Property Industry Indonesia: Office Space Vacancy in Jakarta Growing
The amount of empty office space in Jakarta's central business district (CBD) has grown as supply outpaces demand, while business activity in Indonesia has slowed amid the ongoing economic slowdown of Southeast Asia's largest economy. Since 2011 Indonesia's GDP growth has been slowing due to sluggish global growth and low commodity prices. According to information from Savills Consultants Indonesia, unit of London-listed global real estate service provider Savills Plc, the office space vacancy rate in Jakarta grew from 4.8 percent in 2014 to 8.4 percent in mid-2015.
Anton Sitorus, Head of Research and Consultant at Savills Consultants Indonesia, said the slowing pace of economic growth reduces demand for office space in Jakarta. Tenants (as well as potential tenants) now prefer to wait and see whether the economy will experience a rebound. As a result, rent growth has declined over the past 20 months. Premium office space rent has fallen 5.2 percent. Sitorus believes that the vacancy rate will grow further in the years ahead as supply is expected to outpace demand in the foreseeable future.
The vacancy level of grade A office space in the CBD rose from 6.4 percent in late-2014 to 17.1 percent in mid-2015, while the vacancy level of grade B and C office space is 2.5 percent and 4.8 percent, respectively.
In late 2014 the office space sector was still considered lucrative, particularly in Jakarta's CBD where the occupancy rate stood at about 94 percent. Office space demand from local, multinational companies and individual investors was high and prompted several large Indonesian property developers to construct office-building projects in this area last year thus boosting the supply side in 2015. This year, about 228,000 square meters of office space were added in the CBD (including the Noble House, Sahid Sudirman Center and Grand Rubina 1 buildings).
In 2014, the business community also held high hopes for the Joko Widodo administration (inaugurated in October 2014). Reform-minded Joko Widodo won Indonesia's presidential election in mid-2014 and was the clear market favorite due to his pro-business attitude. However, after nearly one year in office Widodo has not been able to reverse the process of slowing economic growth.