Indonesia logistics – a new frontier in the making

December 4, 2014 / By  

Indonesia is the largest archipelagic country in the world and the fourth most populous nation, with about 250 million people. The Indonesian economy is driven by robust domestic consumption attributed to rapid urbanisation and a growing middle class.

With a large population base, the demand for consumer products – from basic foodstuffs and personal care to high-tech gadgets and motorcycles – has risen. With this expanding consumer market, a larger volume of goods is being transported throughout the archipelago. Coupled with a greater number of new international brands with production facilities in the Greater Jakarta area, the demand for distribution and logistics services by local and foreign manufacturers, including third-party logistics (3PL) companies, has expanded rapidly.

As such, there has been considerable interest from local and foreign investors in the logistics market. These include local and regional private equity groups as well as pension and sovereign funds. A number of these investors have enjoyed success, being the first movers in other emerging cities in the Asia Pacific region.

Most investors and 3PL companies look to acquire land within established industrial estates in the Greater Jakarta area, with a number in Surabaya, Medan and other secondary cities. While land prices within industrial estates have increased significantly over the past few years, estates with good infrastructure, utilities and professional estate management are still preferred.

Source: JLL

Despite these exciting changes and the potential in the Indonesia logistics market, some large international owners, operators and developers are still hesitant in their participation, as they feel that the Indonesian market is not mature or sophisticated enough. In my opinion, the opportunities are bountiful. The underlying conditions – 1) the increase in retail and e-commerce and 2) the current imbalance between demand and available supply where major occupiers have been looking at multiple locations – will continue to drive rents up and asset yields down for some time.

However, with a population this large and geographically dispersed, the weak infrastructure translates into longer distribution times and higher costs. Nonetheless, this is set to change. At the Asia Pacific Economic Cooperation (APEC) convention, recently elected President Jokowi invited foreign investors to support his government’s programme to build and improve the ports and other transportation infrastructure. If the new president is able to deliver on this, this infrastructural issue could be minimised, if not mitigated, eventually providing significant opportunities for logistics operators and developers.

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