THE CHANGING SHAPE of the OFFICE Eko Arfianto Senior Manager | Research | Jakarta +6221 3043 6726 [email protected]
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COLLIERS QUARTERLY OFFICE | JAKARTA | RESEARCH | Q3 2020 | 7 OCTOBER 2020 THE CHANGING SHAPE OF THE OFFICE Eko Arfianto Senior Manager | Research | Jakarta +6221 3043 6726 [email protected] 2020–24 Q3 2020 Full Year 2020 Summary & Annual Average Recommendations > COVID-19 will cause the demand for office space in the future to decrease. Smaller-size As the sluggish business spaces will be in great demand because of environment continues onwards, Demand the efficiency. 140,015 sq m 117,735 sq m 131,715 sq m most companies are taking more time to wait and see action in lease activities. Reimplementation of > Construction will run at a slower pace and physical distancing has caused work- delayed completion will occur. Supply growth from 2020 to 2024 is predicted lower from-home policies to be extended. 0 sq m 415,180 sq m 245,350 sq m Likely, lessors will analyse and Supply than previous projections. recalculate office space needs for the Annual Average QOQ / YOY / purposes of renewing lease Growth 2020–24/ End Q3 End 2020 agreements. End 2024 Presently, tenants prefer to extend > Landlords and occupiers will try to achieve 0.02% -4.08% 0.66% at their existing buildings rather than win-win solutions. Landlords will provide moving. The problem today is competitive deals especially for reputable tenants expect to reduce their office Rent tenants or large spaces. IDR241,700 IDR236,904 IDR255,275 space although the lease period still remains long. Landlords and tenants > The projected moderate absorption will 1.35% 2.15% 0.64% need to reach mutually beneficial increase vacancy rates. Fortunately, future agreements if business performance office supply is expected relatively moderate, of the tenants and the leasing particularly from 2023 to 2024. 18% 19% 20% activities on the landlord side are to Vacancy continue to survive. Landlords must > Demand for strata title offices will also be -2.73% 0.55% take a creative approach such as 0% affected by the COVID-19 pandemic. Selling providing smaller office space. More price will continue to be depressed, at least companies will be more concern on Price up to 2021. IDR42.81 mio IDR41.97 mio IDR44.35 mio flexibility and will likely apply efficiency in terms of space, costs Source: Colliers International and business models. Note: USD1 to 14,918 at the end of Q3 2020. 1 sq m = 10.76 sq ft COLLIERS QUARTERLY OFFICE | JAKARTA | RESEARCH | Q3 2020 | 7 OCTOBER 2020 the cumulative registered supply to 3.66 million sq m by the end of 2020, RESCHEDULE COMPLETION IS increased 4.8% YOY. POSSIBLE EFFICIENCY WILL DROP THE No office development was completed in Jakarta within the last six months. During the Large-Scale Social Restriction (PSBB) period, some project OCCUPANCY construction is still in underway, although at a slower pace. Due to the pandemic, some committed tenants also rescheduled fittings and likely The occupancy rate in the CBD was recorded at 81.4%, a drop of 1.4% QOQ, caused office completion delays by landlords. and is expected to continue to drop up to the end of 2020. This pandemic will likely result in some companies carrying out financial efficiency, cutting Total office space in the CBD remained registered at 6.87 million sq m. We all unnecessary operating costs. will only see a low amount of additional office space in the next three months. In total, six office buildings will be completed during 2020, the Demand for new office space is currently low because tenants are more projected cumulative supply by the end of 2020 to increase 3.7% YOY. We focused on surviving rather than on expansion. Today, tenants prefer to stay will still see larger additional office spaces to bring the cumulative supply to in their existing building while expecting to negotiate the rental or move to reach 7 million sq m in 2021. another lower rent building. As a result, the projected occupancy will Cumulative office supply continue to be depressed at 81.0% in Q4 2020, down 1.8% compared to 2019. Occupancy will receive more pressure in 2021 because of a larger amount of additional office space. Occupancy is expected to fall below 80% in the CBD in 2021. Annual supply and occupancy rates Source: Colliers International In the meantime, the cumulative supply in outside the CBD was still registered at 3.49 million sq m without development completed in the last nine months. Nevertheless, six office spaces are expected to meet completion in the next three months. These future office buildings will bring Source: Colliers International 2 COLLIERS QUARTERLY OFFICE | JAKARTA | RESEARCH | Q3 2020 | 7 OCTOBER 2020 The pandemic also hit the office market outside the CBD. Although without One year ahead, most landlords will likely maintain rent at the same level. additional office supply, the occupancy rate dropped around 1% QOQ to Nevertheless, some premium office buildings will be completed and affect 83.3% as of Q3 2020. the calculation of average rent in the CBD. Outside the CBD, we have yet to see a driving factor and rent is expected to remain stable until 2021. Large-Scale Social Restriction part 2 will only allow companies to operate at a maximum of 50% capacity with flexible working hours. Some companies are Average base rents unable to survive amid this situation, especially those that are directly affected, such as tenants associated with the retail sector, travel and tourism services. Co-working space operators have also reduced their branches because the majority of their occupants coming from start-up companies collapsed, affected by a slowdown of current economic activities. The discovery of a vaccine that will be available in 2021 is expected to minimise the COVID-19 outbreak. Business activities are expected to recover and bring again the opportunity for office demand to improve. In line with people returning to travelling, businesses that got hard hit such as the tourism sector are predicted to bounce back along with the F&B sector, construction and infrastructures. FIND THE MIDDLE GROUND The pandemic led to negotiations between landlords and tenants becoming crucial to find a win-win solution. From the tenant side, rental discounts by Source: Colliers International landlords will be the middle ground to survive. Landlords also need to wisely take a stance because the presence of tenants is an important part of the landlord business. Most likely rental reduction will be treated on a case-by- case basis. Landlords will provide lease relief by considering type of industry and business performance during a pandemic. A large amount of unabsorbed office space in 2019 coupled with the weakening absorption in 2020 to date has resulted in a tenant market that continues today. In the CBD, rent is expected to continue to be depressed during 2020. Rent was recorded at IDR266,472 in Q3 2020. Despite stable QoQ, due to tight competition to secure tenants, rent is expected to drop again in Q4 2020. Overall, office rent in the CBD by the end of 2020 will be lower by about 5% YOY. Outside the CBD, rental growth was restrained and recorded at IDR193,213 in Q3 2020. Rent is expected to drop in Q4 2020. Some future office buildings in the next three months set lower rent than the average market. 3 COLLIERS QUARTERLY OFFICE | JAKARTA | RESEARCH | Q3 2020 | 7 OCTOBER 2020 QUIET SALES ACTIVITY ON STRATA SAFETY AND FLEXIBILITY IS THE KEY Work-from-home (WFH) has become a new habit during recent months. TITLE Nevertheless, most companies are still reviewing, considering and evaluating Quiet sales activities were recorded at strata title office buildings in Jakarta the WFH system for their business models in the future. In addition, office over the past three months. The absence of new supply also brought selling space that provides flexibility in lease payments and short-term price to remain stable at IDR52 million, while IDR36 million outside the CBD. commitments will also be more desirable. We also predict that office space Demand of strata title buildings is expected to continue at a limited pace. In design in the future will be more adaptable to a flexible workspace and order to drive sales levels, it is highly likely that landlords or unit owners will prefer reducing unnecessary rooms, such as big meeting rooms. Safety and offer vacant spaces at competitive selling prices. cleanliness will become selling points for prospective tenants in choosing workspaces in the future. Landlords will continue to pay more attention to Average selling price those factors in convincing prospective tenants to occupy. Source: Colliers International 4 COLLIERS QUARTERLY OFFICE | JAKARTA | RESEARCH | Q3 2020 | 7 OCTOBER 2020 APPENDIX New pipeline PROJECT NAME DEVELOPER LOCATION SGA (sq m) MARKETING SCHEME DEVELOPMENT PROGRESS CBD 2020 Redevelopment Graha Binakarsa Binakarsa Swadaya Rasuna Said 20,000 For Lease Under Construction Office One Sentra Graha Sentosa Rasuna Said 16,357 For Sale Under Construction 2021 Menara BRI Bank Rakyat Indonesia Gatot Subroto 90,000 For Lease Under Construction T Tower (BJB Tower) BPD Jabar Gatot Subroto 24,000 For Lease & Sale Under Construction Daswin Tower Windas Development & Mitsubishi Rasuna Said 80,000 For Lease Under Construction Thamrin Nine Putra Gaya Wahana Thamrin 97,500 For Lease Under Construction Jakarta Office Tower by MORI MORI Building Sudirman 90,000 For Lease Under Construction 2022 Indonesia Satu North Tower China Sonangol Media Investment Thamrin 62,000 For Lease & Sale Under Construction Indonesia Satu South Tower China Sonangol Media Investment Thamrin 65,500 For Lease