The occupancy rate of office space in Jakarta in 2018 is estimated to reach its lowest level since 2012. The sliding figure is not caused by a decline in investment realization in Indonesia (which often involves the opening of new offices in the capital city of Jakarta) - in fact investment is rising - nor is it caused by an exodus of companies away from Jakarta (although a modest decline in demand for office space was detected). It is the opening of new large office towers what is troubling the ratio this year.
Ferry Salanto, Senior Associate Director at Colliers International Indonesia, said up to 11.5 million square meters (m2) of additional office space will become available up to 2021. More than half of this total - around 7 million m2 - is bound to originate from Jakarta's Central Business District (CBD). Nearly all of these office space projects have now started construction.
Meanwhile, in the first half of 2018 a total of 340,000 m2 in new office space became operational in Jakarta. For example, The Tower in Gatot Subroto Street and Menara Astra in Sudirman Street both opened in the second quarter of 2018. The newly completed projects helped to lift the total size of office space in Jakarta's CBD area to 6.32 million m2, up 5.8 percent from the preceding year.
Salanto said another 340,000 m2 of office space is expected to become available in Jakarta's CBD in the second half of 2018. As such the occupancy rate is likely to fall to 79 percent in this area before the year-end. At the start of the year the ratio was estimated at 85 percent in Jakarta's CBD.
There are two matters that encourage the supply side in terms of office space in Jakarta, Salanto explained. Firstly, infrastructure development in Jakarta (specifically the light rail transit/LRT and mass rapid transit/MRT projects) will allow a much bigger flow of people to reach the CBD area, including office spaces. Therefore, it has become attractive for developers to build new office towers in this area. Salanto added that foreign investors still see big opportunities in the office space segment in Jakarta due to government-led infrastructure development.
Secondly, Jakarta's authorities now allow the construction of much higher buildings than before, thus the total floor size rises accordingly.
The rising office space supply and subsequently declining occupancy ratio imply certain advantages for those who want to rent office space. Amid rising competition, the price of office space is expected to drop, while rental/lease agreements should become more flexible to entice the tenant. However, Salanto expects that rent prices will still rise around 1 percent this year because demand for the new office space buildings that come online this year is high. However, high demand especially originates from existing companies in Jakarta that are in search of more modern (or more strategically-located) office space. Thus, this will not help to boost the overall occupancy rate.
Meanwhile, Salanto expects to see a rise in development of - and demand for - coworking space in Jakarta. Especially multinational companies are expected to be interested in cowork space because it is more competitively priced and more flexible for the tenant.