TEMPO.CO, Jakarta – Indonesia’s commercial property sector is facing growing pressure from higher borrowing costs after Bank Indonesia raised its benchmark interest rate to 5.75 percent, industry representatives and economists say.
Raymond Ardan Arfandy, Secretary General of the Indonesian Real Estate Companies Association (REI), said the higher interest-rate environment has reduced the appeal of property investments, particularly in the commercial segment.
“Investing in property is no longer profitable. In a year or two, the purchased property prices may decrease instead of increasing,” Raymond told Tempo on Sunday, June 21.
According to Raymond, many developers are delaying expansion plans as demand weakens amid declining purchasing interest.
Higher Rates Weigh on Property Investment
Bank Indonesia has raised its benchmark BI Rate from 4.75 percent to 5.75 percent since May in an effort to support the rupiah amid global economic uncertainty.
Permata Bank Chief Economist Josua Pardede said the rate hikes have significant implications for commercial property investment, affecting borrowing costs, project feasibility, cash flows, and expected returns.
“The impact extends to the return rates demanded by investors as well as tenants’ ability to expand,” Josua said on Monday, June 22.
Commercial properties such as office buildings and warehouses typically require large loans with lengthy construction and repayment periods. As interest rates rise, banks' funding costs and lending rates also tend to increase.
Citing Bank Indonesia data, Josua said the average interest rate on new loans rose to 9.31 percent in May 2026 from 8.95 percent in April. Meanwhile, rupiah deposit rates increased to 2.70 percent from 2.65 percent during the same period.
As a result, new projects that have yet to secure financing are likely to face higher borrowing costs, although existing loans may not immediately be affected.
Office Sector Faces Greater Challenges
Josua said higher interest rates also raise investors' return expectations, making commercial property projects less competitive compared with financial instruments such as government bonds and Bank Indonesia securities.
As financing costs rise, previously attractive land values, building prices, and project valuations may become less viable unless rental income also increases.
“This is particularly felt in the office segment because project revenues depend heavily on occupancy rates, rental prices, and tenants’ ability to expand their operations,” he said.
Warehouse properties, meanwhile, are relatively more resilient when supported by strong logistics, distribution, and trade activities, as well as long-term anchor tenants. However, Josua noted that warehouse developments remain vulnerable to higher interest rates because they require substantial capital investment.
New warehouse projects without major long-term tenants are particularly exposed to financing risks and demand uncertainty.
In addition to higher borrowing costs, developers are also grappling with the depreciation of the rupiah, which has increased the cost of imported construction materials, equipment, and other building components.
Josua said property developers should account not only for rising construction expenses but also for risks stemming from higher interest rates, currency depreciation, slower sales, and lower occupancy rates when evaluating new projects.
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