Bright future ahead for Indonesia’s luxury market

A large pool of consumers in the country remains underserved.

Indonesia’s luxury retail market has a bright future ahead given its potential to cater to wider customers and improvements in the retail sector following strict pandemic restrictions, according to a report from Savills.

The report noted that many luxury labels currently only have one representative store located in Jakarta, leaving a large pool of consumers underserved in this fast-growing country.

Having the largest domestic market in the ASEAN region, Indonesia is expected to become the world’s seventh-largest economy by 2030 if the country can quickly return to its pre-pandemic growth rates, according to McKinsey, making it attractive and important consumer market within the SEA.

“Given support from improving demand and tightly capped supply, we believe that luxury rents will gain some ground in the near term before eventually climbing back to pre-covid levels by 2023,” the report stated.

The country’s retail sector began to see improvements following the easing of social distancing restrictions and the resumption of business activity. The city has also welcomed the return of some international visitors, after Indonesia reopened its borders selectively to vaccinated travellers in January.

Jakarta retail sales index corrected within a range of 40% to 50% YoY between Q2 2020 and Q1 2021. Coming from a low base, whilst retail sales growth is still negative, the magnitude of the correction narrowed to 10% to 20% YoY from the beginning of 2022, with May retreating by only 7.9% YoY, showing signs of stabilisation, Savills noted.

As of the second half of last year, rents stood at $60.46 (IDR886,424) per sqm per month for luxury retail spaces in Jakarta. The report stated that luxury retail rents saw the deepest drop, falling 43.7%, during the pandemic compared to other retail assets amidst the devastating drop in tourist spending combined with a weak local economy.

However, this heavy reliance could also mean a speedier recovery once demand returns in earnest, Savills said.

Pacific Place, Plaza Indonesia, Senayan City, and Plaza Senayan remain the dominant shopping centres in Jakarta, and all of them have shown resilience in sales and continued to draw in luxury tenants, the report noted.

“The few brands which expanded their portfolios during the pandemic, were big global fashion houses, namely Dior Homme in Plaza Indonesia and Louis Vuitton in Pacific Place, while Faure le Page will open their first store in the country at Plaza Indonesia,” Savills added.

Meanwhile, the supply of luxury retail space remains limited, Savills said. Of Jakarta’s total retail stock, middle-up grade shopping malls dominate the market, accounting for 40% of the total supply, while high-end malls account for about 12% to 13%.

“Looking ahead, a total of approximately 373,000 sqm of new supply is scheduled across the entire Jakarta retail market between 2021 and 2023 and yet none of the new projects in the pipeline is high-end,” the report added.

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