Investors have been snapping up shophouses in Singapore which has propelled the sales value of these assets to a record high in 2018.
Shophouses are popular partly due to the lack of ownership restriction for units that sit on land zoned purely for commercial use. These shophouses also do not attract additional buyers’ stamp duty.
Those with conservation status are particularly sought after as they are fast gaining recognition as good alternative real estate investment assets. Such shophouses also offer capital preservation and stability during economic uncertainties due to their strong heritage value and limited supply of less than 7,000 units island wide.
The evolution of shophouse occupants from traditional retail and office users to a more trendy mix now consisting co-working spaces, boutique hotels, artisanal cocktail bars and Michelin-starred restaurants, have also upped their investment appeal, alongside the improvement in rents and the image of this asset class.
It is no wonder that shophouses are drawing investors like family offices, high-net-worth individuals and boutique real estate funds.
Hot spots
Conservation shophouses in Districts 1 and 2 within the Central Business District (CBD) and Chinatown are popular with investors due to their prime location, limited stock (around 1,500 units) and mid-to-long-term capital appreciation potential. Based on data obtained from the Urban Redevelopment Authority’s Real Estate Information System (REALIS), these districts accounted for more than a quarter of all shophouse transactions in 2018.
Buoyant demand for conservation shophouses in the locality has contributed to the rise in their prices from SGD 1,800-2,300 per sq ft on gross floor area in 2013/2014, to SGD 3,000-4,000 per sq ft in 2018 for those sitting on freehold land. For their 99-year leasehold counterpart, we estimate their prices to have inflated from SGD 1,500-1,700 per sq ft about five years ago, to around SGD 2,300-2,800 per sq ft in 2018.
Also underpinning this price growth is the strong leasing demand. This is contributed in part by the opportunity to lease a prime street frontage space at lower rents than similar spaces in a retail mall, and spillover demand from the traditional office market currently experiencing a rental upcycle. In fact, based on data from REALIS, shophouse leasing volume has risen for two consecutive years to hit a record high in 2018.
Geographic distribution/concentration of shophouse transactions in 2018
Source: ArcGIS, URA REALIS (as of 15 February 2019), JLL Research
Table 1: Popular Shophouse Locations in 2018
*Include both conserved and non-conserved shophouses transacted in 2018.
Source: URA REALIS (as at 15 February 2019), JLL Research
Blue skies in 2019
We expect shophouses, especially those protected from the bulldozers, to remain a sought-after asset class among real estate investors in 2019. Their heritage value and scarcity should enable them to weather downside risks such as Singapore’s slowing economy and global uncertainties better than most other asset classes.
Those in Districts 1 and 2 should remain in demand given their prime location, though buying interest for shophouses in city fringe locations like Beach Road, Jalan Besar and Little India where yields are typically higher, is expected to strengthen further.
Given that demand is foreseen to exceed supply as owners are increasingly holding on to their assets amid rising prices, shophouse prices will likely continue to head north in 2019, barring unforeseen shocks.
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