Commercial & Industrial Property News Update

Indonesia - Office Rents To Rise As Much As 25% Per Annum In Next Two Years

October 19, 2012

Tight supply, surging demand from foreign firms and a lack of new construction will push up office rents in Jakarta, said Jones Lang LaSalle (JLL).

Doing business in the nation's capital will get more expensive over the next two years as office rentals rise amid tight supply, said JLL.

The real estate brokerage said that the rise would be further driven by surging demand from foreign companies seeking to expand in Southeast Asia, as well as a lack of new construction and low available office stock in the city. Actual foreign direct investment rose 28% to Rp 107.6 trillion in the first half.

"The growing economy and increase in business activity have directly supported the office market," Anton Sitorus, associate director of research at Jones Lang LaSalle in Indonesia said. "Domestic companies expand and international companies look to enter the market for the first time." He added that there has been a relatively limited supply of office space in Jakarta.

The city hosts 6.06 million sq m of office space in total, of which only about 10% - or 605,560 sq m - remains unoccupied. In terms of prime CBD space, only 8.8% - or 385,000 sq m - of the total 4.38 million sq m stock remains unoccupied.

Anton said that from now to 2015, only 2.24 million sq m of office would be available. Of these, 1.53 million sq m would be in the central business district area and 710,000 sq m in other areas. The CBD in Jakarta includes several prime areas that surround Sudirman, Rasuna Said and Gatot Subroto streets.

Andre White, managing director of the American Chamber of Commerce, said that foreign investment is unlikely to be deterred by the limited office supply. Instead they were likely to accept higher asking rents in return for space, consequently affecting inflation in the city.

"It will continue to drive up rental prices in the immediate term, impacting the cost structure," noted White. "This will be priced into goods and services, adding to inflationary pressure."

JLL said in its report that office rental rates are likely to rise by between 20% to 25% per year in the next two years. Prime building rents could rise as much as 32%. As at end-September, the average office rental rate in Jakarta has risen 26% to USD 228 per sq m.

Despite the advance, Jakarta remains the second-cheapest office market in the Asia Pacific. In financial hubs such as Tokyo and Hong Kong, office rents average more than USD 1,000 per sq m.

Tags: Commercial real estate, Business space, Office for rent


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