Jakarta Q4 2014 Retail Demand Shifting to Middle Class
1. DTZ Research
www.dtz.com Property Times 1
PROPERTY TIMES
Retail demand shifting to
the middle-class
Jakarta Q4 2014
19 January 2015
Contents
Economic Overview 2
Office 3
Retail 4
Residential 5
Definitions 6
Authors
Denan Kaligis
Head of Research & Consulting
+62 21 576 3838
denan.kaligis@dtz.co.id
Nurul Soraya
Research Analyst
+62 21 576 3838
nurul.yonasari@dtz.co.id
Vincent Sutrisno
Research Analyst
+62 21 576 3838
vincent.sutrisno@dtz.co.id
Contacts
Ong Choon Fah
Head of Consulting & Research, SEA
choonfah.ong@dtz.com
Dominic Brown
Head of South East Asia and Australia
New Zealand Research
dominic.brown@dtz.com
Hans Vrensen
Global Head of Research
hans.vrensen@dtz.com
Indonesia’s economy grew by 5.1% year-on-year (y-o-y) in Q3 2014, the slowest
pace of growth recorded in 5 years. This was largely due to contraction in exports,
a decrease in subsidy for fuels as well as a fall in government spending. Despite
the improving global economic outlook, Bank Indonesia (BI) expects overall growth
in 2014 to be in line with the previous projection of 5.1% - 5.5%. Notwithstanding,
economic growth is expected to improve in Q1 2015, driven by an increase in
government spending, and is expected to reach 5.4 to 5.8% in 2015.
Even though business sentiment remained cautious, average office rents in
Central Business District (CBD) increased by around 18.0% to IDR310,500 per sq
m in 2014 (Figure 1). The rental increase was credited to low supply after delays in
some office projects, which are now expected to complete in 2015. Moving
forward, it is still uncertain how the positive outlook for Foreign Direct Investments
(FDI) will offset the significant new supply pipeline as business outlook remains
uncertain in light of recent increases in fuel and electricity costs, as well as the
upcoming minimum wage legislation.
As demand from middle-up retailers remained strong in the face of limited supply,
average prime retail rents increased by a further 8.0% quarter-on-quarter (q-o-q)
in Q4 bringing total increase for the year to close to 30%. By the end of 2014, total
retail stock in Jakarta was 2.38 million sq m. Meanwhile, there have been
numerous big retailer movements towards less developed areas like East Jakarta
& Greater Jakarta where a growing proportion of middle-class consumers reside.
The average asking prices of apartments increased 22% y-o-y to IDR44.5m per
sq m, while asking rents increased by 7.6% y-o-y to IDR222.100 per sq m per
month. Despite the expected additional supply of around 1,399 units in Jakarta
CBD in 2015, the growth in rents and prices are likely to continue to increase
moderately as there is limited supply of land available.
Figure 1
Prime office rental index
Source: DTZ Research
0
50
100
150
200
250
300
Q406
Q407
Q408
Q409
Q410
Q411
Q412
Q413
Q414
Q415
Q416
(Q1 2011=100)
2. Jakarta Q4 2014
www.dtz.com Property Times 2
Economic Overview
Indonesian Rupiah depreciated further against USD
The Rupiah fell to its weakest level in 16 years in mid-
December 2014 to IDR12,965 per USD. Both external and
domestic factors contributed to the weakening of the Rupiah
against the USD in Q4 (Figure 2). The main external factor was
the bullish momentum of the US dollar amidst the improving
US economy. Furthermore with indications that the Fed could
raise the Federal Funds’ Rate (FFR) in Q2 2015, creating
increased demand for the USD and broad-based capital
outflows from emerging markets like Indonesia. Nevertheless,
BI has promised to maintain the stability of the exchange rate.
Meanwhile, domestic demand for the US dollar has surged as
the year-end corporate payments loom near.
FDI remained positive in 2014
Despite some capital outflows from Indonesia, due to the
optimistic outlook held by foreign investors on Indonesia’s
economy, there was a continued influx of foreign capital in
2014. According to Indonesia’s Investment Board (BKPM), an
estimated FDI of up to IDR450 trillion was realised in 2014,
reflecting 98% of the FDI target of IDR456.6 trillion
(US$380.5b) which was set for the year. BKPM targets an
increase 14.76% in realized FDI in 2015 to IDR524 trillion
(US$436.7b).
Economic growth slows marginally y-o-y in Q3
Notwithstanding the positive FDI, Indonesia’s GDP growth
decreased slightly from 5.12% y-o-y in Q2 to 5.01% in Q3. The
slower y-o-y growth in Q3 can be credited to slower investment
pace, contraction in exports and a fall in government spending.
Additionally, the sluggish global economy, and in particular
China’s economic rebalancing have contributed to the slower
pace of growth. These developments have suppressed global
commodity prices, especially minerals and agricultural
commodities. This has significantly affected the structure of
Indonesian exports, resulting in increased manufacturing
exports while containing primary commodity exports.
Meanwhile, the world oil price has dropped dramatically in
2014, which is expected to continue into 2015. Overall, as a
net importer of oil, the decline in world oil prices is expected to
positively impact the Indonesian economy.
The Government also made a bold move recently in cutting
fuel subsidies by introducing a fixed subsidy policy. The
change was part of its fiscal reform policy to reallocate the fuel
subsidy budget to productive areas such as boosting maritime
revenue from the fishing industry.
Inflation jump in Q4 due to fuel subsidy cuts
BI increased the benchmark interest rate to 7.75%, effective
from 19 November 2014. The increase of the BI rate is a
counter measure in easing the inflationary pressures caused
by the reduction of fuel subsidies, back to the target of 4±1% in
2015 .
Inflation was recorded at 6.23% in November from 4.83% in
October, mainly due to the fuel subsidy cuts which led to a
threefold increase in prices (Figure 3). Annual core inflation,
which excludes volatile items such as food and administered
prices, increased from 4.0% in October to 4.2% in November.
Growth expected to pick up in 2015
Going forward, BI expects the pace of economic growth to
continue to slow until Q1 2015, in line with the government's
budget cuts program and the slowdown in household
consumption due to rising inflation. Nevertheless, BI expects
consumption to improve in Q1 2015, driven by an increase in
government spending. Externally, despite an increase in
manufacturing exports, overall export growth remains limited
due to the supressed commodity exports in line with
moderating global demand. For the whole of 2014, BI forecasts
economic growth to be at the lower limit of 5.1 to 5.5%, but to
increase again in Q1 2015 to reach 5.4 to 5.8% in 2015.
Figure 2
Rupiah exchange rate, IDR per USD
Source: BI, Statistic Indonesia, DTZ Research
Figure 3
Inflation Rate
Source: Statistic Indonesia, DTZ Research
6,000
7,000
8,000
9,000
10,000
11,000
12,000
13,000
Q411
Q112
Q212
Q312
Q412
Q113
Q213
Q313
Q413
Q114
Q214
Q314
Q414
0%
2%
4%
6%
8%
10%
Q411
Q112
Q212
Q312
Q412
Q113
Q213
Q313
Q413
Q114
Q214
Q314
Q414
3. Jakarta Q4 2014
www.dtz.com Property Times 3
Office
Supply
Total office stock in CBD at the end of 2014 was 4.73 million sq
m after the completion of two office projects. Grand Rubina and
Lippo Kuningan provided an additional of 64,000 sq m of office
space. Both developments are located in the Kuningan area
and were fully operational by Q4.
Occupancy in the CBD decreased slightly to 95.0%
Based on a basket of completed buildings tracked by DTZ
Research, average office occupancy in Jakarta CBD
decreased slightly from 95.5% in Q3 to 95.0% in Q4. This is
due to the completion from newly completed buildings,
relocation of some tenants to areas outside the CBD and
downsizing of some businesses. Meanwhile, demand for office
buildings outside the CBD remains strong, especially in the
Slipi area, close to Gatot Subroto of the Golden Triangle. For
instance, as at Q4 2014, Central Park Office Tower (Slipi) was
fully occupied. Elsewhere, serviced offices are becoming more
common. Serviced offices offer a wide range of space choices
available for lease with flexible and simple rental contracts,
making them ideal for start-ups project-based needs and
SMEs. These offices offer sufficient facilities and amenities to
support businesses (such as meeting rooms, reception, IT and
telephone infrastructure). Some well-known serviced office
providers are Regus, CEO Suite, Marquee, Fortice and V-
Office.
Healthy rental growth
On a q-o-q basis, average monthly CBD office rents were
relatively stable, increasing slightly by only 0.4% to
approximately IDR310,500 per sq m in Q4 (Figure 4). In view
of the recent rising cost of fuel and electricity, as well as the
upcoming minimum wage legislation, business owners have
been more cautious in expanding their businesses, which has
resulted in slower demand. Additionally, the two new office
buildings that completed in the quarter increased competition
amongst landlords.
For the whole of 2014 however, average office rents in the
CBD have increased by 18.3% to IDR310,500 per sq m. This is
despite the wait-and-see attitude of business owners and the
uncertainty in the political situation prior to election. The rental
increase is instead credited to low supply due to delays in
some office projects, which are now expected to complete in
2015. The pace of growth was faster in H1 2014 as new supply
was available in H2 2014.
Strong pre-commitment for pipeline office supply
Going forward, at least 793,000 sq m of new Grade A office
space is expected to be completed in 2015 (Table 1). The
locations of developments are concentrated around the Gatot
Subroto area (Figure 5). Demand for these upcoming Grade A
offices have been quite strong, with an average pre-
commitment rate of around 60%. In 2015, rental growth is likely
to remain moderate. The strong supply pipeline could be offset
by the positive outlook for FDI, business owners’ confidence to
startup or expand due to political stabilization and a more
positive economic outlook. The implementation of the ASEAN
Economic Community (AEC) by the end of 2015 should also be
another positive factor.
Figure 4
Prime office rental index
Source: DTZ Research
Table 1
Major upcoming office developments
Name of
development
Location
Gross
area
(sq m)
Est year of
completion
Cemindo Tower
HR Rasuna Said
(Kuningan)
61,000 2015
The Convergence
HR Rasuna Said
(Kuningan)
36,000 2015
Sahid Sudirman
Center
Mas Mansyur (via
Sudirman)
139,000 2015
MSIG Tower Sudirman 70,000 2015
AIA Tower Sudirman 47,000 2015
Telkom Landmark
Tower
Gatot Subroto 61,000 2015
Wisma Mulia 2 Gatot Subroto 70,000 2015
The Capital Tower
@St Regis
Gatot Subroto 90,500 2015
Centennial Tower Gatot Subroto 100,000 2015
Source: DTZ Research
Figure 5
Pipeline office supply, gross floor area, sq m (000s)
Source: DTZ Research
0
50
100
150
200
250
300
Q406
Q407
Q408
Q409
Q410
Q411
Q412
Q413
Q414
Q415
Q416
(Q1 2011=100)
0
100
200
300
400
Kuningan Sudirman Gatot Subroto Thamrin
2014 2015 2016
4. Jakarta Q4 2014
www.dtz.com Property Times 4
Retail
Rents increase with no new supply in Q4
With no major retail developments completed in Q4, retail stock
in Jakarta stood at 2.38 million sq m at the end of 2014. This
was slightly higher than the 2.25 million sq m of retail space
recorded in Q4 2013. The limited net supply was due to the
demolition of Plaza eX, which partially offset the addition of
Puri Village@ St. Moritz and the extension of Puri Indah 2. As
a result of the lack of new supply and with the mall moratorium
still in place, the average asking rental rate of Jakarta’s
prominent shopping malls increased 8.0% q-o-q to
approximately IDR581,000 per sq m per month in Q4 (Figure
6) and 20.2% y-o-y. The average service charge was about
IDR134,000 per sq m per month in Q4, an increase of 3.7% q-
o-q and 22.13% y-o-y. This was mainly due to the expected
consecutive increase in electricity tariffs. Meanwhile, demand
for retail space in prominent areas remained strong, especially
from mid-upper class retailers. The most notable event in Q4
2014 was the entrance of Central Department Store, a huge
department store chain from Thailand, to Grand Indonesia.
Separately, the trend of developing lifestyle centers to cater to
the growing middle class consumers has strengthened.
Lifestyle centers generally provide an ambience and product
consistent with a relatively affluent clientele. Some well-known
lifestyle centers in Jakarta and Greater Jakarta are Flavor Bliss
at Alam Sutera, Food Centrum at Kemayoran or even the
upcoming The Breeze in BSD City.
Going forward, an estimated 98,000 sq m of retail space is
expected to be completed in 2015 (Figure 7 and Table 2). This
comprises Pantai Indah Kapuk – Lifestyle Mall, Neo Soho at
Podomoro City and One Bel Park. Other major retail malls
under construction and expected to be completed in 2016
include Holland Village and Puri Indah Mixed Used
Development Mall
Demand focus shifts to the middle-class
The continued implementation of the malls moratorium since
2011, government regulations and policies has redistributed
wealth and traffic to other areas outside the congested Daerah
Khusus Ibukota (DKI) Jakarta. As a result, major retailers are
shifting their focus to capitalize on the growing number of
middle-class earners living in less developed areas such as
East Jakarta and Greater Jakarta (BoDeTaBek - Bogor, Depok,
Tangerang, Bekasi) where land is still available at affordable
prices.
For instance, Uniqlo continued its expansion by opening a
store in Summarecon Mall in Bekasi. Similarly, IKEA opened its
first store in Alam Sutera of Serpong, Tangerang, to be within
close proximity to their target consumers while courts opened
its first store in Bekasi. Another foreign specialist household
retailer, JYSK which already has two stores, is planning an
aggressive expansion in 2015 towards Depok, Bekasi and
Bogor.
At the same time Japanese’s largest shopping mall developer
and operator, Aeon Co. Ltd will open four malls before 2017 in
BSD City of Serpong, Deltamas of Bekasi, Cibinong of Bogor,
and Garden City of Cakung. Aeon Mall in BSD City is expected
to begin operations in Q2 2015.Additionally, KFC has plans to
add around 60 new outlets in and outside Java by the end of
2015, to tap into the country’s growing middle income
consumers.
Figure 6
Asking rental index of major Jakarta malls
Source: DTZ Research
Figure 7
Retail supply pipeline, sq m (000s)
Source: DTZ Research
Table 2
Major upcoming retail developments
Name of development Location
Est Area
(sq m)
Est year of
completion
Pantai Indah Kapuk -
Lifestyle Mall
Pantai Indah
Kapuk
30,000 2015
Neo SOHO Tanjung Duren 40,000 2015
One Bel Park Fatmawati 28,000 2015
Holland Village Cempaka Putih 50,000 2016
Puri Indah Mixed Use
Development
Puri Indah 60,000 2016
Source: DTZ Research
90
100
110
120
130
140
150
Q411
Q112
Q212
Q312
Q412
Q113
Q213
Q313
Q414
Q114
Q214
Q314
Q414
(Q1 2011=100)
0
50
100
150
200
250
300
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Completed supply New supply
5. Jakarta Q4 2014
www.dtz.com Property Times 5
Residential
Average asking prices in the CBD increased
According to the basket of existing properties tracked by DTZ
Research, the average asking price of apartments in Jakarta’s
CBD increased by 6.5% in Q4 to IDR44.5m per sq m, reflecting
an annual increase of 22%. The middle-up segment of the
residential market registered the highest q-o-q price growth,
15%, in Q4 . The delay of the anticipated supply for the middle
up segment contributed to the growth in price.
In Q4 2014, the new supply came from the super high end
segment. Some 259 units from the luxurious Raffles Residence
of Ciputra World was released into the market. Going forward,
there is an expected additional supply of 726 units in Jakarta’s
CBD by end 2015 (Table 3). The bulk of the pipeline supply is
located in South Jakarta. Most of the upcoming projects are in
the middle-up and upper segments, except for super high-end
projects like Langham Residence of SCBD, Le Parc of Thamrin
Nine.
Modest growth in asking rents
While the asking prices for apartments have increased
significantly, asking rental rates only increased by 2.2% q-o-q
in Q4, to IDR222,100 per sq m per month (Figure 8). On a y-o-
y basis, asking rents for apartments in Jakarta’s CBD have
increased by 7.6% to IDR197,000 per sq m per month.
Average asking rents are expected to continue to rise in
response to increasing demand from the possible surge of FDI
and inflow of foreign expatriates when the AEC is
implemented. Asking rents for apartments are also likely to rise
as landlords pass on the additional costs in electricity tariffs to
tenants.
More middle-class residential projects outside CBD
Scarcity of land in Jakarta has led to the high price of land,
especially in the CBD. Thus developers are looking outside the
CBD to build apartments catering to middle income
households. For example, Holland Village apartments,
developed by Lippo and expected to to complete in 2016, is
located close to the CBD in Central Jakarta. Asking prices for
this project are approximately IDR25m per sq m, which is
almost 50% lower than the price of apartments in the CBD.
Consequently, phase 1 of the project was completely sold out.
Additionally, with stricter government implementation of
regulations being in place, developers looking to target middle
class segments are now prefering to sell apartments with sizes
smaller than 150 sq m per unit, to avoid 20% luxury tax
(PPnBHM). The significant addition of such tax will hike up the
selling price and making it less affordable for the middle class
segment.
Table 3
Major upcoming residential development
Name of development Location
No. of
Unit
Est year of
completion
Setiabudi Skygarden
Setiabudi -
Kuningan
726 2015
Sudirman Suite Sudirman 414 2016
Ciputra World II –
Orchard Satrio
Prof Dr Satrio 349 2016
Ciputra World II –
The Residence
Prof Dr Satrio 118 2016
Gayanti City Gatot Subroto 360 2016
Verde 2
Kuningan
Setiabudi
186 2017
Casa Domaine KH Mas Mansyur 323 2017
Langham Residence SCBD 57 2017
Astra Tower Apartment
(Anandamaya)
Sudirman 509 2017
Source: DTZ Research
Figure 8
CBD apartment asking price and rental indices
Source: DTZ Research
50
100
150
200
250
Q411
Q112
Q212
Q312
Q412
Q113
Q213
Q313
Q413
Q114
Q214
Q314
Q414
Asking price Asking rent
(Q1 2011=100)
6. Jakarta Q4 2014
www.dtz.com Property Times 6
Definitions
Development
pipeline/potential supply:
Comprises two elements:
1. Floor space in the course of development, defined as buildings being constructed or
comprehensively refurbished.
2. Schemes with the potential to be built in the future, having secured planning
permission/development certification.
Net absorption: The change in the total occupied or let floor space over a specified period of time, either positive
or negative.
Net supply: The change in the total floor space over a specified period of time, either positive or negative. It
excludes floor spaces that are not available for occupation due to refurbishment or
redevelopment, but includes new supply.
New supply refers to total floor space/units which are ready for occupation. Ready for occupation
means practical completion, where either the building has been issued with a Temporary
Occupation Permit or Certificate of Statutory Completion (CSC).
Prelet/pre-commit: A development leased or sold prior to completion.
Prime office rent: The highest rent that could be achieved for a typical building/unit of the highest quality and
specification in the best location to a tenant with a good (i.e. secure) covenant.
(NB. This is a gross rent, including service charge or tax, and is based on a standard lease,
excluding exceptional deals for that particular market).
Major malls: Purpose-leased shopping center with Net Lettable area (NLA) of at least 20,000 sq m that have
good tenancy-mix as well as retailers/ brands and developed by reputable developer in Jakarta.
Stock:
Total accommodation in the private sector both occupied and vacant.
Take-up: Floor space acquired for occupation or investment, including the following:
1. Offices let to an eventual occupier.
2. Developments pre-let or sold.
(NB. This includes subleases.)
Take-up also refers to units transacted in the residential market.
Occupancy rate: Total space currently occupied or not available to let as a percentage of the total stock of floor
space. (NB. This excludes shadow space which is space made available for sub-leasing).
