Shopping malls to increase rent fees

JAKARTA. Owners of big shopping malls in the capital city plan to raise rent fees this year to cope with higher costs from inflation and rupiah depreciation amid the slow business their tenants will potentially experience.

PT Agung Podomoro Land (APLN) finance director, Cesar Dela Cruz, said that the developer increased rent fees on the basis of inflation and, this year, is seeking to hike service charges.

Mall owners generally charge tenants with two fees — base rent and service charges — as components of their overall gross rent. Service charges cover the owners’ operating costs while base rent covers their investments in construction.

Data from Jones Lang LaSalle Indonesia showed that in the fourth quarter of 2013, average rent for upper-segment retail spaces increased to nearly Rp 550,000 (US$45) per square meter while those in the middle segment rose to slightly more than Rp 330,000 per square meter.

“The service charges per square meter of Agung Podomoro Land malls will increase between 5 percent and 15 percent, beginning in February,” Cruz said.

APLN owns malls such as Senayan City and Kuningan City in South Jakarta and Emporium Pluit Mall in North Jakarta.

Cruz added that APLN would not, however, increase the base rents of existing tenants given that these fees have already been fixed in contracts. Newer tenants might see adjusted base rents, he added.

PT Ciputra Property (CTRP) director, Sugwantono Tanto, further said that the surge in utility costs, especially electricity, was the primary cause behind climbing service charges, which increase by nearly 10 percent annually.

“Forty percent of building operation costs are related to utilities, most prominently electricity. Thus, if electricity costs go up by 27 percent, we would feel the impact quite significantly,” he said.

CTRP malls include Ciputra Mall in West Jakarta and the shopping facility at Ciputra World 1 in South Jakarta.

Besides utilities, the minimum wage hike has also prompted CTRP to readjust service charges, he noted, adding that wages constituted up to 30 percent of costs.

“Other factors such as rupiah devaluation have affected our costs as well. A number of the machines and equipment we use are imported and therefore, bought in US dollars, for which exchange rates have increased,” he further said.

Cruz pointed out that these heavier costs, which mall owners have to bear, left owners with “no choice” but to raise rent-related fees.

“We do know that tenants are sensitive to changes in their rent,” he noted.

Observers say that retail sector growth is set to slow down this year alongside decelerating GDP growth at 5.5 percent, as estimated by the government.

Yet, Sugwantono pointed out that CTRP remained optimistic that consumers would throng to malls for their shopping.

“Based on our experience, the sales of retail goods go up when durable goods, such as houses and cars, become more expensive. People then use their saved money — which becomes insufficient for big buys — on retail purchases,” he noted.

He added that CTRP would also hold promotions to draw in visitors, pointing out that visitor traffic went up by roughly 5 percent per year.

“We see 17 million to 18 million visitors at our Ciputra Mall in Grogol, Jakarta,” he said.

He added that the mall owner did not expect tenants to pull out of malls amid the tougher macro-economic conditions.

“We do see a 5 percent to 10 percent switch in tenants every year but we consider that normal. We want new tenants replacing older ones to keep our malls fresh for visitors,” he said.

The tenancy ratio — or the amount of floor space filled — at CTRP malls is approximately 95 percent and above. Meanwhile, the tenancy ratio at APLN malls is around 90 percent.

Jones Lang LaSalle Indonesia head of strategic consulting, Vivin Harsanto, added that mall owners would still see stable demand for space from retailers amid tough conditions.

“Occupancy went up to 93 percent in the fourth quarter last year from 92 percent in the previous quarter,” she said.

“We already predict two big Asian retailers will be looking to rent up to 40,000 square meters of space this year,” she added. (Mariel Grazella)