In our view, there are at least three challenges in Surabaya’s office market. First is the usage of houses and shop-houses as office address, because this impacts the absorption of formal office buildings in Surabaya. Second is the relatively slow economic growth that pushes some companies to refrain from expanding or opening branch offices in other regions, including Surabaya. Third, we saw a tendency of well-known companies with strong financial backup generally to construct their own building, rather than lease an office building for a long term. Amid the limited absorption, landlords should consider offering their buildings to office tenants in Jakarta that plan to expand their geographical coverage.
Overall in 2018, we do not see much improvement in the demand side and price increment of apartments. Even though stimulus has been released by the government, the demand was still soft. The average take-up rate was down slightly by almost 1.0% YOY, whilst the average price grew modestly by 1.1% HOH and 2.2% YOY. Furthermore, when demand is sluggish, a developer’s priority lies in sustaining sales momentum, which is increasingly being challenged by the current tepid market. Therefore, an attractive product offering with strong value propositions, such as location, concept and clear target market, is critical to boost sales. Facing the headwinds; developers will need to focus on producing items for first home buyers.
As Surabayans continue to visit shopping malls as their place to both shop and have recreation, we continue to see landlords rejuvenating their shopping centres since 2018. Landlords generally upgrade the physical appearance of the malls and remix tenant composition in order to catch up with a challenging and dynamic retail market. There will be no major change in the tenancy trend; F&B, fashion and cinema will still be the main attractions for shoppers and visitors to walk into the mall. The Surabaya market, especially teenagers, are still hungry for the latest fashion items, such as those currently offered by H&M, Uniqlo, ZARA and other similar brands
For the past few years, the slow- moving supply has helped raise the overall performance in occupancy. This was particularly obvious in the second semester, when monthly rates surpassed the figures of the preceding years. Nonetheless, hotel owners generally dampened the need to adjust room price, as the overall market has yet to recover. Landlords might need to adjust room prices due to the increasing operational costs and the anticipation of regional minimum wage to increase over the next year. Nonetheless, this remains a big challenge because it needs confirmation from the market. If it goes well, the chances of introducing new rates may happen, albeit moderately.