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As rents of office units and shop spaces continue to rise, the search for a more affordable alternative has emerged.
By Nikki De Guzman
Quaint, colourful and distinctive due to their sheltered ‘five-foot’ pedestrian ways, shophouses are quite widespread in Singapore and reflect the island’s heritage. But while these buildings seem dated and overshadowed by newer developments, a surge in investor interest has been seen in recent years making shophouses the rising star of the commercial property market.
With the introduction of various government cooling measures that have led to a decline in transaction volumes and pressure on prices of strata-titled spaces in the industrial, residential, retail and office sectors, investors are finding respite in commercial shophouses.
In this edition, we’ll explore Singapore’s shophouse sector which continues to be an integral part of city-state’s ever-changing landscape and highly sought-after property market.
Oldies but goodies
Built between the 1840s and the 1960s, shophouses in Singapore are pre-independence buildings that feature colourful façades and characteristic five-footways that are reminiscent of city-state’s history and mixed cultural heritage. According to the Urban Redevelopment Authority (URA), such properties are usually two- to three-storeys high and have accommodated both residents and businesses since the colonial days.
Sizable clusters of shophouses can be found around Singapore, but its main concentrations are seen in the central area while decreasing in density towards the city-fringe and suburban areas.
According to property consultancy Colliers International, there are three main clusters of shophouses in the central business district (CBD). These include Boat Quay, Tanjong Pagar/Chinatown (the Outram Planning Area) and Kampong Glam.
But there are also shophouse clusters that can be found outside the CBD area. These shophouses are mainly found in city-fringe areas like Little India, Balestier and Geylang, as well as suburban locations, again, mostly in the East.
While there is no record of the exact number of shophouses in Singapore, the URA says there are around 6,500 conservation shophouses here. The government has sought to preserve shophouses to conserve the country’s building and architectural heritage.
But according to experts, the government has hardly introduced any new shophouses in the built environment since the modernisation of the city. As such, the supply of such properties has been relatively static and scarce, with investment potential remaining intact.
Clusters and locale
The Colliers report published earlier this year said: “While some shophouses continue to house more traditional trades, they have also become a hotspot for cafés, nightspots, lifestyle shops and even boutique hotels in recent years.”
Businesses within the shophouses of the Tanjong Pagar/Chinatown cluster, for instance, usually support bigger corporate entities found in the core business district, while those in the Little India area feature various old-school trades like mom-and-pop stores, eateries, novelty shops, hardware shops and even hostels.
The cluster in Geylang (the Geylang Planning Area), on the other hand, are mainly associated with the entertainment, hospitality and F&B sectors, and those in Balestier (the Novena Planning Area) are popular among foodies in search of famous local fare from yesteryear, as well as homeowners looking for a one-stop shop for lighting fixtures. Due to their proximity to the city-centre, shophouses in Balestier also appeal to boutique hotel and hostel operators targeting budget travellers.
The firm also said shophouses have become popular with creative outfits, such as those in advertising, public relations, architecture, media and start-up businesses.
But while shophouses may not be suitable for every business type, Colliers said it may be the niche solution for new start-ups, SMEs, small office outfits and artistic production companies.
The reason is because the said businesses may face the need to be located within the central area but cannot afford the rents in office buildings in such a prime location.
Apart from the three main shophouse clusters Tanjong Pagar/Chinatown, Kampong Glam and Boat Quay, sizable shophouse clusters can also be found in Balestier, Little India and Geylang.
By the numbers
But with the limited fixed supply of shophouses in Singapore, the transaction volume for this asset class is typically lower than other conventional strata-titled office and retail premises.
The decline in transactions seen in recent years mirror this. In fact, based on the caveats lodged in URA Realis during 2013, there were 206 shophouse transactions – 29 percent lower than that recorded in 2012. Transaction volumes declined further in 2014 with just 112 shophouse transactions recorded.
Colliers said: “Transactions have fallen largely due to a stalemate between buyers and sellers. With the limited stock of shophouses in Singapore, shophouse owners—who are well aware of the intrinsic value of their properties due to their rarity—are not in a hurry to sell unless a deal with a significant premium attached is offered.”
As such, the growing popularity of this unique property type has spurred interest in such properties, and pushed prices and rents.
In recent years, despite moderating demand, prices of shophouses have increased from $1,455 per sq ft in Q4 2009 to $2,754 per sq ft in Q4 2013. It again registered a 37 percent year-on-year increase to a record high of $3,772 per sq ft at the end of last year.
Market experts believe the price escalation is a reflection of growing investment value and appreciation of this asset class.
At the same time, rental prices of shophouses have also been on an uptrend in recent years. Based on URA records, quarterly median rent generally remained below $4.00 per sq ft per month prior to 2012, and has since risen 35.5 percent to a record high of $5.42 per sq ft in Q4 2014.
Still the cheaper alternative
According to Colliers, “the modest shophouse offers a financially viable option combined with a whimsical off-the-beaten-track format.”
While prices and rents of shophouses in the core areas are expected to remain on the uptick in the long term, they are likely to remain a more affordable alternative compared to typical commercial office and retail spaces. This means that shophouse rents are looking very competitive still.
In a recent report by the property consultancy*, average monthly gross rents for office space in the central area during Q4 2014 ranged from $6.00 per sq ft for older units to $7.80 per sq ft for newer developments, while rents for prime ground floor retail space in the major malls around Bugis range from $22 to- $41 per sq ft per month.
In comparison, shophouses in the central area command monthly average gross rents of $6.18 per sq ft per month over the same period.
As most shophouses are located within the central region, the price difference between shophouses and traditional commercial spaces in the area allows companies and investors who do not require Grade A specifications to have more affordable options to choose from.
In the spotlight
A highly-valued asset class for its uniqueness, limited supply, and flexibility, shophouses are expected to still command investor interest and appreciation given their comparative offerings to typical commercial spaces.
Albeit with moderating demand, market experts believe shophouses will remain resilient despite market roadblocks and obstacles.
As such, we can expect shophouses to remain on the radar of those investors looking for an asset class investment in the prime areas at more affordable prices.
As of June 2015, 46 shophouses** have exchanged hands since the start of this year.
*Based on Colliers International’s white paper: Seeking Respite in Shophouses.
**Based on the caveats lodged on the URA Real Estate Information System on 3 July.
COMMERCIAL HIGHLIGHT
Shophouses
Two conservation shophouses
4 and 6 Lorong 24 Geylang
No.s 4 and 6 Lorong 24 Geylang are two adjoining freehold conservation shophouses located within the heart of the Geylang district.
Zoned for residential/institution use, the shophouses are situated on a land area measuring approximately 2,900 sq ft and comes with an estimated current gross floor area of approximately 3,400 sq ft.
The units come with an eight-storey extension permit that allows buyers to explore extensive opportunities to carry out alterations and development works with the added flexibility and creativity to configure the space to suit their own requirements. The shophouses also enjoy about 10 metres of prominent street frontage with high visibility.
Just a short walk from the Aljunied and Dakota MRT stations, the shophouses are accessible via major arterial roads and expressways such as the Pan Island Expressway (PIE), Central Expressway (CTE) and East Coast Parkway (ECP).
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