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Shophouses: Old is gold if investors know where to look

Colliers REview Singapore blog - CM shophouses old is gold property investment demand

Planning to invest in a shophouse? Prime location, heritage charm and limited supply are driving investment demand for conserved shophouses in Singapore.


Conservation shophouses in Singapore had been 'instagrammable' long before being Instagram was even a thing. 

These heritage buildings, which have been built between the 1840s and the 1960s, have been beautifully preserved and are a prominent architecture form in Singapore's evolving cityscape. 

There are about 6,760 conserved shophouses in Singapore. Of these, more than 60% of the shophouses are located in the prime areas of Rochor, Outram, Singapore River, and Downtown Core. 
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Owing to their heritage charm and limited supply, shophouses – particularly those in the city centre – have been highly sought-after.  

Shophouse sales rebounded strongly by 132% QOQ to SGD310 million in Q2 2021 after a decline of 53.6% QOQ in Q1 2021, owing to pent-up demand in Q4 2020. This brings H1 2021 shophouse sales volume to SGD444 million.  

 

"These heritage buildings, which have been built between the 1840s and the 1960s, have been beautifully preserved and are a prominent architecture form in Singapore’s evolving cityscape."

 
According to Steven Tan, Executive Director of Investment Services at Colliers, “Transactions for shophouses - a hybrid of residential, commercial and hospitality assets – started to pick up from 2015 and hit a new high in 2018. Based on our observation, investment interest for shophouses remains healthy, but as prices become firmer, some investors could be taking a breather.
Although sales have come off in 2019, we believe this is more of a temporary pause in the market and transactions should pick up in 2020. Generally, the fundamentals remain intact to support investor interest in shophouses, especially prime ones in the city.”

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"Shophouses have emerged as an attractive alternative asset class for investors," said Donald Goh, Director, Investment Services in Singapore. "This is partly due to the relatively smaller investment capital outlay compared to that of acquiring en-bloc buildings. In addition, they present a potential for capital appreciation and should offer higher yields than residential units." 

Apart from boutique investors who continued to lead demand, investment interest in shophouses has also grown among property funds and investment companies exploring more alternative asset classes. 

Prices and yields of conserved shophouses vary depending on location, remaining land tenure, current conditions and approved usages. Based on data from URA, most of the shophouses transacted at around S$2,000 - 5,000 per square foot on strata area in 2020 and 2021 to date.

 

"Investors can unlock value [in shophouses] via redesigning, conversions to higher-use options, and creating clusters to drive foot traffic."

 

Currently yielding about 2.0-3.0%, shophouses offer the flexibility of property type usage, management autonomy for occupiers, and unique vintage value. 

 

Shophouses complement tight CBD office supply

Against a backdrop of rising office rents and tight commercial vacancy, shophouses also provide alternative commercial space for businesses. These heritage buildings complement the tight office supply in the CBD and enjoy healthy occupancies. 

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Colliers estimates that the monthly rent of shophouses in the Central Region range from S$6 - 12 psf for ground floors and S$3 - 7 psf for upper floors. F&B and retailers occupy typical ground floors while upper floors could be for offices or service-oriented retailers such as spas, salons etc. 

Data for the retail vacancy in the shophouse subzones suggest that the majority of conserved shophouses enjoyed healthy occupancy levels in recent years. 

 
Unlocking the value in conserved shophouses

In the longer term, Colliers believes that conserved shophouses are resilient to market volatility. They are considered a safe-haven that can offer stable income and capital appreciation, evidenced by the generally upward trend in transacted rents and prices over 2015 to 2018 and now in 2021. 

Mr Goh added, "We recommend investors to focus on shophouses in prime and accessible locations. Investors can unlock value via redesigning, conversions to higher-use options, and creating clusters to drive foot traffic."  

 

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