Office Investment and Development

By Djodi Trisusanto, Hotel Consultant, October 2022

1
Objectives
• Better understand office investment and development
• Share latest and experience with office investment and development
• Ability to relate the theory of income producing assets with best practices
and trends in the market
• Understand the impacts of COVID19 on office market

2
Characteristics of Office
as an Investment

3
Office Investment Characteristics
• Real Estate
- Traditionally and commonly a pure real estate investment
- Lease agreements are generally for 3-5 years terms
- Medium risk with mainly from contracts
• Business
- Seldom, small portion of the leasable area is allocated for service office – Management
Agreement – similar to hotel
• Classifications
- Speculative office building - generally high rise
- Built to suit office – generally low rise – office park – long term lease
• Locations
- Major cities
- Airports
- Satellite Cities

4
Demand Generators

• Economic activities and growth

• Availability of human resources
• Quality of infrastructure – public transportation, telecommunications
• Quality of life – safe environments, parks, cultural activities, entertainment
• Linkages – to customer base, supports, etc
• Accessibility – as hub to national and regional business activities
• Business environments – ethics, ease of doing business etc

5
Current Trends – Impacts of Covid 19

• Online meeting
• New life style – nomad workers
• WFH (work from home or work from happy places)

But

• Office workers are returning to their desks – US over 50%

• Employers are urging staff to work from office
• Sales of corporate chat app is slowing down

Currently

• A hybrid office – less space required

6
State of the Market

7
Historical Supply and Demand

8
Example Office Market Cycle in Jakarta

Rents Rents
growth slowing Declining

Rents Rents Decline

rising slowing

9
Real Estate of Office Space

• Importance of Area Measurement as basis for Lease Agreements

- Net Leasable Area
- Semi-gross Area
- Gross Area
• Standards of Accounting and Measurements
- The Building Owners and Managers Association (BOMA)
- Royal Institute of Chartered Surveyors (RICS)
• Facilities
- Part of a mixed use development
- Stand alone

10
Outlook of Office Market

• Jakarta – Uncertain market

- IKN with potential additional supply
- Conversion from office to other uses – co-living etc
- End of BOT agreements for certain buildings
• Secondary markets – impacts of declining rents in primary market
- Limited new supply
- Rents are impacted
- Generated by captive demand (driven by developer’s own office requirement)
• Service Charge
- The contract of the amount of service charge may change – as occupancy may
not at the level sufficient for delivering quality services to the tenants

11
Conclusions
• Office is not as complex as hotel sector
• Importance of understanding the dynamics of business activities
• Importance in understanding the factors affecting the impacts of office
environment of productivity
• Importance of understanding how buildings (floor areas) are measured
• Financial reporting in office is not as standards and as transparent as hotel
• Impact on office valuation with so many uncertainties and massive over
supply

12