JAKARTA – Driving down Jalan Sudirman through the heart of Jakarta’s neon-splashed central business district these days is an eye-opener. In many high-rise buildings, entire floors are blacked out, compelling evidence of how the Covid pandemic has changed methods of doing business.
It really began some years ago, but the pandemic greatly accelerated the move by many companies towards a partial work-at-home policy that has allowed them to lay off or rotate staff and reduce the amount of office space they need as a result.
“It will take time for firms to recast strategies and determine how much space will be required in the future,” says Colliers Indonesia in its latest quarterly country-specific report. “The office sector is facing a set of unforeseeable challenges that could lead to significant structural shifts in the coming years.”
James Lang LaSalle (JLL), for its part, feels the next three years “will represent a crucial window of opportunity for organizations to redefine their workplace strategies, and to create flexible, tech-enabled, future-proof real estate portfolios.”
Indonesia has largely escaped worldwide inflation, but economic uncertainty is still clouding the property picture with many real estate professionals and decision-makers stepping back to wait for worldwide economic conditions to stabilize.
The growing popularity of the hybrid work model and flexible office space, where workers and even bosses do not always have their own desks, has pushed landlords to incorporate co-working space and given tenants more leverage in the negotiation process.
“The pandemic has transformed office space from an unthinking necessity to an amenity that must add value to company strategies and the cultures of tenants,” Colliers says.
According to the firm, investors are rethinking value and emphasizing environmental, social and governance (ESG) factors in response to current occupant preferences, increasing regulatory requirements and operating asset costs.
Property experts believe a satellite office business model may now be more feasible, but while proper office space is often difficult to find in suburbia, it would make sense in a city clogged with 16.5 million motorcycles, 4.7 million cars and 12,000 public buses.
Colliers says overall occupancy in the CBD, which encompasses 7.04 million square meters, is now at 74.7%, down from 80% in the first quarter of 2021 when the slide began.
About 310,500 square meters (sqm) was deemed to be occupied last year, with several communications companies reporting that cell phone usage in the CBD fell by a whopping 50% compared to 2019.
Only 76,000 sqm of extra space was added in 2022, the lowest in recent years. In fact, just two new operational buildings were completed last year – and then in the first quarter.
About half of the five blocks currently under construction will be completed this year, contributing 350,000 sqm to a growing oversupply situation, with most businesses preferring to stay where they are for now rather than relocate.
One leasing company is offering nearly 700 offices in the main Sudirman business strip, suitable for one to 118 people, at an average desk price of 2.8 million rupiah (US$185). That works out at about 240,000 rupiah per sqm, including base rental and services.
Although progress on some projects has slowed, the situation is not as dire as in the infrastructure sector where Bloomberg reports that the top four construction firms have seen their total debt surge 12-fold to about 178 trillion rupiah ($11.6 billion) since President Joko Widodo took office in 2014.
But capital expenditure, debt and leverage are already at peak levels and debt restructuring is not unexpected when the president’s fast-paced program has seen 2,000 kilometers of toll roads built in the past seven years, compared with 800 kilometers in the previous 36 years.
Jakarta-based securities firm PT Verdhana Sekuritas Indonesia says the impact on the broader banking sector should be manageable and only the four firms only account for about 2.9% of total outstanding loans.
Office developers appear to be waiting to begin projects, with expectations of the cumulative office supply growing only at 2% between 2023 and 2025. Still, for all the changes in staff management, there may be a light at the end of the tunnel.
Colliers’ managing director, Mike Broomell, a long-time Jakarta resident, has noted a significant pickup in the past two months. “We have seen a lot of ex-pats coming back and we have a sense things are getting back to normal,” he says.
Interestingly, while Indonesian companies generally insist on their workers coming to the office five days a week, multinational firms are more inclined to adopt a hybrid system and experiment depending on the results.
Bagus Adikusumo, head of Colliers’ office services, believes the office market will improve slightly this year in line with GDP growth, which recovered to 5.3% in 2022 and is forecast to stay above 5% in the coming two years.
What will happen beyond 2025 is difficult to predict. Normally, GDP rates and office occupancies move in tandem, but it still isn’t clear how the hybrid system will be re-evaluated over time and whether it is here to stay.
Quite apart from the bosses, who want to maintain a certain office culture, Indonesians like to socialize and often that and their personal circumstances remain important factors in determining if they prefer to work from home.
Although it was easier to get around because of the lighter traffic during the pandemic, health restrictions saw the birth of the webinar era that has now become the preferred method of intra-office communication and in dealing with government officials.
“Before it took a month to set up a meeting with a minister or a director-general, now it can be done in a couple of days,” says Lin Neumann, managing director of the American Chamber of Commerce in Indonesia. “That has increased our value to the business community.”
Even foreign journalists, a strangely endangered species in post-Covid Indonesia, find they are getting better access to government officials who prefer zoom events to one-on-one interviews that are always time-consuming to arrange.
Downsizing may be in vogue across many businesses, but the most active industry in the office leasing market remains the renewable energy and technology sectors, including financial technology, information technology and data centers.
According to the most recent figures, Jakarta’s connectivity ecosystem currently comprises about 50 co-location centers, where carriers intersect, and 113 cloud service providers.
Analysts note that in other corners of the business world, mining companies, law firms, consultants, software and medical manufacturing companies and telecommunication providers are actively looking for more office space.
“Our preference is for our staff to be in the office and interreacting,” says the boss of one telecom firm. “It’s about stimulation and sharing ideas that can’t be done on a video call. We find our workers are not motivated enough and need instruction all the time.”
Other companies have had a more positive experience and essentially follow the practice in post-pandemic Australia where workers have proven to be largely productive at home and routinely come to the office only two or three days a week.
The owner of one Jakarta public relations firm asks his staff to show up twice a week – between Tuesday and Thursday – for meetings and training and to ensure office culture and comradery remains intact. “Even at the height of the pandemic, productivity was not an issue,” he says.
But there is a downside as well. At a Sydney-based global share-trading company, which has hired a large number of highly paid Indonesian millennials to write code, managers are finding it impossible to coax them into the office despite incentives such as a free breakfast, snacks – and even an open bar.