A Lively Year Ahead After the Lull
    Category: Column By : Todd Lauchlan Read : 559 Date : Thursday, March 01, 2018 - 23:08:30

    Last year marked a recovery for the Indonesian property market, after several so-so years. The commodity decline saw demand crater just as a glut of office space opened in Jakarta. Last year saw rising interest for office space, up some 70% off a low base. That trend continues into 2018, when about 15% in new office space should be taken up by tenants.

    Commodity prices have stabilized, and Indonesia’s increasingly domestically focused economy has grown over the past four quarters from 5.1% in 2017 to an expected 5.3% in 2018, according to Oxford Economics, with growth of over 5% through 2025. By contrast, growth had fallen a low of 4.9% in 2015.

    Delays in the rollout of infrastructure-spending plans have depressed public investment. Roads projects have gone ahead—sections of the 2,900 km Trans-Sumatra toll road should open in 2018, as will parts of the 660 km Trans-Java toll road. The express rail line between Jakarta and Soekarno-Hatta International Airport started operation on January 2.

    Indonesian real estate was a hot topic for the last five years, and particularly going into 2017. But investors clearly feel burned by the progress last year, including the glut of Jakarta office supply, which saw vacancies rise to 30%, and rents fall 11% in the first half of 2017. Therefore, Jakarta has loss its luster for investors. It ranks 12th in terms of prospects for development, and 14th for investment, according to the 2018 Asia Pacific edition of Emerging Trends in Real Estate from the Urban Land Institute (ULI). It was among the top prospects for the last five years.

    The market now does, however, appear receptive to the new space. Co-working operators and e-commerce providers are strong new players, with shared-workspace operators now account for 20% of new demand, mostly new international operators such as WeWork. Jakarta high-end residential real estate has also suffered, but there is demand for mid-priced apartments below the five-billion-rupiah level that prompts a 10% tax increase.

    Logistics space has been a highlight for investors last year, and we expect demand for such space to double in 2018. Last year, Logos became the first branded warehouse operator in Indonesia. The Canada Pension Plan Investment Board and Ivanhoé Cambridge provided $400 million in funding for warehouse development in greater Jakarta. The bulk of logistics activity surrounds the five cities of greater Jakarta, particularly Bekasi, the center for many large manufacturing plants, including new or expanded operations from car firms such as Toyota and Hyundai.

    Total demand for industrial and factory space should increase at least 50% this year over 2017. Jakarta is also popular as a production base, with MNC Proctor & Gamble already having a large base. Bathroom fixtures maker Kohler is planning a new factory. Outside Jakarta, interest revolves around larger cities such as Surabaya. Unilever already has a large distribution center there, and Surabaya is likely to attract more investment.