Market Trends of Indonesia Commercial Construction Industry
This section covers the major market trends shaping the Indonesia Commercial Construction Market according to our research experts:
Co-working Space, Retail Space and Hospitality space driving growth in the sector.
Despite relatively low office space market in Indonesia, coworking spaces have shown a steep rise in every part of the country, especially in the Centre of Business, Jakarta. Increased number of startups, facing unpredictability, primarily in the capital region, along with increased SMEs and overseas businesses, are responsible for the growth in demand. Leasing out optimum amount of space as per requirement, low cost due to sharing of lease money and readily available services like Wi-Fi, cleaning, meeting space, pantry etc. have favored the rise in Coworking space market. . Demand on the other hand was proportioned unequally among ITes Companies and Construction based companies, besides maximum office space being developer occupied. Office rentals decreased in 2019-20 and is expected to be going further down due to decrease in revenue of all the sectors, culprit being COVID-19. Agung Sedayu Group, Loka Mampang Indah Realty, Mardhika Artha Upaya, Ciputra Residence, Graha Kartika Anugrah, Ciputra Group, Waskita Realty & RNI Group, and Hutama Karya are some of the developers of office space active during 2019-20, in Indonesia. But, despite fluctuations, office market is tending growth post COVID breakout with huge investments coming in as part of the Infrastructure plan.
As the real estate industry in Indonesia continues to develop away from traditional markets and toward contemporary retail outlets, the retail real estate sector is quickly becoming into one of the most exciting property niches in the country. The need for modern shopping experiences is rising as the populace becomes more prosperous and worldly. 53.7% of Indonesia's people live in cities, and the country's enormous population is still moving there at an average rate of 4.4% per year. With China, India, Malaysia, and Kazakhstan topping the list of the world's most attractive retail markets, consultancy AT Kearny ranks Indonesia as having one of the most desirable retail property sectors in the world.
Furthermore, educational institutions, food and beverage outlets, fashion retailers have gradually increased the retails office absorption, as against the departmental stores dominant previously. Also, the hotel segment is fast becoming a major growth driver for private contractors, with Jakarta standing as one of the world's largest hotel construction markets, driven by rising foreign visitor arrivals and the growing business travel segment.
Focus of Government towards Strengthening Indonesian Commercial Sector likely to Attract the Foreign Investment
Recently, in November 2022 the Indonesian government proposed 30% budget top-up around 12.7 trillion rupiah ($807.68 million) in extra funds over the next two years to speed up construction of the country's new capital city on Borneo island.
As per the World Economic Forum (WEF), Global Competitiveness Report, based on parameters including infrastructure, Indonesia lies at 50th, in 2019-20 as compared to 62nd in 2016-17, out of total 140 economies. Though there is a little bit of an improvement, but Indonesia still lies at a very low rank in terms of infrastructure of the country. The increasing attractiveness of the Indonesia commercial space is very visible from the fact that a Warbug Pincus backed retail real estate venture, Nirvana Wastu Pratama, better known as NWP Retail in Indonesia announced 2019's largest shopping Centre acquisition, buying a set of 5 malls for approximately 123.5 Million USD, adding nearly 185,000 square metres of retail space to the company's portfolio, expanding the platform to 1.2 million square metres of gross floor area (including projects still in progress).
In the wake of pro-business reforms and commitments pertaining to infrastructure development, some of the largest retailers have been investing and expanding their portfolio in the Indonesian Commercial Construction Market. The liberalization of the regulations by the government has brought decreased levels of risk and has increased the investors penetration into the market. Today, Indonesia is home to a mix of modern and traditional retail outlets, with an exponential increase in e-commerce activity, which is both advancing the growth of the modern retail sector and creating new opportunities for entrepreneurs. Hence, the increase in investment as part of the Govt. Plans and increased private entrepreneur's interest is a key necessity in the current mixed market scenario, though commercial construction market shows a rise with variations over the forecast period.
