Significant structural shifts loom for Jakarta’s office sector: Colliers

Find out what challenges await this segment of the market.

After two years of pandemic-driven correction, Colliers says signs of stabilisation are beginning to emerge. Nevertheless, there is considerable debate and speculation about the future, and it will take time for firms to recast strategies and determine how much space will be required in the future. 

Here’s more from Colliers:

The office sector is facing a set of unforeseeable challenges that could lead to significant structural shifts in the coming years. Economic uncertainty is also clouding the picture, influencing the timing of such decisions. As a result of these changes, many industry professionals and decision-makers have stepped back to wait for a more stable economic environment.

The pandemic has transformed office space from an unthinking necessity to an amenity that must add value to the company strategies and cultures of tenants. The growing popularity of the hybrid work model and flexible office space has pushed landlords to incorporate co-working areas. 

Tenants continue to express a clear preference for high-quality space. Despite the fact that the current downturn is unlike any other, it has already spurred innovation on both the landlord and tenant sides. To compete, grade B and C office building owners will likely be pushed to revitalise and upgrade existing portfolios. 

Office business sectors showed signs of improvement in the first half of 2022, with a high number of inquiries for office space. The most active industry in the office leasing market is the renewable energy and technology sector, which includes financial technology (Fintech), information technology (IT) and data centres. Other industries, such as medical manufacturing, law firms, consultants, software companies and telecommunications providers, have already committed to seeking office space. 

The fact that the number of inquiries began to decline at the end of 2022 is not good news. Given the uncertainty of the global economic situation in 2023, more companies became cautious when planning to relocate. Some expansion plans have been cancelled because tenants must plan for large, fixed costs at the outset, which will greatly affect a company's financial condition.

This situation has caused some businesses to postpone expanding spaces to save on operational costs such as fitting out. Meanwhile, most multinational corporations will follow parent company instructions before deciding whether to relocate or remain in their current locations. Naturally, this will necessitate a longer process until an agreement is reached. 

Having said that, overall occupancy in the CBD was 74.7% in Q4 2022, down less than 1% from 3Q 2022. Meanwhile, outside of the CBD, average occupancy fell significantly to 70.8%, a 4.3% drop QoQ. One reason for a decline in average occupancy in 2022 has been a lack of committed tenants. Large upcoming supply is likely to drive the average occupancy to drop both inside and outside the CBD. 

Continued strong demand for the best quality space will cause demand for refurbished development or buildings to remain high. Older buildings with outdated amenities will struggle to attract tenants, resulting in an overabundance of obsolete vacant space. The majority of occupier interest will be drawn to high-quality, well-located office buildings with amenities that enhance employee well-being and engagement. Sustainable buildings that align with a company’s environmental and social goals will also have a competitive advantage.