While Europe struggles, the majority of real estate sectors in Jakarta are building on their 2011 growth and enjoying a steady outlook, writes Arief Rahardjo

While several European economies are experiencing debt crises, Indonesia's economy is moving in a different direction. The Indonesian economy maintained its growth story from 2011 into the first quarter of 2012 with an increase of 6.5%.

Robust economic growth backed by fiscal prudence prompted rating agencies to raise Indonesia's sovereign credit rating into the investment rate. Inflation remained under control despite the rise of some consumer goods prices in anticipation of the expected fuel price increment during the year. Moreover, the stock market continued its stable positive performance throughout Q1 2012.

Jakarta CBD office market
Leasing enquiries and transactions in Jakarta's central business district (CBD) office market continued at favourable levels during Q1 2012. Most transactions resulted from expansions by existing tenants, mirroring their continued business growth in sectors such as oil and coal mining, IT/telecommunications, agribusiness and insurance.

Large-sized requirements are harder to satisfy since most of the existing buildings and projects due for completion this year have achieved high occupancy and pre-commitment levels. The strong leasing and sales activities brought cumulative demand to 3.94m sqm as at March 2012 (a 9.5% rise YoY).

This caused the overall occupancy rate to increase to 91.3%, the highest occupancy level since 1997, with the total cumulative supply of 4.32m sqm. In addition, a further 304,800sqm of supply is expected to enter the market over the balance of the year.

A number of landlords increased their base rental rates during Q4 2011 and others are expected do so during 2012, given the continued positive outlook of the rental office market. Service charge levels are likely to be adjusted in the near term as landlords react to the expected government announcement on utility-cost increases.

In US dollar terms, the average gross rental (base rental plus service charge) of grade-A offices increased by 11.2% YoY to $23.98/sqm/month as at March 2012.

Reflecting the country's positive economic performance, demand for office space in Jakarta's CBD is expected to continue at the current high levels. Average occupancy of the CBD Jakarta office market is expected to remain at around 90% by the end of 2012, as most of the nearly completed office buildings have secured high pre-commitment levels.

Jakarta retail market
With a limited number of new retail centres completed, the cumulative supply of retail space in Jakarta grew by just 1.6% during 2011.

As of March 2012, the total supply was recorded at 3,586,700sqm, comprising 68.6% within retail centres for lease and 31.4% in strata-title centres. Through to the end of 2012, a further 312,100sqm of retail space is expected to enter the market.
The majority of new supply in 2012 will come from one-stop retail centres within large mixed-use developments, such as Kota Kasablanka, Ciputra World, and Kemang Village.

It was a very active leasing market throughout 2011, especially in the centres under construction. Several international fashion brands opened their first stores in Jakarta.
There were new openings by anchors and larger tenants in the newly completed retail centres. As of the end of March 2012, the average occupancy rate of the Jakarta retail market reached 80.9%, and the leased retail centres achieved far higher average occupancy rate of 87% during the same period.

As of Q1 2012, average base rentals of specialty shop units on the ground floor within primary locations were recorded at $87.4/sqm/month. The average service charge ranged between $10 and $15.50/sqm/month.

Continued growth in both size and wealth of population in Jakarta has attracted retailers, both local and international, to enter into leasing pre-commitments, especially in the centres under construction. Leasing transaction will be active, with food and beverage, and other sectors such as super/hypermarket, fashion, electronics, tools and hardware, as the prospective tenants.

Despite the strong market, the Jakarta governor issued a moratorium of new permits for retail centres of greater than 5,000sqm and this will decelerate retail growth in Jakarta.

Greater Jakarta condominiums
Greater Jakarta's condominium sales activity remained stable throughout 2011. Up until March 2012, sales rate of completed condominium projects in the Greater Jakarta area reached 95.1%, while pre-sales rate of the projects proposed or under construction was 61.7%.

The pre-sales activity of the proposed condominiums was dominated by middle to upper-class projects ($800-1600/sqm). One-to-three year cash instalments, bank mortgage, and hard cash are common payment methods used in these segments.
By the end of Q1 2012, 4,064 condominium units were completed, bringing the total existing supply to the 89,777 units. In addition, about 102 proposed projects were offered to the market. The middle-segment condominiums led the proposed supply in Jakarta with a 62.6% share.

The scarcity of land in Jakarta, particularly in the CBD and prime area, has caused land price increases, and led to the growth of condominium development costs. As of Q1 2012, the average price of condominium land in the CBD area stood at $2,200/sqm; meanwhile, the average price in the prime residential area stood at $2,050/sqm.

The Greater Jakarta condominium market will see 20,000 new units in 2012, assuming no major delivery delays. This large supply is likely to increase market competition. Developers will therefore need to offer compelling product advantages and be competitive in promoting their project in order to boost transaction activity during 2012.

Notwithstanding this higher supply level and competition between projects, the outlook is for higher sales in the year ahead, stimulated by the new projects and positive buyer sentiment.

Greater Jakarta housing market
The landed housing market achieved remarkable sales in 2011. The euro-zone crisis in 2011, which was anticipated to spill over into Indonesia's overall property market, did not really cause any negative impact on the landed residential market in the Greater Jakarta area.

As the population keeps growing and housing remains a primary need, demand for landed residential property continues to increase. National economic stability and decreasing mortgage rate were the supporting factors during 2011 which had enhanced the purchasing motivation of the prospective consumers.

Positive growth in the sales rate on a yearly basis was observed in all areas by end of 2011. This indicated that demand growth for landed residential property outpaced supply growth. The average monthly take-up value in the Greater Jakarta area was recorded at IDR150.3bn as of the second half of 2011, a total of 45.3% YoY growth. Occupancy rate was stable at 82.6%.

Growing by 31.5% during the second half of 2011, the total planned area of the Greater Jakarta landed residential sector increased to 50,748 hectares. A total of 294,103 housing units were launched during the second half of 2011, representing growth of 3.1% YoY. Of all the areas in Greater Jakarta, housing units in Tangerang captured the largest proportion of supply at 47%.

Of all the areas in Greater Jakarta, Bekasi recorded the highest land price and sales price appreciation at 33% and 19%, respectively, by end of 2011.

Both developers and buyers are expected to be cautious in 2012 as several planned national policies will be effectively applied during the year. They include the planned oil price adjustment in the second quarter of 2012 and the regulation by Bank Indonesia that restricts the maximum loan-to-value ratio at 70% for housing mortgages. Therefore, sales activity in 2012 will potentially be slower than that in 2011. However, developers will continue to actively launch several new products and develop infrastructure and facilities.

Greater Jakarta industrial
Net demand of some 268 hectares of prepared industrial land plots rounded off an extremely strong year for the Greater Jakarta industrial market in 2011. While inquiries remained strong, net demand during the first quarter of the year fell to only 153 hectares mostly due to the shortage of good supply.

The cumulative sales rate as of March 2012 increased to 78.6%. Demand for SFB's & Warehouses for sale and lease of the reviewed estates remained strong.

Industrial estates in Bekasi and in the Karawang and Purwakarta areas continued as the preferred locations, enjoying over 85% of total transaction activity. Continuing the trend from 2011, major demand in Q1 2012 was dominated by foreign industrialists mostly from Japan, in the automotive related sector.

For the second consecutive quarter, additional supply came from industrial estates in Bekasi of approximately 80 hectares. The total cumulative supply of industrial land in the Greater Jakarta area as at Q1 2012 increased to 9,228 hectares. New supply is expected to continue entering the market throughout the year.

Asking prices of industrial land continued to increase. The estimated average achieved land price in US dollar terms increased to $144/sqm (+56.9% YoY).

With significant amount of pent-up demand awaiting new supply delivery, the overall industrial market in 2012 is expected to remain strong.

Arief Rahardjo is head of research and advisory at Cushman & Wakefield Indonesia