RICS Indonesia Commercial Property Monitor Q2 2015

Royal Institution of Chartered Surveyors | 31 Jul 2015

RICS Indonesia Commercial Property Monitor Q2 2015

Q2 2015: Indonesia Commercial Property Monitor

Weaker macro climate weighs on occupier and investment sentiment

Key macroeconomic trends

Indonesia’s GDP growth softened to 4.7% year-over-year in Q1 from 5% in Q4 2014, the weakest pace of expansion since September 2009. The slower-than-expected growth was driven partly by weakening private consumption and government expenditure, which undermined positive contributions from exports and steady investment growth. More worryingly, some of the recent high frequency economic indicators point to a further moderation in growth. Going forward, private investments are likely to be negatively affected by the slow and disappointing pace of reforms. Furthermore, a weak rupiah and subdued sentiment will likely continue to weigh on the recovery in private spending. Current external uncertainties, including the impact of the Chinese slowdown, sluggish commodity prices and the ongoing turmoil in the euro area suggest continued weakness in external demand in the near term. On the policy front, while there is a clear need to boost growth momentum, Indonesia’s central bank will likely stick to its tight monetary policy stance for some time to come due to volatile conditions and rising inflation.

Occupier Market

The headline Indonesia Occupier Sentiment Index recorded a value of –15 in Q2.
Occupier demand varied substantially between sectors. Sharp contraction was seen in the office segment, there was no change in the retail sector and demand increased slightly in the industrial segment.
Available space for occupancy declined modestly in the retail sector, while increasing across office and industrial units.
Near term rent expectations remain negative at the headline level, largely as a result of a weak office sector sentiment. By way of contrast, healthy growth is projected in the industrial and retail segments.
Over the next twelve months, the prime and secondary office units are anticipated to be the weakest areas of the market.

Investment Market

The Investment Sentiment Index was in broadly neutral territory at –1, which signals little change occurred over Q2.
Investment enquiries declined slightly in the office sector, but rose in the industrial sector and in the retail segment. Demand from foreign buyers was broadly flat.
Supply of retail units to the market tightened while availability of office and industrial properties for sale grew, although the office sector experienced the sharpest rise.
Both over the three and twelve month time horizons, capital values are expected to edge up in the industrial and retail sectors while office property prices are anticipated to decline.