Oversupply of Office Space in Jakarta Expected Until 2025

work from office or WFO

The post-pandemic economic recovery has resulted in an oversupply of office space, exacerbated by an increase in demand. As a result, property managers have been forced to hold back on rental price increases.

According to the Colliers Quarterly Report Q4 2022, demand for office space in Jakarta contracted to 127,324 square meters, while cumulative supply increased by 2 percent year-on-year.

Bagus Adikusumo, Senior Director Office Services at Colliers Indonesia, predicts that the recovery of the office sector in Jakarta will occur in early 2025 when new space supply stops being produced.

“So, what enters the office market are the current supplies that are running,” Bagus said on Wednesday (29/3/2023).

The report shows that approximately 700,000 square meters of new supply are currently under construction in Jakarta, with 70 percent of the total supply located in the Central Business District (CBD) and expected to be completed by 2025.

“There will be no new supply entering the market because it is too risky to build office buildings at this time,” he said.

In other words, the demand for office space in Jakarta has decreased while the supply has increased, leading to an oversupply situation that has forced property managers to hold back on rental price increases.

This trend is expected to continue until 2025, when new supply stops being produced, and the market adjusts to the current oversupply. According to Bagus Adikusumo, the market will begin to recover once the current supply is absorbed, and new demand enters the market.

Until the end of 2022, the total office supply area in the CBD is 7.04 million m2. On an annual basis, the supply of office space will increase by around 76,000 square meters in 2022, which is the lowest additional supply in recent years.

On the other hand, the overall occupancy rate in the CBD was 74.7 per cent in Q4 2022, down less than 1 per cent from the third quarter of 2022.

One of the reasons for the decline in average occupancy in 2022 is the lack of committed tenants. The lack of demand for offices makes developers prioritize occupancy rates over increasing rental rates.

In fact, some developers have reduced their demand base rent fee to attract more tenants. These conditions make the average rental rate in the CBD recorded at IDR 239,209 in 2022, down less than 1 percent from 2021.

Despite continuing to fall, rental performance is much better in 2022 than in 2021, when it fell by around 7 percent compared to 2020.

On the one hand, Colliers estimates that there will be an average increase in rents of 4 – 5 percent in 2023. This calculation includes several premium office buildings that will be completed in 2023.

However, considering the current condition of oversupply, Bagus predicts that office space rental prices in Jakarta’s CBD will remain stagnant and will not experience a significant increase.