1. Riddhima Chopra- GAPR09RM085
June 19, 2009
The Impact of Global Recession on Demand of Retail Space in Indonesia
Economy
Indonesia's recent economic growth has been quite impressive, since 2006 it has been growing at the
rate of 6% which is impressive considering its high inflation rate. Recently however Indonesia has
been hit by the ongoing global recession due to slowing exports, tourism and consumer spending.
GDP growth is expected to decline slightly in 2008 and 2009, according to the Central Statistics
Agency (BPS), “the economy expanded 5.2 per cent in the fourth quarter of 2008 from a year earlier,
slower than the annualised growth rate of 6.4 per cent booked in the previous quarter.”
Consumer Spending and Retail Industry
Due to this slowdown there has been a snowball effect on most industries in Indonesia. One of the
worst effected industries is the Retail Industry. The first industry to be hit during recession is the
retail industry, this is because the prosperity of the retail industry is directly linked with consumer
spending which falls drastically during recession due to reduced customer confidence.
According to Planet Retail Consumer spending in Indonesia in 2008 was to the tune of 300,000 USD
Million; however this amount is expected to fall in 2009 to 265,000 Million USD as a result of which
Retail Sales are also expected to fall to 1,63,000 Million USD in 2009 from 1,87,000 Million USD in
2008. However after 2009 the economy is expected to pick up and Consumer Spending as well as
Retail Sales will also increase, but at a slower rate of between 8-7% as opposed to 19-22% before
2008.
Source- Planet Retail
Source- Planet Retail Indonesia Report 2009
The
Demand
Supply Imbalance
Due to a reduction in Retail Sales, demand for retail space has been reducing. Even demand for retail
space is rising, the growth rate is declining. On the other hand the supply for retail space has been
steadily increasing. This is because most mall projects require a large amount of investment and have
been under construction since the last 2 years. These malls are scheduled to open over 2010 and

2. Riddhima Chopra- GAPR09RM085
June 19, 2009
2011 which is resulting in an increase in supply of retail space. As a result of the mismatch between
supply and demand the amount of vacant space is high and is increasing.
Source- Cushman and Wakefield Jakarta Retail
List of under construction Retail Centres in Jakarta1
Retail Name Location Marketing Scheme Expected Completion
Seasons City Latumenten for Strata-title Sale 2009
Pulomas Place Pulomas for Lease 2009
Koja Trade Mall Koja for Strata-title Sale 2009
City Walk at Gajah Mada Gajah Mada for Lease 2009
Pusat Grosir Senen Jaya Senen for Strata-title Sale 2009
Rasuna Epicentrum (Emperium Walk) Rasuna Said for Lease 2009
Central Park Mall S. Parman for Lease 2009
Plaza Indonesia (extention) MH Thamrin for Lease 2009
Grand Paragon (Gajah Mada Square) Gajah Mada for Lease 2009
Kuningan City Satrio for Lease 2010
Kota Kasablanka Kasablanka for Lease 2010
Shopping Mall Gandaria Gandaria for Lease 2010
Kemang Village Kemang for Lease 2011
MTHaryono Square Otista for Strata-title Sale 2011
Ciputra World Satrio for Lease 2011
1
Colliers International Property Market Overview Report February 2009
Reduced Occupancy Rates
Due to this imbalance in Supply and Demand the Occupancy rates have been falling drastically.
Occupancy is currently 76.9% and has been consistently falling since 2007.

3. Riddhima Chopra- GAPR09RM085
June 19, 2009
Source- Cushman and Wakefield Jakarta
Summary
Hence the reduction in Occupancy rates in Indonesia are a result of the Global Recession which has
caused consumers to spend less due to which retail sales have reduced. This has resulted in a
reduction in demand for retail space; however the supply of retail space has remained constant which
has resulted in a misbalance between supply and demand, due to which Occupancy Rates have
fallen.
Future Outlook
The year 2009 and 2010 will be a difficult year of Retail in Indonesia. However post 2010 the
economy is expected to pick up due to which retail sales are also expected to 190,000 Million USD
and is expected to grow at 8% per annum.

4. Riddhima Chopra- GAPR09RM085
June 19, 2009
The current scenario however is bleak, according to Colliers Consulting, “It is currently a time of
depression for both developers and retailers. The projected future supply will compete to grab market
share, while retailers will remain conservative about expansion plans. Sustaining the sales volume
amidst the weakening purchasing power will be the challenge of many retailers, with suspending
business operation the worst scenario possible.”2
If retailers want to survive through this time, they will need to adopt innovative strategies. Following
are some areas that can be looked into
1. Collaborative Working
Retail Centres should focus not only on increasing footfall but should also focus on creating
collaborations with their tenants so that best interest of both can be achieved.
2. Maximising Efficiency
Due to excess supply in Indonesia retailers can exercise a certain level of negotiating power over
landlords. Hence Retailers can cut costs and achieve efficiency. From the data below we can already
see that there is a downwards correction in rentals
Rentals in USD per Sq Meter per month3
2008 2009
Q2 Q3 Q4 Q1
Rent Overall 71.8 71 60.8 54.1
Primary Location 99.1 97.5 83.5 78.3
Secondary Location 54.8 54.4 46.6 42
3. Competitive Pricings
Globally consumers are motivated to buy products by promotions and discount. Hence Indonesian
retailers will have to adopt similar strategies. Moreover Indonesians are most likely to base their
decision on a store's reputation for being cheaper, a survey shows. "A store's reputation for being
cheaper than the rest is the most important consideration for consumers here, just like in some other
Southeast Asian countries," Nielsen Indonesia retail service director Yongki Susilo said. 4
http://www.colliers.com/Content/Repositories/Base/Markets/Indonesia/English/Market_Report/P
2
DFs/JPMR_April09.pdf
3
Cushman and Wakefield Analysis
4
http://www.thejakartapost.com/news/2008/01/30/reputation-key-retail-indonesia-survey.html