What’s driving office demand in Jakarta?

September 4, 2017 / By  

A construction boom following the Global Financial Crisis (GFC) has resulted in unprecedented volumes of supply entering the Jakarta office market. Record annual supply in 2016 is expected to be surpassed by even more new deliveries this year to the tune of around 785,000 sqm – roughly half of the 1.6 million sqm expected to be delivered up to 2021.

New supply has caused occupancy to fall and oil, gas and mining firms have already downsized due to the commodities downturn. So which occupier types are going to fill the gap caused by record supply volumes and downsizing?

Demand dropped off quite significantly in 2015 on the back of weak economic growth and low commodity prices. In the quarters leading up to 2Q17, we saw a moderate recovery from a cross section of existing occupiers as well as well as new demand from e-commerce, with a spike in take-up in 2Q17.

We have been talking about upgrade demand – tenants moving out of the old buildings and into the new – for some time, but it is the expansion of new occupier types that has recently got people talking. Online market places, fin-tech companies, online gaming firms and travel booking sites have all been active and in some cases occupying more than 10,000 sqm in some of the best buildings in town.

In a recent white paper, my colleague Christopher Clausen discusses the factors that tech firms consider in choosing their office and a lot of these hold true for Jakarta:

  • Room to grow: Tech firms have grown rapidly in Jakarta and the volume of existing and future Grade A supply is providing options for those firms with expansion requirements.
  • Good transport links: Jakarta’s infamous traffic problems make it challenging to get around the city. The upcoming Mass Rapid Transit (MRT) and Light Rail Transit (LRT) networks are likely to provide more options for tenants. Buildings with direct or convenient access to infrastructure are likely to outperform the market.
  • Attracting top talent: The sheer volume of supply is such that options are available in many of the best buildings in town – much of the supply pipeline is of Grade A quality.
  • Co-working: Co-working space boosts collaboration and knowledge sharing, which is key for tech firms. This sector has also started to expand rapidly in Jakarta. In the early phases, occupiers focused on Grade B/C or shophouse type buildings, but Grade A buildings are increasingly attracting attention.

So can tech firms pick up some of the slack in the office market? The short answer is yes – but only to an extent. We don’t expect these firms to take up all of the 1.6 million sqm in the CBD pipeline. But if Jakarta catches up with other markets in Asia Pacific, as mentioned in Christopher’s paper where 20 per cent of Grade A space is currently occupied by tech firms, then technology occupiers could lease an additional 750,000 sqm of Grade A space by 2021 – not unthinkable given that demand from tech firms represented around 15 per cent of total market demand over the past 12 months.

Note: This blog refers to the Grade A market in Jakarta’s CBD.

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