Understanding the commercial real estate in Indonesia so as to plan the optimal location for your expanding business is one of the important aspects of your market entry strategy. The decision has an impact on fixed and variable costs, including taxes, transportation, talent acquisition, partners, and even customers. COVID-19 has also added another layer of complexity to the entire situation as more and more businesses are considering working as remotely as possible.
To address these topics, we have invited Leny Soedojo – Direct Commercial Markets at Savills Indonesia, and Alex Rumondor – Business Development at Vistra to share their experiences in our webinar series.
Our COO, Viktor Kyosev, moderated the discussion with key talking points on:
- Commercial real estate in Jakarta, capital city of Indonesia
- Market entry strategy and market trend in Indonesia
- Where foreign businesses typically get an office
- Zoning policy and location compliance for different industries
- COVID-19 impact
Here are the insights from the discussion:
Market Entry Strategy in Indonesia: Why This is A Good Time to Enter Indonesia
Despite the current circumstances, Indonesia is still one of the most favored markets in Southeast Asia. For the past few years, Indonesian government has been planning and drafting new regulations in order to improve the ease of doing business ranking in the country. Today, Indonesia is currently ranked at 73 and planning to advance at above 50, aiming to compete with Singapore and Hong Kong.
Alex introduced several aspects to support your market entry strategy to Indonesia and some updates on zoning policy regarding the commercial property and office market in Jakarta:
- Government programs: Simplification of business licenses and ease of foreign ownership restriction as part of President Jokowi’s 5 Priorities for 2019-2024.
- Tax incentives: Tax reduction & exemption for SMEs and employees, preliminary refund of VAT overpayment.
- New digital tax: 10% VAT on digital services for non-resident companies with total value of transaction in Indonesia exceeding USD 42,000 per year / USD 3,500 per month; and/or the amount of traffic in Indonesia exceeding 12,000 per year or 1,000 per month.
- Financial advance: World’s 4th most populated country with around 270 million people, growing middle class of almost 30% of total population, and healthy GDP growth in the last 5 years.
- Zoning policy: Regulation in Jakarta is a bit complex, divided into many different categories and sub-categories.
- COVID-19 impact: Transportation & social distancing regulations, for example limitation of operation hours, reduced passenger capacity to 50%. Failure to comply with regulations results in sanctions like warning letter, suspension or revocation of license, and administrative fine.
Commercial Real Estate in Indonesia: Jakarta Office Market Outlook & COVID-19 Impact
Here is the overview of Jakarta office market outlook and impact on the commercial real estate sector from the COVID-19 period to 2023:
- CBD supply: Supply has been outpacing demand since the beginning of 2015. It is estimated that from now until 2023, there will be an addition of around 1.2 million of new commercial property supply in the office market, which will create flexibility and choices for occupiers in the market.
- CBD demand: Demand has dropped since COVID-19 as companies widely adopt work-from-home policies. Further impact to the office market demand depends on how long the lockdown (due to COVID-19) continues.
- Short term COVID-19 impact: Commercial property leasing volume has decreased and vacancy has increased.
- Long term COVID-19 impact: The market will start to rebound in the late 2021 and gradually accelerate from 2022 onwards. There will be limited future commercial property supply available, office market leasing activities will pick up, and therefore ease the vacancy.
- Non-CBD market trend: Non-CBD offices are most favourable in South & Central Jakarta due to good connectivity and linkage to CBD area, and least favourable in East Jakarta. Future commercial property supply available is limited, as landlords are postponing the development due to current market conditions in COVID-19 period.
What’s Next: General Market Trend & New Paradigm Post-COVID
The stringent measure to suppress the spread of the pandemic has already led companies to widely adopt WFH policies. More new trends will emerge as companies adapt themselves to suit the new environment. Here are some strategies in response to the general market trend and new paradigm post-COVID:
- Workplace Strategy: Maintaining safety, health, hygiene within the office premises are some of the things that are crucial in the work space planning. Utilizing space optimization (30% – 50% occupation) along with long-term teleworking as strategies for blended accommodation.
- Technology Strategy: Video conferencing, virtual whiteboards, better bandwidth, contactless technologies, thermal scanning, and more usage of apps (for example online documents).
- Risk mitigation Strategy: Lease clauses for force majeure and service interruptions, better building operation performance, and increased cost on operating expenses.
- Office flexibility and diversity: Coworking space as a solution; hub and spoke offices across wider geographies.**
The next generation of digital technology will undoubtedly inform and change the commercial real estate marketplace. In the long term, opportunities to apply what we have learned during a period of massive “working from home” in the form of new working practices, to embrace technology, flexible working, zoning policy, and dynamic new designs.
Watch the full webinar session here:
Since April, we at Greenhouse have been working closely with our network of service providers and partners across Southeast Asia to launch a series of webinars on topics like:
- Adaptation to COVID-19
- Business opportunities
- Fast-growth markets
- Market entry strategy
- Opportunities in emerging markets
- Venture Capital
Reach us out for any question about this session!
All experts who have shared on this panel are actually partners of Greenhouse, and their company profiles are listed on our platform. To see a comprehensive profile of each company and approach them, click here.