Foreign Investment stimulates Indonesian office real estate

Labour – and security problems in Indonesia have slowed the region's effort to attract foreign direct investment (FDI). In an attempt to lure FDI into the region the Indonesian Investment Coordinating Board (BKPM) recently announced that the Indonesian Government is planning to open public sector organisations such as transport, education and hospitals open to foreign investment.

With already 581 projects in the portfolio approved for FDI by BKPM with an estimate total value of $US4.7 billion, the newly listed public sectors are expected to attract foreign businesses to the region, which would boost demand for office real estate in Indonesia according to Jones Lang LaSalle.

“Figures since 1995 show that there is a positive correlation between FDI value and office demand/take up in the CBD,” said Anton Sitorus, Research Manager of JLL Indonesia.

The FDI value in Indonesia plummeted in 1998 when the political crisis destabilised the region’s economy as a result of the crash in Asian financial markets. Since that time the demand for office space declined in according to the FDI value.

In 2000, the FDI value began to recover and consequently the demand for office space also increased.

In the six months to June, 2003, demand for office space increased by 0.7% to 17.7%, however, rents fell 6%.

It’s expected there will be significant growth in the FDI value; office real estate rents will stabilise and about 45,000sqm of office space will be occupied annually as the Indonesian Government takes measures to stabilise its political and economic governance.