Indonesia Logistics –

Fast Track or Derail?

June 2016
Introduction
The world’s fourth most populous nation and largest archipelago is also South-East Asia’s
largest economy. In the burgeoning logistics sector, opportunities are plentiful but many of these
opportunities are intrinsically linked to the unique challenges that Indonesia poses.

While a number of high profile infrastructure projects are already underway, Indonesia’s sheer
scale and archipelagic nature is such that delivering goods to far flung corners of the country
“The Arnott’s business in Indonesia
remains time-consuming and costly. Logistics players looking to enter Indonesia also need to
navigate issues pertaining to regulations, land ownership and restrictions on foreign investment. has grown rapidly over the past
The nascent nature of the logistics market is such that modern warehouse facilities are very five years to the extent that modern
limited meaning build-to-suit is often the only viable option for market entrants. The e-commerce logistics warehousing and supply
sector, flourishing in many global markets, remains relatively underdeveloped in Indonesia, chain management are now a critical
hampered by regulatory challenges, infrastructure and payment issues. part of our business”.
There is a clear and compelling case for logistics real estate in Indonesia despite a myriad
of challenges. In this paper, we examine the current state of the Indonesian logistics market
including its challenges and opportunities; identify the easiest route for investors; and Larry Crowley, Supply Chain Director
recommend the next steps to transform Indonesia into a world class global logistics hub. Campbell Arnott’s Indonesia
The Potential Opportunity
Southeast Asia - Economic Scale and Growth
Economic Growth and Scale
Real GDP
Recent disruptions in the commodities
markets hit the Indonesian economy hard, Indonesia 4.8% USD 2.62 trillion
GDP growth
but as government spending began to pick up
in 2015, economic growth started to improve
and Indonesia remains the largest economy 2.8%
Thailand USD 1.02 trillion
in Southeast Asia or 16th globally. GDP growth

Annual GDP growth has averaged 5.8%

over the past 10 years and historically, Malaysia 5.0%
GDP growth USD 0.75 trillion
domestic consumption has driven the national
economy. Whilst the Asia Financial Crisis in
1997 sent shockwaves throughout the region Phillipines
5.8% USD 0.68 trillion
GDP growth

and it took some time for the economies to

recover, Indonesia weathered the global Indonesia is by
economic turmoil in 2008 better than most 6.7% far the largest
Vietnam GDP growth USD 0.51 trillion economy in
neighboring countries due to domestic
Southeast Asia.
demand. The current administration is now
spearheading a shift to further stimulate 2.0%
Singapore USD 0.44 trillion
growth through investment. GDP growth

Source: Oxford Economics, “Global Economic Databank”, April 2016

Note: GDP growth rate refers to real GDP/LCU annual growth in 2015. GDP relates to real GDP/
PPP/USD.
Population - World Top Four
A Large, Young and Growing
Population
Indonesia is the world’s fourth most populous
nation and is growing at a faster rate than
CHINA
China. Average annual population growth
= 1,377 million INDIA
= 1,313 million USA
INDONESIA
over the past ten years came in at 1.3%;
= 319 million
= 258 million
slightly lower than that in India (1.4%) but
more than China (0.5%) and has outpaced
Indonesia is the 4th most populous country in the world, and the largest in SEA with neighboring Thailand (0.3%) and Vietnam
258 million people. (1.0%). It also boasts the largest population
Southeast Asia Population Ranking in South East Asia.
Indonesia = 258 million In terms of the working age population, a
similar trend prevails. The 15 to 64 age group
Philippines = 101 million in Indonesia has grown by approximately
25 million people over the past ten years,
Vietnam = 93 million with growth of a further 20 million people
expected over the coming decade. By
Thailand = 68 million 2025, Indonesia’s working age population
= 10 million is expected to total more than 190 million.
people This large growing population provides the
Malaysia = 30 million
backdrop for organic growth in demand for
= 6 million
a wide range of retail products and in turn
Singapore
strong demand for warehouse space and
logistics services.
Source: Oxford Economics, “Global Economic Databank”, April 2016 & World Bank,
“Population Ranking”, 2014
Note: Population refers to millions of people.

Indonesia Logistics – Fast Track or Derail? 3

Urbanisation
It is well documented that urbanisation has been one of the key contributors to economic growth
in China. Over the last ten years Indonesia has been urbanising at a similar rate to China,
up 37% over that period. Whilst the growth in China’s urban population is expected slow to
21% over the next decade, Indonesia shows no signs of slowing down. Average annual urban
population growth of 3.2% over the next ten years is expected to mean an additional 53 million
people will be living in cities by 2025.

The higher wages achievable in cities supports demand for consumer goods and, thus, the
need for more modern logistics space.

Percentage of Population Living in Urban Areas

55%
Indonesia
48% 45%
Thailand
Philippines

33%
Vietnam

Indonesia has a larger urban population

than many of its regional peers.

Source: Oxford Economics, “Global Economic Databank”, April 2016

Growing Wealth Middle Class and Above as a Percentage of the Population

As the economy continues to expand, people

are becoming wealthier. Indonesia’s middle 30% 53%
class is growing fast. Middle and above Middle and above

2012 2020
An expanding middle class and an
increasingly wealthy population should further 70% 47%
boost consumption. Below middle Below middle

The Indonesian population is becoming wealthier and

consumption is expected to increase. By 2020,
more than half of the population is expected
to be middle class or above.

Source: The Boston Consulting Group, “Asia’s Next Big Opportunity: Indonesia’s Rising Middle Class and
Affluent Consumers”, March 2013

4 JLL
Demand for logistics space driven by…
Healthy Growth in FMCGs and Retail
Urbanisation and growing wealth is already translating into growth in the FMCG sector and retail
sales.

This will increase the appeal of the logistics real estate market to a broader spectrum of modern
international logistics players.

Indonesia has a robust manufacturing sector

Indonesia has a large manufacturing base driven by a large domestic consumer market and low
labour costs. The robust manufacturing sector is another major driver of demand for logistics
services and associated real estate. In 2015, manufacturing accounted for 22% of GDP.

Shoppers
are spending 41%
more per trip
today than they
did in 2013.

30%
Food & Beverage
represents 30% of
Indonesia’s total
manufacturing output.

Increase in Food and Beverage

Spending (2014 and 2015).

Source: Manufacturing Industry Indonesia

Contributes 18.1% to GDP. (2016, February
23). Retrieved April 27, 2016, from http://www.

14% 15% indonesia-investments.com/news/todays-

12% Dairy
headlines/manufacturing-industry-indonesia-
contributes-18.1-to-gdp/item6527
Beverage Food spending increase
spending increase spending increase

Source: Kantar Worldpanel, “FMCG Monitor”, Full Year 2015

Indonesia Logistics – Fast Track or Derail? 5

 E-commerce Internet Usage: 2010 to 2015 Mobile Phone Ownership: 2010 to 2015

The Indonesian population has a large online

presence. Internet and mobile internet traffic
has increased significantly. 6767
%%
While the e-commerce phenomenon has
4545
%%
taken hold in many other markets in the
region, the sector is still in its infancy in
Indonesia and the potential future growth also
presents an opportunity.
Source: Oxford Economics, “Global Economic Databank”, April 2016

Online retail sales as a

proportion of overall retail In April 2016, Alibaba announced it would pay approximately
nounced it would pay approximately
sales are growing,
g stake in Singapore e-commerceas are USD 1 billion for a controlling stake in Singapore e-commerce
the number
’s number one of online
online retail digital–
platform start-up Lazada – Indonesia’s number one online retail platform –
buyers.
outheast Asia. citing growth prospects in Southeast Asia.

Compounded Annual Growth Rate of E-commerce (Total Market Size): 2015-2018

E-commerce growth Indonesia = 47%

to outpace other major
countries.
India = 34%
China = 21%
USA = 14%
Source: Bank of America Merrill Lynch, “Consumer Products – Indonesia, Bricks and Clicks: e-com an opportunity for
offline retailers and telcos”, November 2015

As a result MAP – a large retail group with more than 150 brands under its umbrella in traditional
brick-and-mortar retail - is currently making an online push as is local department store
operator Matahari which forms part of the Lippo Group. Despite this, several major international
e-commerce firms including Amazon are not yet in the market. As these international groups
enter the market, we are likely to see further growth in the e-commerce sector.

Successful e-commerce businesses require scale – which Indonesia is able to offer, so we

expect this sector to develop considerably over the short to medium term.

d
rience
Infrastructure improvements, economic development, expe
market entrants and the expanding middle class drive this growth.

6 JLL
The logistics sector is evolving…
Modern logistics remains largely underdeveloped
Indonesia lags behind other markets in the region in terms of infrastructure, legislation and open
market practices that are required to be a world class logistics hub. A market where real estate
operators can quickly support and adapt to the demands of the modern world of e-commerce
and FMCGs.

The logistics sector in Indonesia remains nascent in comparison to other markets in the
region, particularly compared to more mature markets such as Singapore and Australia.
Notwithstanding this, the growth potential is huge and there are signs of a fundamental
imbalance between available supply and demand for modern logistics warehousing space. We
expect to see the Indonesian logistics market evolve into a modern logistics hub in the same
way the sector has evolved in other markets regionally and globally.

Demand for modern

logistics grows Online retail Logistics costs fall
becomes established to a competitive
international
standard
Legislation
VIETNAM INDIA AUSTRALIA
supportive of level
playing field Local operators
between local and adopt best practice
Basic local international and grow further
Modern
warehouse logistics operators logistics
market hub

Bureaucratic
Sustained port clearance
infrastructure times reduced
Growth in development
INDONESIA CHINA JAPAN SINGAPORE
FMCG • Ports Credit card
Industry • Roads market
• Rail becomes well
established

Indonesia Logistics – Fast Track or Derail? 7

The logistics sector has seen gradual development in recent times. However, at present
most supply chain operations remain largely inefficient, meaning inventories are being held
for extended periods of time. Only in recent years has the market begun to evolve from the
traditional ‘gudang’ style of warehouse to modern logistics warehouse building specifications
which allow for far greater efficiency.

Warehouses are
evolving to keep up
with this demand.

Legacy Facilities Modern Facilities

Steel Structures are preferred
Structure Masonry-concrete, masonry-timber and with low costs and fast
reinforced concrete structures are often used construction periods

Clear height Approximately 5 metres to 6 metres

At least 9–12 metres or higher
as a single-storey building

Multiple loading docks available

Loading docks No or limited docks available
with hydraulic devices

Landlords do not calculate floor-loading data.

At least 3 tonnes
Floor loading This can result in floor depression if goods
per square metre
are stored beyond the loading limit

Progress is being made, led primarily by international FMCG and 3PL groups. Approximately
20 years ago, the supply chain in Indonesia was fairly basic. Up until the 1990’s one of the
major international FMCG groups manually handled all goods being distributed in Indonesia.
This same group has since outsourced to an international 3PL and the logistics operation has
evolved to include one of the largest modern logistics distribution centers in the ASEAN region,
with over 90,000 sqm of fully racked GFA and located in Cibitung, Greater Jakarta.

8 JLL
Options for investors to increase as the market matures
Although the market remains immature, there are multiple avenues for investors and developers
looking to gain exposure to the logistics sector in Indonesia. Investment groups currently
showing interest in this asset class include private equity groups, sovereign wealth funds
(SWFs) and a range of Indonesian and international property development groups.

These investments are typically made via sale-and-leaseback or build to suit deals with
respective occupiers. Such occupiers may include third-party logistics service providers (3PLs),
fast-moving consumer goods groups (FMCGs) or e-commerce companies. The Indonesian
market is yet to see large scale speculative development of modern logistics warehouse space
for lease.

Indonesia’s financial regulator is trying to increase the number of REITs in Indonesia and has
proposed policy which includes tax incentives for REITs. However, this new policy has not yet
been formalised. If this does eventuate it will increase liquidity in the logistics property market
and provide an alternative exit or entry for investors.

Investors
Developers,
Private Equity,
SWFs, REITs

Increased
Liquidity

Exit Occupiers
IPO, REIT, Portfolio/ FMCGs, 3PLs,
Asset Sale E-commerce Cos

Indonesia Logistics – Fast Track or Derail? 9

Project Profiles

ILC Logistics
Location of The Suryacipta Industrial
Property Estate, Karawang
Regency, West Java
Building Area 8,767 sqm
Completion Date December 2014
Construction Indonakano
Contractor
Tenancy ILC is providing third
party logistics services
to automotive parts and
construction companies.
Land purchased by 3rd Party Logistics
Provider, ILC (part of Itochu Corporation
of Japan) and ILC purpose built the facility
for logistics use. ILC are currently planning
further development of modern logistics
warehouse space in the Karawang area.

Marunda Distribution Centre

Location of The Marunda Center
Property International Warehouse
and Industrial Estate,
Bekasi, West Java
Building Area 11,300 sqm of NLA, land
size 15,000 sqm
Completion Date 2010
Tenancy International logistics
company

Modern logistics facility with high

building specification and equipped with
comprehensive fire protection and IT
systems. This investment marks Guidance
Investments’ first logistics real estate
investment in Indonesia.

10 JLL
KLOG Park – Integrated Logistics Park
Location of The Cibitung, Bekasi
Property Regency, West Java
Province, Indonesia
Building Area 32,040 sqm
Completion Date December 2014
Construction PT. Sarana Steel
Contractor Engineering and CoGri
Tenancy Daikin, Campbell
Arnott’s, Frisian Flag,
Mars, Sari Husada
KLOG Park is a fully integrated logistics
park, located in Cibitung, Bekasi Regency,
West Java Province, Indonesia. KLOG Park
represents one of the first examples of a local
Indonesian 3PL developing high specification
warehousing. The warehouse was designed
by UK design firm, Ashton Smith to
international standards.

Unilever Mega Distribution Centre

Location of The MM2100 Industrial
Property Estate, Cibitung, Bekasi
Regency, West Java
Province, Indonesia
Building Area +/- 90,000 sqm
Completion Date 2011
Construction Multikon
Contractor
Tenancy PT Unilever Indonesia

Delivered on a build-to-suit basis by PT. Mega

Manunggal Property, a major Indonesian
developer (listed on the Indonesia Stock
Exchange) for consumer goods group,
Unilever Indonesia.

On 15th April 2016, Singapore sovereign wealth fund GIC announced that they would enter into
a partnership with Mega Manunggal Property Tbk (MMP) with a view to developing up to 500,000
sqm of quality logistics warehouses in the next three years.

Indonesia Logistics – Fast Track or Derail? 11

But there are major challenges to consider…
Infrastructure is Challenging at
Best
Same day delivery is already a reality in
major urban centres and courier firms offer
overnight services between major cities.
As such, delivering goods in quick time to
the main local markets, while challenging,
is already possible. However, the scale and
quality of infrastructure in the form of roads,
ports and rail networks is undoubtedly a
major challenge in Indonesia.
The Ports Network is Highly
Centralised
Decentralisation is key if efficiency is to
improve. Currently, North Jakarta’s Tanjung
Priok operates at over capacity and much of
Indonesia’s containerized trade is processed
in either Jakarta or Surabaya with the former
servicing West Java and the western islands
and the latter East Java and the eastern
islands.
Customs Clearance Times are Long
Customs procedures in Indonesia are
plagued by lengthy administrative procedures
and bureaucracy. Geographically, the
archipelagic nature of the country poses
obvious challenges. Trans-shipment currently
takes three days compared with just two
hours in other more advanced countries in the
region.

Length of Time to Import: Documentary and Border Compliance (Days)

SINGAPORE PHILIPPINES VIETNAM INDONESIA

1 2 3 4 5 6 7 1 2 3 4 5 6 7 1 2 3 4 5 6 7 1 2 3 4 5 6 7

8 9 10 11 12 13 14 8 9 10 11 12 13 14 8 9 10 11 12 13 14 8 9 10 11 12 13 14

15 16 17 18 19 20 21 15 16 17 18 19 20 21 15 16 17 18 19 20 21 15 16 17 18 19 20 21

22 23 24 25 26 27 28 22 23 24 25 26 27 28 22 23 24 25 26 27 28 22 23 24 25 26 27 28

29 30 31 29 30 31 29 30 31 29 30 31

Source: World Bank Group, Trading across borders, 2015

Logistics Costs are High

In Indonesia, logistics costs constituted 27% of GDP in 2013; significantly higher than the 8%
which would be typical in developed nations. Transportation costs for both land and sea are
high, creating price disparity around the country and inter and intra-island shipping remains
underdeveloped.

Logistics Costs as a Percentage of GDP

8% 13% 20% 25% 27%

Singapore Malaysia Thailand Vietnam Indonesia

Source: Center of Logistics and Supply Chain Studies, Institut Teknologi Bandung (ITB), Asosiasi Logistik
Indonesia, Panteia/NEA, STC-Group, World Bank, “State of Logistics Indonesia”, 2013

12 JLL
The Regulatory Environment is Complex
Foreign entrants to the logistics market need to navigate a complex and sometimes prohibitive
regulatory environment. Prior to 2007, the storage and transportation sector was fully open to
foreign investment. However, the government subsequently revised their negative investment
list to prohibit foreign investment in the e-commerce sector and reduced ownership capabilities
in the warehousing and distribution sector from 100% to 33%.

In January 2016, as part of a push to boost economic growth, the government announced that
restrictions on foreign participation were to be loosened again with plans to increase foreign
ownership in the transport and supporting services sector and warehouse distribution to 67%
and cold storage and e-commerce to 100%.

However, freight forwarding regulations introduced in April 2015 increased the minimum paid-up
investment for foreign freight forward entities to approximately USD 2.5 million. The regulations
also limit operations of foreign freight forwarders to five major airports and four major seaports.

Commodities Prices Likely to Hit Exports

Despite cautious optimism on the economy for 2016, some challenges remain. A potential
knock-on effect from weaker growth in China remains a risk as does sustained low commodity
prices which are likely to hurt export revenues. Fuel subsidies were removed towards the end of
2014 causing inflation to spike over the subsequent year. However, with the impact of the fuel
subsidy removed from y-o-y comparisons, inflation dropped sharply from over 7% in mid-2015
to 3.35% by year-end, leaving room for a cut in interest rates in January 2016. Despite this and
the raise in US interest rates in December, the rupiah performed better than expected – at least
in the short-term.

Increases in Land Prices to Build Logistics Space are Disconnected with

Rental Growth
Modern logistics warehouses within industrial estates in Greater Jakarta can currently expect
to achieve rents in the USD 6-7 per sqm per month range reflecting moderate, single digit
annual growth over the past five years. However, in the same period, land prices have grown by
approximately 300% in many industrial areas resulting in something of a disconnect between
expected and achievable yields.

Large chunks of land owned by industrial estate developers have been drip-fed to the market,
effectively limiting land availability and driving price growth. We have already started to see
a slight correction in land prices and this could help spur speculative real estate investment
activity to take-off.

Land Sales and Asking Prices in Greater Jakarta Industrial Estates

900 2,500,000

800

2,000,000
700

600
1,500,000
500
IDR per sqm
Hectares

400
1,000,000
300

200
500,000

100

0 0
2015-1H

2015-2H
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Industrial Estate Land Sales Avg. Land Price Source: JLL Research

Indonesia Logistics – Fast Track or Derail? 13

Doing Business Remains
Challenging
Singapore #1
According to the World Bank’s “Doing
Business 2015” ranking, Indonesia is one World Bank's
"Doing Business 2015" Malaysia #18
the hardest countries in which to do business Ranking
globally.
Japan #29
Development of Banking and
Limited Credit Card Use is Limiting China #90
E-commerce Growth
Payment methods pose challenges as access
Indonesia #114
to the formal banking system is limited.
Around 36% of the population have bank
accounts compared to 79% in China and 53%
in India and just 17 million credit cards are in
circulation domestically. In order to achieve Source: World Bank Group, “Doing Business 2015, Going Beyond Efficiency”, 2015
scale, Indonesia’s e-commerce players need
to look beyond traditional payment methods.

While Indonesia’s growing middle class is

very much in evidence in the core areas
of major urban centres, around 11% of the
population remain below the poverty line and
40% live around the poverty line. As such,
e-commerce remains a luxury beyond the
means of many.

Geotechnical and environmental Bank Account Penetration

issues
Soil and seismic investigation is critical in
Indonesia. Certain areas are particularly 36%
prone to seismic activity and others have Indonesia
deep layers of soil, meaning the depth of the
pilings / substructure required for the building
79%
E-commerce firms
may be prohibitively deep and the foundation may need to look beyond
traditional payment
costs high. China methods to facilitate growth.

Locations near river banks or former rice 53%

fields may also be prone to geotechnical India
issues. Also, certain areas are prone to
flooding. Therefore, purchasers need to
ensure that civil engineers check 100 year
flood levels as part of their due diligence.

78% 96%
Singapore
Thailand

Source: World Bank Group, “The Global Findex Database 2014, Measuring Financial Inclusion around
the World”, 2014

14 JLL
Proposed Government Planning will Assist Future Growth
Infrastructure Development
The government has already started to
increase infrastructure spending.

$
Infrastructure development was touted
as a priority at the beginning of 2015, but
despite a huge available budget, spending
failed to take off in the first half of the year.
A cabinet reshuffle in August 2015 boosted
Spending in
accountability and cut red tape, creating a
more business-friendly environment. As a
2015 increased by
result, spending began to gain traction in the more than 150% on
latter half of the year. Pro-market policies 2011 levels Infrastructure investment is a
and rate cuts are likely to boost investment priority for the current administration.
activity. Planned road, rail and port upgrades
should improve connectivity and lower costs
in the logistics sector. Source: Ministry of Finance, Indonesia, Directorate General of Budget, Retrieved May 19, 2016,
from http://www.anggaran.depkeu.go.id/dja/edef-seputar-list.asp?apbn=infra

Increases in Infrastructure by 2019

Planned road, rail and

port upgrades set to improve
connectivity and lower

220%
logistics costs.

124%
71% 60%

Electricity Construction of Toll Road Railways

Supply (GW) new roads (km) (km) (km)

Scheduled for completion by 2019.

24
New seaports

15
New airports

Source: Bank Indonesia, “Progress of Infrastructure Initiatives under the RPJMN 2015-2019”,
Retrieved April 28, 2016, from http://www.bi.go.id/en/iru/policy-document/economic-program/
Documents/Progress%20of%20Infrastructure%20Initiatives%20under%20the%20RPJMN%20
2015-2019.pdf

Indonesia Logistics – Fast Track or Derail? 15

Major New Rail and Road Projects
Well publicized, high-profile capital city centric projects such as the Jakarta MRT and LRT
and the Jakarta to Bandung high-speed railway are being supplemented with improvements
to roads, ports, bridges and energy producing facilities throughout the archipelago. The 2,500
km Trans Sumatera toll road will connect all of the major urban centres on Indonesia’s largest
self-owned island.

Major New Ports Projects

The Tanjung Priok Port project will provide Indonesia with its first international standard port
facilities. Work on New Priok, to the east of the existing port, began in 2013. New Priok will
share operations with the existing port and reports suggest that the current capacity will be
tripled by 2023. As part of the Sea Toll maritime program, 24 port projects are to be redeveloped
to either facilitate passenger traffic or improve freighting.

Smaller logistics hubs in Medan (North Sumatra), Balikpapan (East Kalimantan) and Makassar
(South Sulawesi) are likely to grow in importance as the logistics sector matures and the
government’s Sea Toll initiative is likely to improve connectivity in the outer islands.

2
3
4
19
5 17 20
14
6 22

7 23
16
15 21

18
8 9

10 11
US$ 2.93 12
24

billion allocated for

13
port infrastructure

Allocated Budget to Build 24 Ports in Indonesia (USD Millions)

Sumatera Jawa Kalimantan Maluku & Papua
1 Banda Aceh 74.1 9 Tanjung Priok 111.1 14 Pontianak 111.1 20 Halmahera 111.1
2 Belawan 222.3 10 Cilacap 111.1 15 Palangkaraya 74.1 21 Ambon 74.1
3 Dumai 111.1 11 Tanjung Perak 111.1 16 Banjarmasin 111.1 22 Sorong 111.1
4 Kuala Tanjung 222.3 17 Maloy 74.1 23 Jayapura 74.1
5 Batam 222.3 24 Merauke 111.1
Kep. Nusa Tenggara Sulawesi
6 Padang 111.1
7 Pangkai Pinang 111.1 12 Lombok 111.1 18 Makassar 111.1
8 Panjang 111.1 13 Kupang 111.1 19 Bitung 222.3

Source: JIIPE, “Java Integrated Industrial and Ports Estate”

16 JLL
What will the logistics sector in Indonesia look like in 10 years?
The logistics sector in Indonesia faces significant challenges, particularly with relation to
prohibitive regulations and ailing infrastructure. Notwithstanding these challenges, the
investment case for logistics real estate in Indonesia is clear and compelling. We expect to see
the sector continue to grow and evolve rapidly as it has in many other markets in the region and
globally. This growth will be driven by the emerging e-commerce sector, strong macro-economic
fundamentals, favorable demographics and a growing number of consumers.

Success - A Score Card of What is Needed in the Next Ten Years

2025

• Government must continue to focus on infrastructure projects.

Infrastructure
• Spending will spur further economic growth and improve the supply chain thus lowering logistics costs.

• Unclear whether we will see the major regulatory reform which is required to open up the sector to
international players.
• International best practice would in turn help drive down logistics costs and assist in the growth of the
Regulatory Environment
sector.
• Zoning of government land parcels along well connected new toll roads would support the growth of the
sector as it has in China.

• Expect to see continued investment into the e-commerce sector from international global investors and
E-commerce e-commerce players.
• As the e-commerce sector grows so too will demand for logistics facilities.

• Indonesia’s large population offers the scale required for the sector to grow.
Demographics • Large urban population bases will provide demand for consumer products as well as the workforce
required for an expanding logistics sector.

• Infrastructure spending picked up in 2015 and there are signs that economic growth is improving.
GDP Growth • Investment led growth is likely to remain a theme going forward and many forecasts point to growth of
over 5% per annum over the next five years.

• Indonesia’s middle class will continue to expand; disposable incomes are expected to rise and demand
for consumer products should grow.
Emerging Middle Class
• Credit card and bank account penetration should also improve as a result and demand for online
shopping platforms is likely to grow.

Indonesia Logistics – Fast Track or Derail? 17

Where are the Opportunities for Local and International Investors?
While there are obvious challenges facing logistics and e-commerce, the business thesis
behind these industries is scale – which Indonesia is able to offer.

There is a high degree of certainty that investment in logistics/e-commerce will continue for the
foreseeable future. Large local conglomerates, existing players as well as those willing to enter ‘Kamadjaja Logistics (“KLOG”) is
in the early stages will be best able to gain a strong foothold in the market. seeing increasing demand from
our MNC clients for higher quality
Increased Efficiencies Should Further Spur Demand
logistics warehousing. KLOG has met
We expect to see more rapid change over the next ten years as businesses recognise the this demand by developing a high
improved efficiency and cost savings which can be realised with modern world class supply
specification warehousing facility in
chain solutions, including modern logistics warehousing. Efficiencies are improving which
will ultimately have a positive impact on the bottom line and allow for lower prices and more Cibitung, West Java (designed by
consumption. UK firm, Ashton Smith). As the first
integrated logistics park in Indonesia,
In a sign of things to come Indonesian groups are beginning to invest in state-of-the-art logistics
KLOG Park has been designed with
warehousing, such as Kamadjaja Logistics’ KLOG Park in Cibitung, Greater Jakarta.
a focus on optimization, productivity,
As the Indonesian economy continues to grow and larger volumes of goods get distributed, we and reduction of transportation lead
anticipate that both international and local Indonesian companies will embrace the improved time, which directly lower logistics
efficiencies and cost savings that modern supply chain solutions can bring.
costs for our clients. KLOG continues
Which Locations Should be Considered? to upgrade and modernize our
At present the majority of modern logistics warehouses are located within the Greater Jakarta facilities across the archipelago in
area, and to a lesser extent Surabaya, serving as centralized distribution or mega distribution order to best serve our clients.’
centers catering to the entire archipelago. Going forward, we expect to see development of
modern logistics warehousing in logistics hubs throughout Indonesia as distributors recognise - Ivan Kamadjaja, CEO Kamadjaja Logistics
the benefit of having decentralised stock.

We are also seeing GDP growth rates in many secondary cities and outer islands exceeding
the national average, further driving consumption and demand for logistics and the associated
real estate in these areas.

Given that supply is tightly controlled in existing industrial estates, some logistics firms may
consider developing assets in less established areas with good connectivity to ports and toll
roads.

Regional and National Economic Growth in Indonesia

7.4%
10.3%
5% 6.1% 6.7%

National average Medan Surabaya Makassar Jayapura

Source: Statistics Indonesia (BPS), “Gross Regional Domestic Product of Regencies/Municipalities in Indonesia 2010 – 2014”, 2015
Note: GRDP in 2014 at 2010 Constant Prices

18 JLL
Entering the Market
Foreign companies are permitted to set up a company and purchase property in Indonesia
under a 100% foreign-owned PMA company.

The Indonesian government is taking positive steps towards opening up Indonesia to foreign
investment. This has been reflected in recent proposed changes to the Indonesian Foreign
Investment Review Board’s (BKPM) negative investment list.

Which Type of Investors are already Looking?

There are a number of local Indonesian and international groups that are showing high levels
of interest in acquiring logistics assets. These investment groups include private equity firms,
sovereign wealth funds and developers.

But it’s Important to Factor in the High Cost of Debt

The cost of debt is typically higher than most other South East Asian markets and this must be
factored into any planned investment strategy.

There is already an Opportunity to Build Speculatively

A small number of groups are beginning to recognise that there is a fundamental imbalance
between demand and the available supply of modern logistics warehousing and are looking to
undertake speculative logistics developments.

This trend is expected to continue as major occupiers (primarily FMCG, processed food and
3PL groups) recognise the improved efficiencies and cost savings which modern logistics
warehousing brings.

Project
Project financing
financing and
and cost-effectiveness
cost-effectiveness is
is a
a challenge.
challenge.
Southeast Asia Central Bank Policy Rates

Indonesia
Indonesia India
India Vietnam
Vietnam Philippines
Philippines Malaysia
Malaysia China
China Thailand
Thailand Singapore
Singapore Japan
Japan
8.0%
8.0% 7.3%
7.3% 7.0%
7.0% 4.0%
4.0% 3.0%
3.0% 2.0%
2.0% 2.0%
2.0% 1.0%
1.0% 0.0%
0.0%

Source: Oxford Economics, “Global Economic Databank”, April 2016

Indonesia Logistics – Fast Track or Derail? 19

Land Title and Development
Considerations
Absolute ownership of land - the right to
freehold ownership, known in Indonesia as
“Hak Milik”, is not available to companies
regardless of whether the purchaser is a
local Indonesian company or foreign owned.
The right is hereditary and held only by
Indonesian citizens.
Companies are permitted to purchase
property in Indonesia under a form of title
known as “Hak Guna Bangunan” or “HGB”.
In terms of company ownership (as opposed
to individual private ownership) of real estate,
the HGB title is considered to be a sufficiently
strong form of title and applies regardless of
whether the purchaser is foreign owned or a
local Indonesian group.
Benefits of Finding the Right JV
Partner
There is potential to align with a local partner
with the ability to source cheaper land or with
an existing land bank.
• Local partners will assist with ensuring land
has a clean and clear title and are well
versed in dealing with bureaucracy and the
time consuming tasks of ensuring land has
the appropriate zoning, permits, licenses
and titles.
• A good partner is able to source off-market
opportunities.
• While access to capital is important,
investors need to demonstrate how they
can add value other than just providing
capital. For example, the ability to assist
with an exit strategy, track record / existing
relationships with major occupiers and
expertise in developing these types of
logistics assets.
Given the sector is in its infancy, a long
term view will be needed by market entrants
in order to seek benefit from their initial
investment.
It is Important to Align with Local
Real Estate Experts
Investors and developers looking to enter
the market need to be aware that Indonesia
lacks transparency and poses unique
challenges. The challenges highlighted in
this paper are complex in nature and ever
changing. Groups looking to enter should
consider aligning themselves with reputable
advisors. Specifically, advisors with a
deep understanding of the market and the
opportunities which are available, as well
as a track record of transactions and having
assisted clients with similar requirements.

• Right to Build (Hak Guna Bangunan)

• Right to develop and own buildings on land owned by others
• Right to build is granted over state-owned land, Right of Ownership and Right to
Operate/Manage (Hak Pengelolaan) land
• Granted for a maximum initial period of 30 years and extendable for another 20-year
period, with a possibility for renewal
• Can be held directly by Indonesian entities or foreign joint venture companies
• This land right can be sold, exchanged

Note: Additional information can be found in JLL's Asia Pacific Property Investment Guide which is available upon request.

20 JLL
Bibliography
Oxford Economics, “Global Economic Databank”, April 2016

World Bank, “Gross Domestic Product Ranking Table”, 2014

World Bank, “Population Ranking”, 2014

The Boston Consulting Group, “Asia’s Next Big Opportunity: Indonesia’s Rising Middle Class and Affluent Consumers”, March 2013

Kantar Worldpanel, “FMCG Monitor”, Full Year 2015

Statistics Indonesia (BPS), “Dynamic Table”, April 2016

Manufacturing Industry Indonesia Contributes 18.1% to GDP. (2016, February 23). Retrieved April 27, 2016, from http://www.indonesia-
investments.com/news/todays-headlines/manufacturing-industry-indonesia-contributes-18.1-to-gdp/item6527

W&S market research, “Popular Brand Index”, 2015

Bank of America Merrill Lynch, “Consumer Products – Indonesia, Bricks and Clicks: e-com an opportunity for offline retailers and telcos”,
November 2015

Center of Logistics and Supply Chain Studies, Institut Teknologi Bandung (ITB), Asosiasi Logistik Indonesia, Panteia/NEA, STC-Group, World
Bank, “State of Logistics Indonesia”, 2013

World Bank Group, “Doing Business 2015, Going Beyond Efficiency”, 2015

World Bank Group, “The Global Findex Database 2014, Measuring Financial Inclusion around the World”, 2014

Credit Card Growth, Retrieved April 27, 2016, from http://www.akki.or.id/index.php/cr

Indonesia Overview, Retrieved April 27, 2016, from http://www.worldbank.org/en/country/indonesia/overview

DBS Group Research, “Indonesia Industry Focus, Indonesia Construction”, February 2016

Bank Indonesia, “Progress of Infrastructure Initiatives under the RPJMN 2015-2019”, Retrieved April 28, 2016, from http://www.bi.go.id/en/iru/
policy-document/economic-program/Documents/Progress%20of%20Infrastructure%20Initiatives%20under%20the%20RPJMN%202015-2019.pdf

Presidential Regulation No. 03/2016; Committee of Infrastructure Priorities Development Acceleration (KPPIP) and JLL Research

Ministry of Finance, Indonesia, Directorate General of Budget, Retrieved May 19, 2016, from http://www.anggaran.depkeu.go.id/dja/edef-seputar-
list.asp?apbn=infra

Statistics Indonesia (BPS), “Gross Regional Domestic Product of Regencies/Municipalities in Indonesia 2010 – 2014”, 2015

JIIPE, “Java Integrated Industrial and Ports Estate”

With contributions from:

This paper would not have been possible without contributions from Todd Lauchlan, Vivin Harsanto, Dr Jane Murray, Dr Chua Yang Liang, Roddy
Allan, Kara Keough, Lucia Serban, Pelham Higgins, Hasman Rusli, Farazia Basarah, Ivana Susilo, Kevin Chandra, Yunus Karim, Arta Putra, Vebri
Marco, Kayla Susanto

As well as contributions from our valued clients and associates, including:

Paul Noonan & Stewart Lyons – WT Partnership
David Aboud & Willy Koes – Guidance Investments
Asa Larsson and Aqwattha Junus – DHL
Ivan Kamadjaja - Kamadjaja Logistics
John Talbot – Logistics Consulting
Larry Crowley – Campbell Arnott’s
Itochu Logistics
Linfox
Mega Manunggal Property

Sincere gratitude to all the clients who prefer to stay anonymous.

Indonesia Logistics – Fast Track or Derail? 21

About the Authors

James Taylor Nick Maclean

Head of Research, Indonesia Head of Industrial, Indonesia
james.taylor@ap.jll.com nick.maclean@ap.jll.com
+62 21 2922 3888 +62 21 2922 3888

22 JLL
JLL Indonesia Offices

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