Q2 2016-researchand forecastreport-surabaya-apartment

Half Year Report

SURABAYA | APARTMENTH1 2016 Accelerating success.

APARTMENT FOR STRATA-TITLE

SupplyFollowing the completion of three new apartment projects dur-ing H1 2016, Surabaya apartment market registered additional supply by 2,872 units, a 10.6% increase compared to last se-mester of 2015. These newly completed projects are mostly dominated by the middle to low segment (90.5%)- from Gu-nawangsa MERR (Tower B) and Puncak Bukit Golf, while the upper class contribution comes from The Peak Residence. As of H1 2016 the total stock of strata-title apartment in Sura-baya amounted to 26,463 units, mainly concentrated in West Surabaya (46%) and East Surabaya (43%) followed by South Surabaya (7%) and Central Surabaya (4%).

Despite the lackadaisical economic condition which brings fur-ther downward pressure to sales performance, some develop-ers nonetheless still hold high expectation over the market. The confidence continues with new projects being introduced or launched during H1 2016. Five projects introduced this quar-ter are mostly brand new projects including Klaska Residence, Tamansari Emerald and Belleview Manyar, while Cornell and Denver Apartment are the extension of Universitas Ciputra Apartment, Berkeley Tower. These projects are targeting the middle-lower segment to cater to the demand from college students, staff and teachers, as well as workers from the sur-rounding universities and office buildings.

Klaska Residence is part of the first mixed-use development by Sinar Mas Land in Surabaya, located on a 3.1 hectares land at Jagir Wonokromo, Central Surabaya. This apartment proj-ect will consist of three towers equipped with supporting fa-cilities, such as retail and shop houses (mainly F&B retailers). Belleview Manyar, located in East Surabaya, is a single tower apartment offering 1-BR to 3-BR type of unit. The three proj-ects located in West Surabaya including Tamansari Emerald, Cornell Apartment and Denver Apartment, will target mainly college students and teachers from surrounding universities, such as Ciputra University (UC) and State University of Sura-baya (UNESA – Universitas Negeri Surabaya).

Apartment SectorFerry Salanto Senior Associate Director | Research

The completion of three new apartment projects during H1 2016 resulted in additional supply of 2,872 units, a 10.6% increase when compared to the last semester of 2015. As of H1 2016 the total stock of strata-title apartments in Surabaya amounted to 26,463 units. Sales activity came to a standstill during the period with relatively stable take-up compared to the previous semester. Most of the transactions which occurred were con-cluded in the middle to lower class projects that have prices ranging from IDR400 million to IDR650 million per unit. The asking price of an apartment in Surabaya continued to increase modestly by 2% HoH and reached IDR19.4 million/sq m.

Forecast at a glance

SupplyBy end of 2019, Surabaya anticipates another 28,142 new apartment units scattered mainly in East Sura-baya (47%) and West Surabaya (32%).

DemandSales activity remains stable compared to last se-mester. Developers have been maintaining sales level by lengthening cash installments by up to 100 months. The absorption rate is predicted to hover between 80% and 83%.

PriceIn this challenging market, developers will be reluc-tant to introduce higher prices so we predict prices will remain relatively stable through the end of 2016. We expect a 6% to 8% price growth YoY.

RentWe do not believe rental rates will change in H2 2016.

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2 Half Year Report | H1 2016 | Retail | Colliers International

Source: Colliers International Indonesia - Research

The Location of Future Apartment Units During 2016 - 2019

Completed Apartment Projects During H1 2016

NAme oF DeveLopmeNT LocATioN regioN DeveLoper No. oF UNiTs

The Peak Residence Jl. Basuki Rahmat Central Surabaya Pakuwon Group 272

Puncak Bukit Golf Jl. Raya Bukit Darmo Boulevard I West Surabaya Puncak Group 2,000

Gunawangsa MERR (Tower B) Jl. Kedung Baruk East Surabaya Gunawangsa Group 600

Total 2,872


Newly Introduced/Launched in H1 2016

ApArTmeNT LocATioN regioN No. oF UNiTs

expecTeD compLeTioN Time

AskiNg price/sq m* (iDr miLLioN)

Klaska Residence Jagir Wonokromo Central Surabaya 1,000 2019 17.5

Tamansari Emerald Citraraya housing complex West Surabaya TBA** 2019 17.5

Belleview Manyar Manyar Kertoajo East Surabaya 460 2019 16.75

Cornell Apartment Citraland West Surabaya 416 2020 14

Denver Apartment Citraland West Surabaya 450 2020 14.25Notes:*Price excludes 10% VAT**TBA: to be announcedSource: Colliers International Indonesia - Research

Surabaya is one of the most densely populated cities as well as one of Indonesia’s main trading hubs in the eastern region. As the city grows with the development of more residential and commercial buildings, and with more motorcycles in the road, the burden of the city is becoming heavier. As a result, roads (both toll and main road) are very crowded with traffic, espe-cially during the rush hour. Surabaya is intensively developing transportation infrastructure in an attempt to minimise conges-tion. Tri Rismaharini who is now Mayor of Surabaya City for a second term has committed to continue the on-going infra-structure projects including the construction of the Eastern and Western Outer Ring Roads and the Frontage Road at Jl. Ahmad Yani.

The development pipeline from now to 2019 consists of 28,142 apartment units where the majority will be located in the two most developing areas i.e. East Surabaya area and West Sura-baya. Under the current circumstances, we anticipate seeing a delay in delivery schedules of some projects, particularly given the slow construction progress.

Central Surabaya

13%

West Surabaya

32%East

Surabaya47%

South Surabaya

8%

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DemandSales activity came to a standstill during H1 2016, with relatively stable take-up rate compared to the previous semester. Demand for apartments started to show a little improvement, however newly launched apartment projects put downward pressure on the overall take-up rate as such projects provide more new un-sold units in the market. Most of the transactions are concluded in the middle to lower projects which have prices ranging from IDR400 million to IDR650 million per unit.


Average Take-up Rates for Operating and Under- Construction Projects

H1 2015 H2 2015 H1 2016 HoH YoY

Existing projects 98.20% 97.00% 97.00% 0.00% -1.20%

Under-construction projects

71.60% 70.30% 68.30% -2.00% -3.30%

Overall 80.90% 81.10% 81.00% -0.10% 0.10%

There are several factors that determine sales performance. For example, apartment projects located within an academic community like universities and provide mainly studio type of units are in most cases quite successful in the sales. Along with shifting lifestyle, university students opt to live in an affordable apartment instead of choosing traditional dormitory or rented house/room so they can secure more facilities like gym, swim-ming pool, retail shop and dedicated study room.


Average Take-up Rates in Different Regions in SurabayaH1 2015 H2 2015 H1 2016 HoH YoY

West Surabaya 88.50% 86.00% 86.60% 0.60% -1.90%

East Surabaya 74.90% 79.80% 80.80% 1.10% 6.00%

South Surabaya 90.40% 66.30% 68.70% 2.40% -21.70%

Central Surabaya 70.50% 79.90% 63.70% -16.20% -6.90%

East Surabaya has consistently made headway in the apart-ment sales performance, better than other areas in Surabaya. On the contrary, a massive influx of new apartment units from middle-lower projects located in Central Surabaya during two consecutive semesters has brought this area to record the low-est absorption rate. In West Surabaya, demand for apartments remains high despite the influx of new projects launching, re-flected by the stable take-up rate for the last two consecutive semesters. In South Surabaya, the absence of new supply dur-ing this period, made the area post the highest increase in the take-up rate by 2.4% compared to previous period.

Asking PriceThe asking price of apartments in Surabaya continued to in-crease in H1 2016 and reached IDR19.4 million/sq m, up mod-estly by 2% HoH and 6% YoY. However, the figure below showed that the pace of price increment continued to slow down, evi-denced by the current annual growth that is lower than the av-erage growth in the last three years (CAGR – Compound Annual Growth Rate of 9.7%).

Overall, price adjustments during the reviewed period are driv-en by continuing construction progress as well as by some well absorbed projects which increased the price as high as 10% to 16.5% compared to previous period. Nonetheless, market now is competitively challenging, affirmed with softening demand and tighter competition among the under-construction projects. Developers have become more cautious to adjust prices and thus resulted in further limitations on price growth in all regions of Surabaya.


cumulative supply More in-house financing has been the common phenomenon in the apartment market. In order to boost sales amid weakening purchasing power, developers are more willing to give “extra incentives” to attract potential buyers with longer installment schemes. The longer cash installment facilitated by developers was up to 60 months but recently we witness that developers can provide cash installment schemes for100 months.

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price growth of Apartment in surabaya


Price Changes in Different Location in SurabayaH1 2015 H2 2015 H1 2016 HoH YoY

West Surabaya 18,608,260 20,196,674 20,489,526 1.50% 10.10%

East Surabaya 14,169,000 14,471,972 15,096,816 4.30% 6.50%

South Surabaya 17,543,433 17,534,063 17,840,790 1.70% 1.70%

Central Surabaya 28,703,804 28,739,518 29,537,109 2.80% 2.90%

The vibrant development activities in West Surabaya has trig-gered more competition in the market and led to a downward pressure on price growth HoH, only increased moderately by 1.5% to IDR20.5 million/sq m. The average apartment price in East Surabaya is the lowest but experienced the highest growth over the last semester. South Surabaya recorded only 1.7% increment due to relatively quiet market, evidenced by lim-ited number of new future supply as well as slow construction progress in the under-construction projects, such as Frontage and The City Square. Due to limited newly introduced/launched apartment projects in Central Surabaya, developers opted to focus on selling the unsold units, thus the price increment is driven by continuing construction progress.

mapping of summary Apartment for strata-title in surabaya


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APARTMENT FOR LEASE

SupplySurabaya has neither additional supply nor any newly launched apartments for lease, both serviced and non-serviced, during the first half of 2016. Total units of apartment for lease in Sura-baya remains at 773. The majority of these apartments are lo-cated in West Surabaya. Two apartments including Citadines Marvell Surabaya and Oakwood Serviced Apartment (totaling 432 units) are slated to complete in 2017. Both Citadines Mar-vell Surabaya and Oakwood Apartment Surabaya are located in East Surabaya and are part of mixed-use development.

Citadines Marvell Apartment will become the third property managed by The Ascott Limited (Ascott), after Somerset Sura-baya and Ascott Waterplace Surabaya which started operating in 2001 and 2015, respectively. Located in Ngagel area, close to Rungkut Industrial area, the serviced apartment is targeting the corporate market and travellers. Meanwhile, Oakwood Apart-ment Surabaya will be the first Oakwood Worldwide property in Surabaya. Unlike the Oakwood Premier brand in Jakarta, the Oakwood Apartment provides fully-equipped units with limited service.


supply Distribution of Apartment Units for Lease in surabaya


Supply Pipeline of Serviced Apartments in SurabayaNAme oF DeveLopmeNT LocATioN regioN yeAr oF operATioN No. oF UNiTs

Citadines Marvell Surabaya Jl. Ngagel East Surabaya 2017 288

Oakwood at One East Residence Jl. Raya Kertajaya Indah No. 79 East Surabaya 2017 144

OccupancyThe market of apartment for lease in Surabaya remained stable with a modest increase in the overall occupancy rate. As of H1 2016, the average occupancy rate increased by 1.3% from the previous period, bringing the occupancy rate to 61.1%.

The various national holidays and Surabaya food festival, as well as Surabaya Fair, adds further interest in the city, particu-larly from domestic travellers. In addition, many governmental events and exhibitions held in Surabaya have resulted in high occupancy level, especially serviced apartment located in Cen-tral Surabaya. In other words, the increase of average occu-pancy level is helped by short-term occupiers during H1 2016. On the other hand, leasing inquiries from expatriates were seen to surface during the first half of 2016, mainly from industrial estate and infrastructure projects which Surabaya is currently heavily involved in here.


occupancy

Central Surabaya

10%

West Surabaya

77%

East Surabaya

9%

South Surabaya

4%

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Copyright © 2016 Colliers International.

The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

Accelerating success.

For more information:Ferry SalantoSenior Asociate Director | Research+62 21 3043 [email protected]

Contributors:Hern Rizal GobiAssistant Manager | Research

Overall, in this environment where there are a combination fac-tors, such as slower incoming of expatriates, reduced rental budgets, and increasing competition from individual-owned strata-title apartments, landlords of apartments for lease will have to excogitate to draw in tenants. Despite the lack of de-mand from expatriates, short-term tenants come mostly from individual business travellers and weekend family holiday mak-ers who continue to be the main contributors to keep the overall occupancy rate stable.

Rental RateOverall, the serviced apartment market in Surabaya experi-enced a slight rental increase of 1.5% HoH and 7.8% YoY to IDR226,376/sq m/month. The rental increment occurred only in the particular project which achieves good performance dur-ing previous year. However, in general, sluggish demand and head-to-head market competition with individual-owned stra-ta-title apartment left no room for rentals to grow significantly.

Most serviced apartment operators are in the position to main-tain the existing rates but are also offering various rental con-cessions to entice prospective tenants, both from individual and corporate tenants. It should be noted that only Ascott Water-place Surabaya increased the rental tariff by 12% compared to previous semester due to their offer of better quality buildings, equipped with better facilities and modern furnishing as well as good performance during the reviewed period. On the other hand, as the only non-serviced apartment in Surabaya, Pun-cak Marina has maintained their rental rate of IDR96,537/sq m/month for the last two years.

Currently, a typical one bedroom serviced apartment in Sura-baya is offered at around IDR18.5 million/unit/month, while two and three bedroom are offered at around IDR19.6 million/unit/month and IDR22.2 million/unit/month.

Average rental rate of serviced Apartments in surabaya


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Q2 2016-researchand forecastreport-surabaya-apartment

Real Estate

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