Two Most Vulnerable Property Sectors?

zajpreneur By zajpreneur
4 Min Read
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Kisanak, Property is one of the most sensitive sectors to economic, political, and social conditions.

When there’s a crisis, property typically takes the first hit. However, not all property sub-sectors have the same level of vulnerability.

Some are more fragile than others. So, which property sectors are the most vulnerable? Let’s explore the following overview.

Office Spaces: Hardest Hit Sector

One of the most fragile property sub-sectors is office spaces. The reason being, this sector heavily relies on business activities and investments.

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When the economy weakens, demand for office space decreases, both from renters and buyers.

As a result, office occupancy rates and rental prices decline, while office supply increases.

This is evident from the Investment Coordinating Board (BKPM) data showing that the office sector is the only property sub-sector experiencing stagnant growth in the third quarter of 2022.

Meanwhile, the overall property sector saw a 9 percent increase in investment from January to September 2022.

The office sector also faces challenges from changes in consumer behavior due to the Covid-19 pandemic.

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Many companies are switching to remote or hybrid work systems, reducing the need for office space.

Additionally, digital technology advancements allow workers to work from anywhere, including home, cafes, or coworking spaces.

Retail: Most Threatened Sector

Another fairly fragile property sub-sector is retail. This sector heavily depends on consumer purchasing power and visitor traffic.

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During a crisis, consumers tend to reduce spending on non-essential goods and services, such as shopping in malls or shopping centers.

As a result, the revenue and income of retail businesses decrease, impacting their ability to pay rent.

The retail sector also faces stiff competition from e-commerce or electronic trading.

With the ease and convenience of online shopping, many consumers are switching to digital platforms to meet their needs.

This is evident from the Ministry of Trade data showing that the value of e-commerce transactions in Indonesia reached Rp 233 trillion in 2022, up 65 percent from the previous year.

Although the retail sector is predicted to slowly rebound in 2022, with a majority vote of 57 percent from total survey respondents by Knight Frank Indonesia, this sector still needs to adapt to changes in consumer behavior and market trends.

One way to do this is by integrating online-to-offline (O2O) or offline-to-online (O2O) concepts, combining physical and digital shopping experiences.

From the above description, it can be concluded that the most vulnerable property sectors are offices and retail.

Both sectors are heavily influenced by economic, political, and social conditions, as well as facing challenges from changes in consumer behavior and digital technology advancements.

Therefore, property industry players must innovate and transform to face competition and seize opportunities in the future.

That’s all, Kisanak.

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