Savills World Research Indonesia

Spotlight Retail ● Jakarta January 2020 Spotlight ● Retail January 2020

Spotlight Retail ● Jakarta

Economy 2019 has been a tough period for the global As part of the open market, Indonesia through education and health is economy with trade tension between US cannot escape from various global issues. anticipated to improve. Furthermore, and China and recessions in some countries. In order to achieve economic target, the structural reforms have been widely World GDP growth recorded its weakest country should response and put a implemented in many aspects, including pace since GFC a decade ago, reflecting balance between sustaining growth laws and regulations. For instance, common influences across regions and momentum and maintaining government had proposed to the country-specific factors. macroeconomic and financial stability. parliament Omnibus bill to amend around 74 laws in efforts to cut red tapes. While economy this year is predicted to Indonesia has so far sustained a solid grow moderately, many expect that the growth on the back of strong domestic Indonesia’s economic growth for 2020 is bottom has passed. Yet, downside risks consumption, fiscal expansion and export projected to increase modestly. The remain with US-Iran conflict, surmounting growth. The government massive spending government is targeting GDP growth at debts worldwide and unfinished trade talks on infrastructure is expected to continue 5.3% – higher than 2019 (estimated) – these may hamper global recovery. while development on human capital - growth rate of 5.0%.

CHART 1 National GDP Growth, 2006-2020F

Indonesia has so far sustained a solid progress on the back of strong domestic consumption, fiscal expansion and export growth. The government massive spending on infrastructure is expected to continue while human capital development program through education and health is anticipated to improve.

Source: BPS *) Government target **) Estimate

TABLE 1 Key Figures – Indonesian Economy, 2011-2019

2011 2012 2013 2014 2015 2016 2017 2018 2019

GDP Growth (%) 6.50 6.23 5.78 5.09 4.79 5.02 5.07 5.17 5.02**

Interest Rate (%) 6.00 5.75 7.50 7.75 7.50 4.75 4.25 6.00 5.00

Inflation Rate (%) 5.38 4.28 6.97 6.45 6.38 3.02 3.61 3.13 2.72

Exchange Rate (USD/IDR) 9,068 9,670 12,189 12,440 13,795 13,436 13,548 14,481 13,091

Unemployment Rate (%) 6.56 6.07 6.17 5.94 6.18 5.61 5.50 5.34 5.28

Source: BPS. BI, MoF *) government target, unless other mentioned **) latest data available

savills.co.id/research 1 Spotlight ● Retail January 2020

CHART 2 To anticipate the sluggish economy, Interest Rate & Inflation, 2015-2019 Indonesian government has implemented some policies to ensure domestic stability and resiliency. In line with global trends among central banks in cutting off interest rates, Bank Indonesia also trimmed the benchmark interest rate four times in 2019 – which now stood at 5.0%.

The move had some positive impacts to support low inflation and relatively stable rupiah. By end 2019, inflation rate stood at 2.7% which still within the target range of 2.5%-4.5%. As for 2020, the government targets the inflation rate at 3.0±1%.

Source: BPS, BI Meanwhile, rupiah exchange rate against US dollar have been relatively stable in 2019 and

it was closed at IDR 13,900 by end-Dec. Solid CHART 3 Rupiah Exchange Rate (USD/IDR), 2014-2019 foreign reserves (approx. USD 129 billion) helped to maintain the rupiah. Furthermore, the government recently announced to lower oil and gas prices in early 2020. If realized, this will help to reduce household’s gasoline expenditures that in turn would boost spending in other sectors including in the property sector.

Aside from the above, the government continues their efforts to cut red tapes and providing more tax provisions to spur investments. Compared to other countries in the region, Indonesia with much bigger economy and healthier GDP growth should

Source: BI be able to attract international and foreign companies to do business here. Interests in the last few years remained high with energy and trading sectors became investors’ focus. CHART 4 IDX Composite & Property Index, 2014-2019 With more acceleration in economic growth and better policies in place, we expect to see gradual improvements in spending power as well as better wealth distribution. As such, we expect inquiry from both end-users and investors to gradually strengthen, while more corporate expansion would translate into more demand in sectors like office, logistics and hotel accommodations.

However, we also believe that developers should wisely manage their expectation particularly on their pricing to make it more attractive in order to win the competition

during a tough market condition. Source: BEI

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Jakarta Retail Some renovation works and upgrades in The retail market had witnessed some a number of shopping centers were positive growth in 2019 compared to the Retail enquiries grew eventually finished in 2019 which also previous year with net take-up picked-up bring in new tenants to that centers. For strongly and mall occupancies rebounded positively in 2019. example, large vacant areas previously to healthier levels. Renovations and occupied by department stores had design renewal/ been modified and converted to smaller spaces for mini anchors or some Three small shopping centers with total positioning works as specialty tenants. leasable area of around 24,000 sqm were seen in a number of completed in 2019. The new projects are With a number of openings especially all categorized as middle-up lifestyle malls shopping malls had from new local F&B players, retail take- with focus on leisure and F&B tenants. successfully lure more up in 2019 rose quite significantly They are located in Central Jakarta, South compared to previous year. Combined Jakarta and West Jakarta. With the traffic thus attracted with expansions from existing stores, additional inventory, total retail supply retailers to expand net take-up totalled at around 75,000 (for lease) rose to approx. 3.1 million sqm their outlets. sqm in 2019, quite a big jump from 2018 as of end-2019. when net take-up were almost non- existent. By grade, the largest proportion in the existing stock came from middle-up shopping centers, accounting for 41% of CHART 5 the overall stock. The second largest stock Supply, Demand & Occupancy, 2010-2019 came from upper grade segment with around 33% of the total. Meanwhile high- end and middle-low retail centers - accounted for 13.5% and 12.5%, respectively.

By location, about 38% of total stock was located in South Jakarta then followed by North Jakarta at 20%. West Jakarta and Central Jakarta constituted about 19% and 15% of the entire stock, respectively. Meanwhile, East Jakarta as the largest population in the capital city has the smallest retail stock instead. Source: Savills Research & Consultancy

TABLE 2 Market Indicators – Rental Shopping Malls | Jakarta

Change (%) 2H19 1H19 2H18 HoH YoY Existing Stock (sqm) 3,164,139 3,159,139 3,086,566 0.2% 2.5% High-end 427,466 427,466 427,466 0.0% 0.0% Upper 1,038,450 1,034,150 1,034,150 0.0% 0.4% Middle-up 1,298,242 1,293,242 1,274,069 0.4% 1.9% Middle-low 399,981 399,981 399,981 0.0% 0.0% Avg. Rent (/sqm /mth) 346,200 346,200 348,430 0.0% -0.6% High-end 773,571 773,571 773,571 0.0% 0.0% Upper 505,556 505,556 502,222 0.0% 0.7% Middle-up 289,326 289,326 291,568 0.0% -0.8% Middle-low 211,042 211,042 213,333 0.0% -1.1% Source: Savills Research & Consultancy

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CHART 6 In general, the retail property sector in Net Take-Up by Grade, 2010-2019 Jakarta remained attractive amid ongoing competitions from online shopping. With growing affluent class and thriving youth segment, the market in Jakarta continued to attract international retailers, particularly F&B and fashion sector.

Some new foreign entrants in 2019 include Eben (Hong Kong), Karuizawa (Japan), Nars (USA), Pizza Maru (South Korea), Yogurtland (USA), Ben Gong’s Tea (China), Harrits Donuts & Coffee (Japan), Maki-san (Singapore), Gram (Japan) and Hai Di Lao China). Meanwhile, craze is currently a hit in Jakarta as evidenced by many boba store openings in town. Tiger Source: Savills Research & Consultancy Sugar, Xing Fu Tang and Diagon Alley (all from ) are some prominent players that made their debut in 2019. They CHART 7 aggressively expanded not only in Jakarta, Vacancy by Grade, 2010-2019 but also in other big cities like Medan, Surabaya, Bali, Bandung and Semarang.

Meanwhile, existing studio chain Cinemaxx had rebranded as Cinepolis with official announcement in early December 2019. Cinepolis entered a partnership with Lippo Group, the owner of Cinemaxx, by acquiring 40% of its stake. That move was taken as an effort to heighten moviegoers’ experience through innovation from the Cinepolis.

Also, fast fashion retailers like H&M and Uniqlo continued to penetrate the market

with more stores targeting primarily youth Source: Savills Research & Consultancy customers and young professionals.

Overall, increasing demand led to a lower vacancy from 12.1% in 2018 to 10.4% by CHART 8 Rental Index by Grade, 2010-2019 (2010 = 100) end-2019. This also had reflected in entire mall segments: in high-end malls vacancy down to 4.5%, 5.9% in upper grade malls, 16.7% in middle-up and in middle-low shopping centers vacancy down to 8.0%

Amid the decline in vacancy, retail rents were basically unchanged as landlords continued to focus on retaining their tenants and trying to lure new ones. The overall average rent in Jakarta stood at IDR 346,000 per sqm per month as of December 2019. In Jakarta’s high-end malls, rents for typical specialty stores in prime floors are

Source: Savills Research & Consultancy offered at the average of IDR 773,571 per sqm per month.

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What is the outlook? CHART 9 Annual Supply, 2010-2019

Between 2020 and 2022, around 450,000 sqm of retail space from 18 projects is scheduled for completion and will add to the supply in Jakarta.

In terms of grade, most of the upcoming supply is categorized as middle-up malls, representing 60% of the future supply while the rest is upper grade malls. By location, the concentration of future supply will be in North Jakarta (28%), South Jakarta (27%) and Central Jakarta (26%). West Jakarta and East Jakarta accounted for 12% and 7% respectively. Source: Savills Research & Consultancy

Some projects previously scheduled for completion in the last quarter of 2019 had CHART 10 delayed their openings – mostly due to slow Supply, Demand & Occupancy Forecast, 2020-2022 construction works. Those centers are anticipated to open for trade in early 2020. If completed, soon there will be two new centers in the SCBD area (D8 and Elysee) and one new mall in Senayan area (Spark).

The upcoming centers will be a fresh addition to the CBD retail supply which had seen no new developments in the last few years. In response to the current trends, the developers adopted lifestyle concept in their malls with significant contents on F&B and leisure retailers. With more lifestyle centers, the CBD will be perceived as the most hip Source: Savills Research & Consultancy and trendy location in the capital city.

TABLE 3 Future Supply – Rental Shopping Mall | Jakarta

2020 2021 2022

Future Supply (sqm) 184,366 114,276 154,910 High-end - - - Upper 154,366 16,000 11,910 Middle-up 30,000 98,276 143,000 Middle-low - - -

Central Jakarta 32,979 63,276 24,910 South Jakarta 124,887 - - North Jakarta - 25,000 100,000 West Jakarta 26,500 26,000 - East Jakarta - - 30,000

Source: Savills Research & Consultancy

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CHART 11 Rental Index Forecast, 2020-2022 Moderate Scenario

Source: Savills Research & Consultancy

With big population base and rising middle Meanwhile, successful upgrades in a Bell (USA), Go Noodle () and % consumers, Indonesia continues to attract number of malls have brought positive Arabica (Japan) will open their stores soon offshore investors. Growing investors’ impacts to their performances, which here. Meanwhile local coffee chain Kopi appetite to acquire malls in Indonesia inspire other landlords to refresh their Kenangan, with strong back-up from from a garnered a buzz in 2019. Notable deals centers in order to attract more tenants and global investor continues to expand and include NWP Retail (Nirvana Wastu visitors. Some landlords that plan to targeting to add over 1,000 new outlets Pratama), Indonesia’s largest independent renovate their malls include Melawai Plaza over the next 2 years. retail shopping mall platform backed by and Gajah Mada Plaza. Warburg Pincus, taking over malls from Along with the anticipated growth in Lippo group. NWP entered into conditional Going ahead, we expect Jakarta future retail demand, retail rents are projected to pick sale and purchase agreements to buy five scene will be more dynamic and innovative up gradually. Based on our moderate malls located across the country in end- as retail brands evolving to create unique scenario, we expect the hike at around 2019 for a reportedly IDR 1.8 trillion. The value and experience to their customers. 3%-4% hike per annum over the next two deal marked growing participation of Furthermore, F&B sector is projected to to three years. international operators in Indonesia’s remain popular and have strong growth; retail market – following the expansion of more investors and international players Korean and Japanese retail developers. are seen to expand to Indonesia like Taco

Quickly HopHop Boba Craze Diagon Alley Outlet expansion Tiger Sugar HeiHei (major brands) IN Tea Dirty Milk Kamu Tea Bubble tea (or pearl milk tea, Fat Bubble bubble milk tea called boba) is a Chatime Heycha tea-based drink invented in Kokumi Taiwan in the 1980s. OneZo The first boba drink in Indonesia Koi The was launched in 2000 – with Daboba ‘Quickly’ as the pioneer. Forever Tea Ben Gong's Tea Later in 2001, Hop Hop opened Happy Lemon targeting lower segment. Gulu Gulu In the past couple of years, Fat Straw Indonesia has experienced an Xing Fu Tang influx of boba outlets from local 0 50 100 150 200 250 and international alike. # of outlets

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Glossary

• The Jakarta retail market covers the administrative region of DKI Jakarta, Forecasting Methodology which is defined based on municipality i.e.: Central Jakarta, South Jakarta, East Jakarta, West Jakarta and North Jakarta • Optimistic Scenario

• Demand as defined by net absorption (net take-up) refers to the net increase Based on assumptions that the general economic conditions to in occupied retail space within a particular period. improve significantly (i.e. better GDP growth and positive macro environment) which will lead to a more robust purchasing power • High-end malls refer to shopping centers located in prime CBD areas with and consumer spending, thus generate significant retailer international standard features and rated as the highest rank in terms of expansion, which would be reflected in significant take-up building size, quality, tenancy mix and profile, facilities, maintenance etc. increase.

• Upper-grade malls refer to shopping centers located in strategic areas with • Moderate Scenario excellent quality and rated as the second highest rank in terms of building size, quality, tenancy mix and profile, facilities, maintenance etc. Based on assumptions that the general economic conditions to grow moderately (i.e. stable GDP growth and neutral macro • Middle-up malls refer to shopping centers located in good areas with good environment) which will provide a foundation for steady consumer quality and rated as the third highest rank in terms of building size and spending and positive retailer expansion. quality, tenancy mix and profile, facilities, maintenance etc. • Pessimistic Scenario • Middle-low malls refer to shopping centers located in decentralized areas with standard quality and rated as the lowest rank in terms of building size Based on assumptions that the general economic conditions to and quality, tenancy mix and profile, facilities, maintenance etc. weaken (i.e. lower GDP growth and negative macro environment) with lack of retailer expansion and weak consumer spending.

• Vacancy rate refers to the ratio of vacant available retail space to the total stock in the market.

• Gross rent refers to the total rental payable by tenants. This is equivalent to the sum of base rent plus service charges.

• Base rent is the standard minimum rental payable for a retail space without taking into account any add-ons such as service charge and after-hours utility costs that make up the total occupancy costs.

• Service charge is the collective name for the cost of air-conditioning, electricity and other services in public area as well as management charges passed on to occupiers.

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Jeffrey Hong Anton Sitorus Simon Smith President Director Director, Research Senior Director Savills Indonesia Consultancy Asia Pacific +62 21 293 293 80 +62 21 293 293 80 +852 2842 4573 [email protected] [email protected] [email protected]

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