Economic Impact of Infrastructure Delivery
    Category: Column By : Todd Lauchlan Read : 98 Date : Tuesday, May 01, 2018 - 15:35:49

    It was September 2010 when I first moved to Jakarta, to take over the Indonesia business for Jones Lang LaSalle. I haven’t quite seen out the decade, but it’s been a long enough span to witness a surprising amount of change. When I touched down at Soekarno-Hatta International Airport, the world was still reeling from the financial crisis. Indonesia was also recovering from the dual bombings of the J.W. Marriott and the Ritz-Carlton hotels in the capital, terrorist acts that killed nine people, including several executives attending a business breakfast. The attacks raised serious questions about just how welcome foreign businesses and foreign capital were in Indonesia.

    Indonesia was spared the worst of the global financial crisis (GFC), in part because the impact of the Asian financial crisis had been so severe a decade earlier. The Asian version wiped clean much of the overleverage of foreign debt held by Indonesian companies. Nevertheless, as elsewhere in Asia, any dip caused by the GFC was short-lived. The doubts about doing business in Indonesia proved much more prevalent and long-lasting. Rather than large piles of debt, a commodities selloff caused by questions over China’s future rate of growth had a more direct impact on the Indonesian economy.

    Although morale was at a low ebb, 2010 was a good time to arrive—many things have been going Indonesia’s way since then. Tin, coal and palm oil saw prices rebound. Chinese demand proved more resilient than expected, and confidence gradually returned. Indonesia has also graduated from dictatorship through autocracy to true democracy. President Joko “Jokowi” Widodo has had to fight for his political survival, but he comes from outside the political, military and even economic elite. He is a pro-business reformer who believes religion is a personal rather than political issue. He’s a secular leader who is truly shepherding Indonesia into the 21st century.

    Indonesia had been muddling along under Jokowi’s predecessor, Susilo Bambang Yudhoyono (SBY), a former Army general, whose economic gains were largely externally driven. The most-critical voices said SBY was asleep at the wheel. The real estate market had already begun to turn before Jokowi took office. It was muddling along as the decade turned, but as the commodity market came back, office rents shot up some 50% in 2011, followed by a similar number the next year.

    It was good news for landlords, with rents coming off a low base. But such rapid rises cause market rifts, making it hard for tenants to secure space or forecast future costs. In a decade that had seen little movement on rents, there was certain irrational exuberance as the market roared back to life. The property market peaked in 2014 as Jokowi took office, followed by a correction as new space coming onto the market overwhelmed demand. This pipeline continues to flood the Jakarta market with grade A space that simply didn’t exist before.