Rupiah depreciation hurts demand for offices in CBD area

The Jakarta Post, Jakarta | Business | Mon, October 21 2013, 11:14 AM

The sharp depreciation of the rupiah against the US dollar had begun to hurt office markets
in the central business district (CBD) area as many tenants prefer to rent offices in nonCBD
areas, which offer lower costs.
Jones Lang LaSalle estimated the sluggish office-market condition in the CBD area would
continue until the upcoming presidential election, which will be held next year, as investors
would hold back their major business plans until the results of the election were announced.

Anton Sitorus, the head of research at a property consulting company, said that the rental
rates for offices space, which are set in US dollars, had shown a significant increase in rupiah
due to the sharp depreciation of the Indonesian currency against the greenback.

The rupiah depreciation had caused a decline in demand, especially for office space in the
CBD area, he told reporters last week when announcing the companys quarterly report.

Although the lower demand had slowed the growth of the dollar-based rate, the depreciation
of the rupiah cost the tenants more as they have to pay their rent in local currency, Anton
said.


According to him, the dollar-based rental rate for the CBD only grew 2 percent in the third
quarter as compared to about 6 percent in previous quarters.
The rupiah has plunged by about 15 percent this year due to the massive outflow of foreign
funds from the countrys debt and equity markets.


According to a recent survey conducted by Jones Lang La Salle, the estimated rent in the
third quarter of 2013 for grade A CBD offices reached US$28.42 (Rp 329,640) per square
meter (sqm) per month, $12.62 per sqm per month for grade B and $8.62 per sqm for grade
C.

The survey indicated that net take-up (absorption) in CBD offices in the third quarter of 2013
dropped to 61,000 sqm from 92,000 sqm in the previous quarter of 2013 and from 90,000
sqm in the third quarter of 2012.
The survey showed that from January to September of 2013, new office supplied in the CBD
reached about 290,000 sqm with occupancy rate of 92 percent.

The condition is slightly different with the office market in non-CBD areas. According to the
companys quarterly report, the rent in nonCBD areas grew at a higher rate of 5.5 percent in
the third quarter compared to the level recorded in the second quarter.
Jones Lang Lasalles national director for strategic consulting, Vivin Harsanto, said that the
demand for offices in the non-CBD areas continued growing in the third quarter due to their
more competitive rents.
The rental rate for offices in the non-CBD areas is not really affected by the economic
condition. The landlords are more confident to raise their rents, she said.
According to the companys survey, the estimated rental rate in TB Simatupang in South
Jakarta, in the third quarter of 2013 reached Rp 150,000 per sqm per month; while the rent in
other areas in South Jakarta was Rp 115,000 per sqm per month. In non-CBD areas in West,
North and Central Jakarta, they estimated to reach between Rp 65,000 and Rp 70,000 per sqm
per month and about Rp 50,000 per sqm per month in East Jakarta.
Meanwhile, the net take-up (absorption) for non-CBD offices was estimated to reach 39,000
sqm in the third quarter, rising slightly from 32,000 sqm in the previous quarter. As of
September, the absorption for new offices in non-CBD areas was estimated to reach to
130,000 sqm with an occupancy rate of 93 percent.
Vivin said that the growing demand for the offices in non-CBD areas was caused by the
improved quality of buildings and facilities offered by the landlords. This condition
encouraged more companies to rent offices outside the central business area, she added.

The survey also indicated a slowdown in condominium sales, which dropped to 2,390 units in
the third quarter from 4,300 units in previous quarter.
Meanwhile, the sale of condominiums from January to September 2013 was estimated to
reach 11,000 units.
She said that Bank Indonesias recent regulation to raise the minimum down payment for
additional property purchases had also hurt the condominium market.
Vivin, however, estimated that despite the central banks regulation and the decline in
peoples purchasing power due to the high interest rate, the sale of condominiums in the
country would still be higher than those in previous years.
Although the sales in the fourth quarter will likely remain the same compared to those in
the third quarter, the total sales in 2013 will exceed the 2012 level, she said.