Jakarta Office Rents Surge as DHL, Toyota Invest: Southeast Asia

Office rents in Jakarta are surging at rates faster than the rest of the Asia-Pacific region, as demand from companies in Southeast Asia’s biggest economy outpaces the supply of new buildings.

Rents for the highest-quality offices in the Indonesian capital jumped 36 percent in the first quarter from a year earlier, driving a 30 percent increase in rents across all buildings, according to broker Jones Lang LaSalle Inc. They will climb as much as 25 percent in the next two years, groups including the broker and developer PT Jakarta Land forecast.

Indonesia’s economy grew more than 6 percent for 10 straight quarters, helped by record-low interest rates and foreign investment. Companies including DHL, the freight company of Deutsche Post AG, and Toyota Motor Corp., the world’s biggest carmaker, have boosted operations in the country, while General Motors Co., Volkswagen AG and Apple Inc. are seeking entrance to tap the wealth of the country’s growing middle class.

“There was little development between the Asian financial crisis and 2009, due to a weak economy depressing demand,” Haslam Preeston, general manager of PT Jakarta Land, said in an e-mailed response to queries on May 29. “But as economic conditions improved, demand from companies, particularly large multinationals, for office space grew, rents increased, occupancy fell and interest in new office developments has seen a commensurate surge.”

PT Jakarta Land last year completed the 60,000 square-meter (645,835 square-foot) World Trade Center II in the city center.

Asia’s Highest

The Jakarta Construction, Property, and Real Estate Index that tracks 53 stocks jumped 3.4 percent to a record 565.295 at the close of trading. The index completed the biggest jump since June 6, 2012.

The increase in rents in Jakarta was almost three times the 13 percent gain in Bangkok, the city with the second-highest rate of growth, according to Chicago-based Jones Lang LaSalle. Almost half of the 27 major Asia-Pacific cities recorded declines or no change.

Office occupancy in Jakarta was at 97 percent in the first quarter, little changed from the previous three months, figures from broker Colliers International show.

Demand will continue to grow as more foreign companies establish businesses in the country as it emerges as one of the top destinations for foreign investment, KPMG LLP said in an April 16 report.

GDP Growth

Foreign investment climbed 27.2 percent to 65.5 trillion rupiah ($6.6 billion) in the three months ended March 31 from a year earlier, Indonesia’s Investment Coordinating Board said on April 22.

Indonesia’s gross domestic product increased 6.02 percent in the first quarter from a year earlier, the Central Bureau of Statistics said this month. The economy will expand 6.2 percent this year, the World Bank forecast on April 15.

Developers have responded to the surging demand from tenants, adding about 547,020 square meters of new office space in Jakarta in 2012, the most since 1990, according to Colliers. The city will add 311,908 square meters of space this year in 18 buildings in the central business district, the broker said.

The biggest office tower to be completed this year will be the 64,000 square-meter DBS Tower, being developed by PT Ciputra Property as part of its Ciputra World 1 project, Colliers said.

Rising Inflation

“Although there has been a number of new buildings completed over the past 12 months, these were mostly pre-committed to large occupiers, such as banks and natural resources companies,” said Preeston at Jakarta Land, a joint venture between Singapore-traded developer Hongkong Land Holdings Ltd. and closely-held PT Central Cipta Murdaya. “We expect rents to increase by 25 percent per annum for the next two years.”

The most active tenants were in the technology, oil and gas, insurance and trading industries, while leasing inquiries for space of as much as 500 square meters are most popular, according to a Cushman & Wakefield report.

Still, rising inflation may hinder office market growth amid an increase in supply, said Hasan Pamudji, Jakarta-based senior research manager at property broker Knight Frank LLP.

Bank Indonesia kept the reference rate at a record-low of 5.75 percent this month, the 15th consecutive meeting without a change. The government this month lowered its GDP target for 2013 to about 6.2 percent to 6.3 percent from 6.8 percent previously.

New Supply

“If inflation rises, or if the economy slows, it will affect business confidence and tenants may hold expansion plans,” Pamudji said yesterday by telephone. “The maximum supply has been between 300,000 and 400,000 square meters annually historically, so compared to that, there is some oversupply, and that’s the worry.”

From 2014 to 2016, the amount of new supply will be as much as 60 percent higher than in 2012, data from Colliers show.

Indonesia’s economic outlook prompted Fitch Ratings to raise its sovereign debt rating to investment grade in December 2011. Moody’s Investors Service followed five weeks later.

PT Lippo Karawaci, Indonesia’s largest publicly-traded real estate developer by assets, PT Alam Sutera Realty, half-owned by billionaire The Ning King, and Surabaya-based PT Pakuwon Jati will benefit from rental growth of as much as 16 percent this year, analysts led by Singapore-based Jacintha Poh at Moody’s, wrote in a May 21 report. That growth will be driven by occupancies of as high as 98 percent this year, Moody’s said.

“The office segment will see high occupancies and rising rental rates, with demand fueled by new corporate set-ups and expansions, while new supply is expected to be relatively limited,” Poh said.

Before it's here, it's on the Bloomberg Terminal.