.4% Consumer Goods 9.9% Food & Beverage 45.5% Again, similar to the composition last year, the YTD profile of transactions is no longer characterised by the auto-related industry. Of course, the F&B type of industry still dominated the transactions this first semester, but the consumer goods sector exceeded the performance of the auto-related sector, which ranks third among the most active sectors thus far. Industrial Leasing Logistics/ Warehousing 9.1% Heavy Equipment 7.2% Machinery 3.8% Building Material 8.0% Medical 0.4% Others 2.3% Automotive 7.7% A negligible amount of leasing transactions occurred in Kota Bukit Indah (Besland Pertiwi) during the quarter, with a small leasing transaction of around 600 sq m by a logistics company. Other industrial estates that focused on leasing land and industrial buildings are CCIE - Cibinong Center Industrial Estate in Bogor and KIKC - Kawasan Industri Kujang Cikampek in Karawang. However, none recorded any leasing transaction during the quarter. Leasing tariff remained the same as last quarter. Asking rental rate for industrial building ranged from USD4.00 to 5.00 / sq m / month, whereas rental rate for land was USD1.25 / sq m / month. In the same area, an industrial estate in Karawang that focuses only on leasing land quoted USD4.00 4.50 / sq m / year. In Bogor, an industrial building was offered for rent at IDR40,000 / sq m / month and IDR5,000 for renting land. The leasing market not only exists in a specifically built industrial estate for rent. In Serang, warehouse and SFB (Standard Factory Building) within the industrial estate were also offered for rent, although they are not the main revenue sources for the estate. Rent for the SFB and industrial building was offered at IDR35,000 to 45,000 / sq m / month. Land Price Industrial land prices were generally flat in some regions in the greater Jakarta area, except in Serang region. One of the two main active operating industrial estates introduced a new price adjustment by 13%. The other industrial estate in Serang increased its price last quarter. Thus, Serang is one of the most active regions in introducing new prices. For some periods, industrial land prices in Serang have been quite low compared to the prices in other regions. There are a number of factors triggering price increases in Serang. First is the infrastructure factor. For the last few years, an industrial estate in this region has benefited from direct access to the main toll road that cut the travel time, making it more accessible and faster to reach. Second, prices of industrial land in this region have been relatively low compared to those in other areas. Thus, prices have gradually increased. The last factor is the continued land inquiries in the region, which push prices up. Greater Jakarta Industrial Land Price USD 250 USD 200 USD 150 USD 100 USD 50 The leasing market in the primary market has been quite slow. For some periods, hardly any sizeable leasing activity has been seen in the three industrial estates. USD 0 Bogor Bekasi Tangerang Karawang Serang 3 Research & Forecast Report 1Q 2015 Industrial Estate Colliers International
Quite a few industrial estates are still quoting land price and rental tariff in US dollar denomination. Bank Indonesia announced the ban for any transaction, cash or non-cash, using foreigndenominated currencies in the country. It also emphasised that it would impose heavy sanctions against any violators. Many industrial estates quoting land price in US dollars are not in a rush to immediately convert the price to local currency and are simply saying that they are in discussion to find the best number when the price is quoted in rupiah. Thus far, all industrial estates that sell land in US dollars still maintain their prices. Industrial Land Prices and Maintenance Costs* region Land price (per sq m) *1USD = Rp 13,133 Maintenance Cost maintenance costs (per sq m per month) lowest highest average lowest highest average Bogor USD120.0 USD213.2 USD166.6 USD0.06 USD0.06 USD0.06 Bekasi USD195.0 USD250.0 USD220.3 USD0.06 USD0.08 USD0.07 Tangerang USD144.7 USD152.3 USD148.5 USD0.03 USD0.08 USD0.06 Karawang USD170.0 USD200.0 USD185.0 USD0.05 USD0.10 USD0.06 Serang USD129.4 USD144.7 USD137.1 USD0.03 USD0.05 USD0.04 The maintenance tariff is a sensitive cost component for most industrial tenants. Therefore, we have not seen any major adjustment. During this reviewed period, we only witnessed maintenance cost adjustment from one industrial estate in Tangerang, but it was very modest. Average maintenance cost in Bekasi remains the most expensive compared to other areas, in accordance to the fact that minimum wages in Bekasi are the highest, ranging even above Jakarta as the main city. Outlook Since early 2015, the industrial market has reached its plateau. The state where land stocks in some favourite locations are not widely available has lost its momentum in pushing the take-up performance, similar to a few years back, because the number of inquiries or transactions has diminished. The condition where industrial land is limited still exists because many industrial estates are not planning to release the remaining land they possess in the short term. However, many potential buyers / tenants still hold expansion plans, particularly because the economic condition is full of uncertainties. Take for example the volatility of exchange rates that continues, making it difficult to prepare for business projection. Sales for the first semester have already reached more than 50% of sales last year, but we envisage that catching up with last year s sales performance will be very challenging at the current condition unless there will be a surprise transaction like the major one concluded by Modern Cikande. Industrial land prices will be suppressed on the back of minimum major push to drive it. Many industrial estates foresee the short-term future of the industrial market to be gloomy, or at least up to the end of this year. The downturn in the interest to acquire industrial land and the fact that quite a few industrialists are holding expansion have characterised the industrial market condition in the first semester this year, and would probably continue during the remainder of the year. Nevertheless, Indonesia is a big market that has not entirely explored its utmost capacity. The infrastructure business opportunity is still widely open, and the productive young population is abundant. These indicate that this country holds a big opportunity for those with long-term business vision. Greater Jakarta Industrial Maintenance Cost $0.10 $0.08 $0.06 $0.04 $0.02 $0.00 US D/ sq m/ month Bogor Bekasi Tangerang Karawang Serang 4 Research & Forecast Report 1Q 2015 Industrial Estate Colliers International
502 offices in 67 countries on 6 continents United States: 140 Canada: 31 Latin America: 24 Asia: 39 ANZ: 160 EMEA: 108 $2.3 billion in annual revenue Primary Authors: Ferry Salanto Associate Director Jakarta 62 21 3043 6730 Ferry.Salanto@colliers.com Colliers International Indonesia World Trade Centre 10th & 14th Floors Jalan Jenderal Sudirman Kav. 29-31 Jakarta 12920 Indonesia TEL 62 21 3043 6888 158 million square meters managed 16,300 professionals and staff About Colliers International Group Inc. Colliers International Group Inc. (NASDAQ: CIGI; TSX: CIG) is a global leader in commercial real estate services with more than 16,300 professionals operating from 502 offices in 67 countries. With an enterprising culture and significant insider ownership, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide. Services include brokerage, global corporate solutions, investment sales and capital markets, project management and workplace solutions, property and asset management, consulting, valuation and appraisal services, and customized research and thought leadership. Colliers International has been ranked among the top 100 outsourcing firms by the International Association of Outsourcing Professionals Global Outsourcing for 10 consecutive years, more than any other real estate services firm. colliers.com Copyright 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.