Commercial Real Estate Market in Indonesia - Growth, Trends, COVID-19 Impact, and Forecasts (2022 - 2027)

Commercial Real Estate Market in Indonesia - Growth, Trends, COVID-19 Impact, and Forecasts (2022 - 2027)

The Indonesian economy is expected to remain strong in 2019, with a projected GDP growth rate of nearly 5% to 5.4%. The long-term outlook for commercial real estate looks positive for Indonesia supported by solid economic growth, and rising urbanization.

With the conclusion of the elections in the first quarter of 2019 and the completion of major infrastructure projects, it is expected that real estate market trends will continue to move in a positive direction in the country. Indonesia’s property investment market is currently going through a quiet period. While domestic investors are concerned about Jakarta’s commercial oversupply, international investors are constrained by regulatory hurdles in the country.

The take-up in the office sector in the country witnessed a steady growth with the development of various office buildings across the country. Some of the significant office building construction deals included Treasury Tower in the Sudirman Central Business District in Jakarta, developed by Agung Sedayu Group; Casa Domaine Tower 1 and 2 in the KH Mas Mansyur area of Jakarta, developed by three construction groups (Salim Group, Lyman Group, and Kerry Group); and World Trade Center 3 in the Sudirman area of Jakarta, developed by Jakarta Land.

The development of infrastructure is expected to increase accessibility in the country. Indonesia’s first Mass Rapid Transit (MRT) network is also expected to be operational before the end of 2019, which will improve access to numerous commercial and residential developments in the CBD and South Jakarta. The MRT will also connect with the airport rail link and, later, with the Light Rail Transit (LRT) system to the center of the city.

Key Market TrendsOffice demand to remain strong in the country

The country is expected to witness strong demand in office space in the upcoming years especially driven by co-working and technology companies. The demand continued to be driven majorly by technology companies especially in the second quarter of 2019 and there was also a significant increase in the leases signed by flexible office space providers. Indonesia is also witnessing a rising demand for co-working spaces.

The total take-up of office space in the CBD( Central Business District) of Indonesia was estimated at around 400.000 sqm and the supply is expected to increase by around 1.1 million square meters by 2020, of which 625.000 square-meters will be added in 2019. Of the total 1.7 million sqm of new office supply, 53 percent are class A buildings and 41 percent are premium class. The rest of the 6 percent is class B buildings.

The average occupancy rates of offices have significantly reduced in areas like Jakarta in recent years, from 84,8% in 2016 to 79.8% in 2017 to around 80% in 2018. Many of the new buildings have an occupancy rate of below 60%.

Retail space likely to witness increase in Jakarta

Although the pressure on the retail real estate still exists in Indonesia, the outlook for the retail sector looks bright as many retailers in the country are expanding their retail operations. The demand for food and beverages and lifestyle sector is expected to remain strong.

Jakarta also contains the largest number of shopping centers in Indonesia. In terms of grade, the shopping centers in Jakarta can be classified into four grades: high-end, upper, middle-up and middle-low. Of the existing supply as of 2019, 41 % of the supply is from the middle-up segment, 32% is the upper grade, 14% is high-end and another 13% is classified as the middle-low.

The total retail space is expected to increase by 3-3.5% per year between 2018 to 2013. The greater Jakarta area will witness nearly 60% of the total anticipated 1.2 million sqm of future supply. The rents are also witnessing a steady growth and the vacancy rates are expected to increase especially in the established shopping centers due to substantial supply in the suburban areas. The cumulative supply of retail spaces in Jakarta has also been increasing steadily in the past few years from 4.57 million sqm in 2016 to 4.63 million sqm in 2017 to 4.65 million sqm in 2018.

Competitive Landscape

The commercial real estate market in Indonesia is fragmented with the presence of many small players. Some of the major companies in the Indonesian commercial real estate market include Agung Podomoro Land, Sinarmas Land, Lippo Karawaci, Ciputra Group, and Dutta Angada Realty. Indonesia has a fragmented market dominated by local commercial real estate players. However, rising investments and mergers and acquisitions activities in the country are expected to increase more investments in the sector in the forecast period.

Additional Benefits:

• The market estimate (ME) sheet in Excel format
• 3 months of analyst support

Companies Mentioned

IBM Corporation
Oracle Corporation
Internap Corporation
Packet Inc. (An Equinix Inc. Company)
Scaleway Inc.
Amazon Web Services Inc
Rackspace Inc.
CenturyLink, Inc.
LightEdge Solutions, Inc

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