Industrial Estate Sector Supply -...

Research & Forecast Report

Jakarta I Industrial Estate

Around 180 ha of land (gross) will potentially come from MM2100 and Bekasi Fajar. These two industrial estates that abut each other are speeding up land construction and have delivered part of the land to the buyer. The Greenland International Industrial Centre (GIIC) and Jababeka are also focusing on expediting land construction.

Not as much land is available in KIIC as reported during 1Q 2014. In Karawang, only Kota Bukit Indah and Suryacipta have considerable land to be developed. With a remainder of less than 10 ha of land available in the first two phases, Suryacipta still has around 280 ha in the third phase, of which around 58% has been developed, leaving around 120 ha of undeveloped land. Likewise, Kota Bukit Indah still has around 30% undeveloped land from the total land planned for the second phase. This industrial estate still has raw land that can potentially be developed in the future.

In Serang, two active industrial estates, including Modern Cikande and KIEC, have a goodly amount of land to expand. Modern Cikande is currently hastening to develop about 100 ha as part of a total of 240 ha planned in Phase 5. Modern Cikande are rushing to develop this land because currently only around 21 ha are ready for sale from Phase 4. Likewise, KIEC that has around 200 ha for expansion, will deliver this in stages. With less than 20 ha available in the first and second phases, speeding up land construction in the subsequent phase is a priority.

In Tangerang, active industrial estates, like Millennium, has limited land of around 10 ha from the total 500 ha they have developed. A potential supply of another 500 ha waits until all matters clear up.

In Bogor, industrial land is really limited with only a few lots available to be developed at two operating industrial estates, i.e. CCIE and Sentul Industrial Estate. Thus far, there is no confirmation of further land expansion at these two estates.

“Sales of industrial land in 1Q 2014 dropped compared to the previous quarter with only 33.78 hectares of land being transacted representing only 7.6% of the total sales recorded in all of last year. Weakening industrial demand and limited industrial land availability were the major issues causing the sluggish industrial land sales. Amid such conditions, two industrial estates in Serang (Modern Cikande and KIEC) and one in Bekasi (Bekasi Fajar) increased prices. Serang recorded the highest increase in land price (15%) to an average of USD132.95 / sq m. Lack of industrial land stock and infrastructure improvements are two main reasons for the price adjustment.”

- Ferry Salanto, Associate Director | Research

Industrial Estate SectorSupplyThe launching of a significant amount of land in the Bekasi area underlined the supply situation for the quarter. Delta Silicon introduced around 162 ha of saleable industrial land as part of Delta Silicon Phase 8. After Phase 7 was designated for commercial use, Phase 8 will provide more options for investors or industrialists that seeks sizeable industrial land in the Bekasi region. Not much available industrial land is immediately ready for purchase in Bekasi. The condition of limited supply has prevailed for some period in Bekasi and other hot industrial locations, which also drives the increase in land prices.

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2 Research & Forecast Report | 1Q 2014 | Industrial Estate | Colliers International

In the midst of industrial land scarcity, there is still potential land to be developed from future industrial land. Some big property groups, like Lippo, Jababeka, Agung Podomoro, Gajah Tunggal and a few others, are holding large land assets to be developed as industrial land. Lippo had started with KJIE that sold most of the land to Toyota.

This year, many industrial estates will focus on delivering industrial land that they have sold to industries. At the same time, expansion is still needed for developers to maintain sales. Land acquisition is one issue that takes most of the time, even when the land has been the part of the whole master plan. The current issue occurring in Karawang will be a big challenge for industrial developers. The Head of Regency in Karawang has signalled that industrial land expansion will be suspended since Karawang will restore its position as the center for rice production. The Karawang Government also indicated that the existence of industrial activity has yet to maximize regional income for Karawang.

Limited industrial land supply will continue to remain a general issue at least up to next year (2015). Continuing enquiries for industrial land versus the limited stock of land on offer will characterize the overall industrial market. Since 2011, land scarcity has been a major problem for most industrial estates, and the substantial surge in land demand is at the crux of this problem. It has been reported that, in certain industrial estates, potential buyers seeking industrial land come to the estate quite frequently but there is no transaction because land is limited. In a landlord’s market such as this, developers like those located in Bekasi or Karawang continue to sell raw land at the price of ready-to-use land. Buyers are taking the position of acquiring raw land at the current price anticipating a further increase when land is offered in a ready-to-use condition. They are now willing to buy raw land (at the ready-to-use price) and wait before the landlord delivers the land with all of the infrastructure. This year, several industrial developers will concentrate on finalizing and delivering the product that they have sold.

Distribution of Industrial Land in Six Regions

DemandMeager sales activity highlighted the industrial market during the first quarter of this year. Total sales registered during the quarter were the lowest since 3Q 2009. The dampening sales trend continued in 1Q 2014. Total sales in this quarter were 90% lower than total sales in the previous quarter. Not only quantitatively lower, qualitatively only seven industrial estates reported transactions during the quarter, which was half of the total industrial estates recording sales in the previous quarter.

The best sales performer in this period is Jababeka, which secured total land sales of 15 ha, the highest over the last two years. Together with Greenland International Industrial Center (GIIC), Delta Silicon, as well as a considerable amount of sales recorded by Bekasi Fajar, these four industrial estates located in the same region, bolstered the position of Bekasi as highest contributor for this quarter’s industrial land sales.

Jababeka sold most of the land to existing tenants that expanded their operations, primarily from the warehousing and automotive industries. These sizeable transactions helped the overall performance of the industrial estate market this quarter. Also in the Bekasi region, GIIC sales this quarter were very much underpinned by commercial land sales of around 5.2 ha. The price of this commercial land is much higher than industrial land.

Delta Silicon has concluded pre-committed sales from the sales of Phase 8 of around 5 ha. This industrial land was mainly absorbed by automotive related companies, warehousing and oil & gas companies. Likewise, Bekasi Fajar only sold two parcels of industrial land to warehousing and household companies.

Only negligible sales of around 1.5 ha were recorded in the Karawang area from the sales of two pieces of land in KIIC to automotive related companies from Japan. No other active industrial estates recorded transactions during the reviewed quarter.

Millennium is the only estate in Tangerang that sold around 1 ha land to plastic companies and three warehouse units purchased by food and automotive related companies.

This quarter, again, the automotive industry dominated the overall land sales. Logistics companies were also quite active in buying land for warehouse expansions.

Jakarta10%

Bogor2%

Bekasi26%

Tangerang5%

Karawang36%

Serang21%





Annual Industrial Land Sales

Source: Colliers International Indonesia - Research

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Land Sales Recorded During 1Q 2014 at Each Industrial Estate


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Millenium

Bekasi Fajar

KIIC

Modern Cikande

Delta Silicon

Greenland InternationalIndustrial Centre

Jababeka

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Cumulative Supply, Demand and Take-up Rates


Types of Activities Industries During 1Q 2014


Automotive34%

Plastics3%

Steel-related6%

Oil & Gas Related

4%

Logistics/Warehousing

27%

Others26%

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2008 2009 2010 2011 2012 2013 1Q2014

Cumulative Supply (ha) Cumulative Demand (ha)

Take-up Rate (%)





Industrial Land Prices and Maintenance CostLand PriceA general situation when limited supply occurs at the same time as continued demand will lead to a climb in land price, albeit moderately and only at a few industrial estates. In the last three quarters, the industrial market has signalled a weakening with limited transactions materializing since the second half of 2013. Thus, this period, price increases are not as massive as in 2010 - 2012. Nevertheless, in some hot market areas, prices have to be adjusted because land scarcity is a fact while land inquiries continued to soar.

There were four industrial estates in Tangerang, Bekasi and Serang that introduced new prices during the quarter.

The Serang region recorded the highest jump by 15.1% QoQ. Bekasi registered only a 1.3% increase QoQ. Likewise, in Tangerang, land prices at Millenium increased moderately by 3.3% QoQ. The determinant factors (supply and demand performance) have kept land prices in forward motion at a few of industrial estates despite the slowing market.

Two industrial estates in Serang introduced new land prices. In this quarter alone, the market has witnessed price increases from an average of USD115.55 to 132.95 per sq m. Continuing enquiries combined with the scarcity of industrial land in this region has pushed developers to raise land prices while Modern Cikande, has a specific reason underlining the price climb, i.e. external factors like infrastructure improvement to ease the access between the estate and the turnpike.

Bekasi saw a modest percentage of increase in land prices, at 1.3% QoQ. This relatively small increase was due to the fact that land prices in this area are already higher than in other regions and most of the estates choose to maintain the current high prices. Only Bekasi Fajar had new land prices during the reviewed quarter. The Bekasi region continues to command the highest land prices compared to other regions.

Overall, industrial land prices in the past year have been corrected mainly due to exchange rate volatility with half of the operating industrial estates still charging in rupiah; the conversion to US dollars (in order to present the price in the same currency) makes the overall price somewhat weaker. In fact, industrial prices generally remain at the same level or increase, and very rarely go down. For industrial estates charging in US dollars, an adjustment was sometimes made to reduce instability in the price.

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Bogor Tangerang

Karawang Bekasi

Greater Jakarta Industrial Land Prices


Maintenance CostIt is rare to see service charge adjustments at three industrial estates at the same time. This quarter, both MM2100 and Bekasi Fajar in Bekasi introduced new operational costs of US$0.08 per sq m per month. Likewise, Modern Cikande also announced an adjustment in maintenance cost to IDR400 per sq m per month.

Mounting operational costs resulting from increasing minimum wages and electricity tariffs were the main reason behind the adjusted maintenance costs.

In general, maintenance costs stood at the same level as last quarter.

Greater Jakarta Industrial Maintenance Cost


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Bogor Tangerang Karawang

Bekasi Serang





Concluding ThoughtThe industrial market situation during the reviewed quarter is no better than in the previous quarter. The market is slowing down highlighted by slack sales activity with only seven industrial estates reporting small transactions. In terms of the number of industrial estates involved in transactions, this was the lowest since 2008.


Industrial Land Prices and Maintenance Costs*region Land price (per sq m) maintenance costs

(per sq m per month)

Lowest highest average Lowest highest average

Bogor USD 120.0 USD 236.3 USD 178.2 USD 0.06 USD 0.06 USD 0.06

Bekasi USD 185.7 USD 253.2 USD 208.8 USD 0.06 USD 0.08 USD 0.07

Tangerang USD 126.6 USD 168.8 USD 116.4 USD 0.03 USD 0.08 USD 0.06

Karawang USD 160.0 USD 200.0 USD 182.5 USD 0.05 USD 0.10 USD 0.07

Serang USD 118.2 USD 147.7 USD 132.9 USD 0.03 USD 0.05 USD 0.04

*1USD = Rp 11,847

There are two things that impacted the sluggish sales, one is the lack of ready to build industrial lots, which has been the main issue in the decline in sales and another factor is the market activity slowing down. Demand for industrial land has been quite active in only certain locations and therefore certain industrial locations. in Bekasi for example, are highly demanded but with limited land stock.

The market is predicted to continue to weaken at least until mid-2014. During this period and ahead, many industrial estates will concentrate on delivering land parcels that are transacted before the land is ready. Land construction will characterize the market in 2014 in order to meet the schedule of completion. While committing to deliver ready to use industrial land this year, some developers are also focusing on expanding the subsequent phase of development next year. Thus, a substantial amount of new industrial land is most likely to be available in 2015.

A continued wave of land price increases will not take place at least in the short term. As mentioned earlier, some industrial estates have reached their ideal price and will most probably catch up with the ideal operational cost. We also believe that should the momentum of economic progress occur after a smooth leadership transition in the country, industrial market activity should bounce back.




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Primary Authors:Ferry SalantoAssociate Director | Jakarta62 21 521 1400 ext [email protected]

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TEL 62 21 521 1400

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