Given the city’s rapid development, the property market in Surabaya – the country’s second largest city – should be on the upbeat. Nevertheless, the current global economic downturn has taken Surabaya’s property market in a different direction and on a slower road.
The Surabaya office market has been pretty quiet during 2008. The grade A strata title Graha Bukopin was the only new office building completed.
It contributed an increase of only 14,000 sqm to the total cumulative supply of office space in Surabaya, which reached 365,100 sqm by the end of 2008.
Also, leasing transactions during the last six months were dominated by small to medium-sized tenants of between 80 – 400 sqm and only two big-sized tenants of about 1,100 sqm and 2,400 sqm.
With low occupancy rates of below 50 percent achieved in the newly completed building, the overall occupancy level was recorded at 74.0 percent.
This is 0.8 percent lower than compared to the first half of last year. The slight decrease is likely due to the current global economic slowdown which has started to impact the property market in general.
Several office buildings have had their tenants move to landed houses for rental efficiency.
Likewise, some businesses planning to open new branch offices have postponed their move. During the last half year, there were only three buildings enjoying a higher occupancy rate than in the previous half year.
Only a few buildings which enjoyed higher occupancy have managed to increase their gross rental. Also, with the rupiah having depreciated by 15.7 percent during the second half of the year, the average estimated gross rental in rupiah has only increased by 3.1 percent.
In line with the low forecasts for national GDP growth, the Surabaya office market is expected to show a very low profile in term of business activities as business players are said to be in *wait and see’ mode.
In terms of supply, the Surabaya retail market was even quieter during the last six months of 2008. There were only two newly completed retail centers were opened for operation throughout the year.
However, leasing activities were relatively busy as the total cumulative supply of Surabaya retail market is currently standing at around 848,000 sqm.
Some limited retail boom was indeed taking place as new retailers have usually prepared their new branches to open during or before the seasonal Ramadhan-Hari Raya, Christmas and year-end holidays so as to gain early sales momentum.
At the end of the second half of 2008, overall office property occupancy has a significant increased by 8 percent to cumulatively reach 75.2 percent. The strata title retail center was the sole contributor to the gain of more than 15 percent in occupancy over the year.
Whilst on the other hand, the lease retail center experienced a slight decline of 0.3 percent during the same period and cumulatively recorded occupancy at 86.2 percent. The average gross rental was relatively stable over the year 2008 at Rp. 372,000 per sqm per month.
Slower progress on proposed project development is expected too, as limited pre-commitments are recorded to date and bank lending policies are not expected to loosen in the near future.
Therefore, there is very limited scope for new property projects expected to enter the retail market up until 2010.
The only definite possibility will come from Grand City Surabaya, a mixed-use development integrated with MICE (Meeting, Incentive, Conference and Exhibition) as well as the Lenmarc Mall which is a mixed-use development of retail and strata title condominiums.
Speaking of condominiums, there were around 2,600 additional new condominium units coming onto the market during the second half of 2008, making this market the most active sector in the Surabaya property market during the year.
These completed new units are mostly in the Waterplace project with 2,100 units of middle to middle-up segments, along with Tower C of the Metropolis development, with 500 middle segment units.
There was only one project launched during the period, namely Puncak Permai Apartment which was classified as a subsidized apartment.
With these new units, the cumulative supply is recorded at 4,255 units, a staggering increment 360 percent up from the previous year, indicating apparent confidence in demand for this niche-market.
However the global crisis seems to have affected the condominium market as sales in the primary market indicated a slowdown during the period.
In anticipating a prolonged economic downturn, however, and so as to deal with the situation, many developers now offer longer installment plans of up to 100 months.
Meanwhile, the annual take-up of the existing supply stood at 2,800 units; a significant increase which is due to the hefty new additional supply during the year.
Nonetheless as most of the newly completed condominiums have not yet been occupied, there is a decline in their occupancy rate by more than half, compared to the previous period, as the cumulative rate has now dropped to only 21 percent.
Published in The Jakarta Post on April 18, 2009. By Utami Prastiana, the associate director – research and consultancy at Procon
