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.