Indonesia commercial property market to improve in 2011, led by retail and office sectors

Mar 28, 2011

New mall like Kuningan City in Jakarta will buoy Indonesia's property market in 2011.

Analysts predict that Indonesia’s property sector will improve in 2011, despite increasing inflation and higher interest rates.

Retail properties and office space will be the strongest performers as retail and business sectors grow, The Jakarta Globe reported.

Tommy Bastamy, senior VP of research and consultancy at Coldwell Banker Indonesia, said he expects the property sector to grow as much as ten per cent this year compared to last year’s eight per cent growth. “Retail properties will grow well this year because there will be increases in both supply and demand,” said Bastamy.

Last year, retail property slumped as supply decreased as well as demand. In 2010 the supply of retail properties in Jakarta was only about 99,000 units compared to 228,000 available in 2009, said Bastamy. Demand slipped to 88,000 units last year from 168,000 in 2009. Bastama attributed the drop to businesses finding their feet again following the global economic crisis. He said he expects a 5 percent increase in retail this year with the completion of new malls, especially in Jakarta, such as Agung Podomoro’s Kuningan City and Ancol Entertainment Center. The two will add approximately 110,400 square meters of retail space to the market. 

He also said the market should expect higher demand as business prospects are increasing and new prospective tenants are expected to arrive. For example, Mitra Adiperkasa, Indonesia’s leading lifestyle retailer, announced last week that the company had allocated Rp 350 billion (US$40.3 million) for capital expenditure and planned to reach more than 1,000 total outlets by the end of this year.

“Even with increasing inflation, people do not seem to be worried because per capita income is increasing and minimum wages are continuously increasing,” Bastama said.

In addition to retail properties, he also expects office space rentals to increase this year. Last year, demand for office space grew to about 208,000 square meters, up from about 160,000 square meters in 2009. “Office space will grow by 7 percent this year, especially supported by the projected 6.5 percent economic growth and increased investment,” he said. 

Worries over increasing inflation would mostly affect residential properties, such as apartments, Bastama concluded.

Utami Prastiana, the head of research and consultancy at property consultant firm Procon Indah, said inflation and higher interest rates would especially impact apartments and houses that are directed toward middle- and lower-income groups as those segments are the ones more exposed to mortgages. 

However, she said it also depended on the bank providing the mortgage. “At the moment, with only a 25 basis point hike in the interest rate, there are no apparent increases in mortgage rates,” she said.