Risk Mitigation and Post-Pandemic Recovery on Industrial Estate Sector

Risk Mitigation and Post-Pandemic Recovery on Industrial Estate Sector image
At the moment, industrial estate and warehousing and logistics are facing quite heavy challenges. As the effect of the Covid-19 is hitting almost all of the sectors, in the first episode of our webinar series, we explore on how the Indonesia's leading industrial Estate Developer’s strategy to mitigate pandemic risk in the future and the business recovery for the post-pandemic period.
With Mr Sutedja the Director of PT Jababeka, as our interviewees we explore the impact of the Covid-19 pandemics and the strategies with it's challanges and risk mitigation to navigate the situation.

Industrial and Warehouse’s supplies and demands landscape

At the moment, industrial estate and warehousing and logistics are facing quite heavy challenges. As the effect of the Covid-19 is hitting almost all of the sectors, including ourselves. The industrial estate currently caters to the investor’s or manufacturers’ investment in the manufacturing sector. There are many of them that decided to stay put with their activities because of numerous reasons. For example, they can not travel overseas, which also many of them are based outside of Indonesia and also the factor of economic uncertainty. With that being said, there are many investment activities within the industrial estate are being postponed. We are facing a slight downturn in the transaction, although we still have few transactions in the pipeline. And then on the warehousing side, currently there are many clients seeking buy or rent the facility, especially the ones that related to the logistics sector, as their storage facility. As some of the clients are unable to distribute their goods because of the limitation imposed by the government and also economic effect from the Covid-19.

The interesting part comes from the logistics sector as there are increases in demands for certain goods during the pandemic, for example, the medical devices. These players are using our dry port facilities to store their imported goods as we also provide storage facilities on the premise, before it being distributed to the wholesaler and the end-users due to the high demand. In the logistics sector, there are also several commodities that still quite active in its trade like aluminum, cocoa, cotton, etc, and also the agriculture products, that still have a high demand. Hence the distribution activities of the goods are still considered stable.

That’s the story of the overall condition of the warehousing, logistics, and industrial estate. And we think that this moment is not considerably normal, as in general we have a slight downturn and slow down in the overall demand.

Comparison of the industrial estate performance with other real estate sub-sector, for example like mixed-use, office, hospitality, or residential.

Industrial estates are quite different than the other sectors. For example, industrial estate is considered as a national vital object. Hence we are allowed to operate by the government. From the business side, as I have been mentioned earlier, industrial estates are catered to the client’s investment in manufacturing facilities or business. These investment activities are having a slight slow down as they can be postponed as the effect of the business plan adjustment.
In the residential, commercial, or mixed-use, because Jababeka not only develop the industrial estate but we consider ourselves as township developer, we also have commercial and mixed-use facilities. In general, we can also see that this market is also slowing down.

If we speak about the real estate industry in general, it is one of the most or if not the worst affected by the Covid-19. The real estate industry is always related to macroeconomic conditions. If there’s something happened with macroeconomics condition, it will be impacting the real estate industry. But we can see the differences in residential, commercial, and mixed-use, maybe there are certain buyers that still have the needs that differ from the industrial estate buyers.
For example, residential end-user like newlyweds or new parents, that are still needed housing at their disposal. We still record the residential transaction, though it is a bit slow, and also the commercials and mixed-use unit, although not as high as residential.

Immediate Challenges and Risk Mitigation

We felt the challenges from all sides, where because of the pandemic we must manage the issues internally and externally, for example in our internal, we felt that in the current situation efficiency is needed, we can’t push through because of the current restrictions issued by the government like PSBB and Social Distancing, we enact this in our environment where our employees are enacting social distancing and work from home, not all but some of them, then we also apply cost efficiency for certain things like salary and non-urgent needs, we do apply efficiency.

Regarding the stake holders, for example with our tenants, we are an industrial district, and fortunately like I've stated are allowed to operate because we are a vital object to the country, where when the social district stop functioning will affect the supply needs which will affect the country economy, therefore we follow government recommendations, for example IOMKI that allowed certain industries to operate, especially in the district, this is currently underway together with the ministry of industry, so certain industry or our tenants that obtain IOMKI is allowed to operate, certainly we also coordinate with the government for certain industries that are restricted to operate, we reprimand and convey the government’s appeal.

And surely we don't stop there, currently coordination with the local government and local authorities, where we perform social activities, as we know local community is affected by the current situation, for example those who are infected, we perform social assistance both financially, goods and medical necessities, we coordinate this with the our tenants where together with 2000 factories donate and coordinate with local government and authorities. This is effective regarding the support of the local government, subsequently we also provide spaces for quarantine in out districts.

Strategy taken in the current situation, capital preservation or more aggressive.

Regarding the current situation, we have to go with capital preservation, not aggressive, surely each companies have their own challenges, we are a big company therefore we have to handle a big amount of employees for example, efficiency is needed, currently we are not laying off employee, but efficiency in other areas such as travels, big investment, and some things that can be delayed and we also apply cost efficiency for certain employee salary. I think those differentiation is vary amongst companies, even in our company is consisted of different departments, there is maintenance, management and tourism and we adjust them accordingly with our units.

The conditions of Jababeka’s projects that are running or in the planning phase, delay or  temporary postponement, or is it going to be a ROI adjustment.

Currently, some projects that were planned to be launched and marketed is delayed, because we are in the real estate industry and  the current situation, we think these new products is delayed, but also we continue to monitor the situation, surely when the situation is more stable we might do sales and launch for our products. Some of the planning is still underway, those process can still be running in the current situation, we are currently busy in these planning, precisely this down time as we called it is a good time to prepare and refined what we are planning for next, whilst continuously monitor the current situation. Regarding ROI, surely we will revise but we are a public company so, we will have to wait and follow the stock exchange reporting.

Plan and strategy considered after the pandemic ends & steps necessary as an anticipation of a future large scale risk.

We have a tendency to try and predict the situation. we have to try and follow, The Government already created a roadmap, concerning what sector has it been in operation yet? We could predict and make the same scenarios. From that prediction, we try to make a plan about whether we can launch certain products. Could we open the industrial areas again? For example, starting to meet with clients, also in terms of logistics, etc. We could approach our distributors eagerly and still pay close attention, but how many plans for certain products have we prepared? Ideally, at this time we should make some plans, so when the moment comes, we are ready to launch a strategy or product that can answer the post-pandemic recovery later.

This pandemic situation teaches us valuable lessons. Where the efficiency process, saving process, and careful planning need to be done and during this time what we really learned was cash flow. That is the key at any time. Cashflow must be maintained.  Just imagine that we are harvesting and we should not dissipate. We do certain planning to anticipate what is coming next. Because no one could predict at COVID-19 times like this.

Even though the situation was very good before in Indonesia and other parts of the world, we were suddenly beaten with this worldwide pandemic. Of course, this is different from the previous crisis. The condition now there is still a lot of money, economically it is still good because it is different from the crisis that happened back in 1998. But nowadays people are careful, not pouring their money carelessly, so does our company. Currently, we are very selective in proposing projects, choosing projects, and also how to propose engagement with the outside world. 

With the current condition, how far Jababeka needs to adjust the strategy and company development plan after the pandemic.

We are still reviewing our plan, our strategy, for how this company can handle the pandemic and post-pandemic situation. Maybe the answer is we could first prepare a strategy and the products that are ready to be marketed when the pandemic is over. We also look for suitable products. When this pandemic is over we could not guarantee about the economy, if it’s going to be back to normal or need some time to recover. Not only affecting the economy but also the psychological effects, that still exists despite the end of this pandemic. We need to adjust all these strategies and products. How to answer this challenge? We are still mapping further. Because no one knows exactly when this pandemic will be finished.