In many ways 2015 was a challenging year in the Jakarta property market. The economy expanded by less than 5%, the rupiah depreciated by around 13% against the US dollar, commodity prices remained low and global economic headwinds persisted. Relatively weak demand for grade A office space ensued, rental growth turned negative and several new completions caused vacancy rates to rise, while in the residential market, luxury condominium demand dropped off mid-year and sales remained low until year-end. Extremely limited supply meant that prime retail occupancy levels remained healthy despite a challenging macro environment and rents grew steadily.

Nevertheless, we expect improvements in the year ahead. A cabinet reshuffle in 2H15 indicated a shift towards a more business-friendly environment, infrastructure spending began to gain traction and most forecasts now point to GDP growth picking up to above 5% in 2016. The long-awaited raise of US interest rates came to pass in December and fears that this would cause the rupiah to slide further were unfounded – at least in the short term.

In the office market, we expect an improved economic environment to boost demand from 2016 onwards. However, in the short to medium term, a packed supply schedule is such that occupancy levels are likely to fall further and we expect continued rental compression over the next couple of years. Towards the back-end of the five-year forecast horizon, however, we expect continued growth from firms which feed off Jakarta’s massive population base and occupancy is likely to improve and rental growth return to positive territory.

Demand for luxury condominiums is likely to remain thin in the early part of 2016 until buyer confidence returns. Vital to boosting demand is a stable rupiah which affects market sentiment more than affordability. Should the rupiah hold its level throughout the year, buyers are likely to return. Meanwhile, demand remains steady in the middle and middle-low segments where affordability is greater and the tax burden lower.

The Jakarta governor has been very selective on signing off on new stand-alone retail developments since 2011 and there are no indications that this will change in the short-term. Limited supply, high occupancy levels and slow, steady rental growth are likely to continue and we expect the prime retail market in core-Jakarta to remain healthy.

Anecdotally, in January, the Jakarta research department received more enquiries for market studies than in any month in 2H15 indicating that market sentiment is improving and we are cautiously optimistic on the year ahead.