Shophouse Market Turns Vibrant

A pair of adjoining three-storey conservation commercial shophouses at 44 & 46 Club Street.
Sold by List Sotheby's International Realty, Singapore for $25.5 mil in July 2021

The first sign of vibrancy in the shophouse market was noted when 57 deals were closed in Q4 2020, up from the average of 30 deals in the previous three quarters. The sales momentum continued in 2021 bringing the total deals in the first eight months of the year to 166. At this rate, 2021 is on track to outperform the pre-pandemic high of 170 deals in 2018. Depending on the size of deals, there is a possibility that the total transacted value for 2021 – which stands at $1.132b at end-August – to match or exceed the value of $1.458b in 2018 (Figure 1).

There has been a noticeable increase in interest from foreign buyers, family offices and institutional funds to invest in shophouses which are often deemed as assets that retain value even during a downturn. A recent trend which is becoming more prominent is the use of shophouses as co-living space. Shophouse owners could engage the services of companies like The Assembly Place (TAP), Hmlet and Figment to refurbish, maintain and promote the premises as co-living spaces. Prior to Covid-19 pandemic, the target market for co-living space was expatriates. However, response from Singaporeans who were affected by construction delays rose steadily in the past year. The main draw of co-living space is the flexibility of short rental period of three months, fully-furnished accommodation that come with WIFI and utilities.

The strong demand was also aided by lower costs of borrowing and high liquidity in the market. Moreover, as commercial properties are not subject to additional buyer’s stamp duty, it translates to substantial savings and make them more attractive than residential properties to investors, particularly to foreigners.

Notable Districts

Based on the caveats lodged for shophouse transactions, the bulk of them occur in the central business district, namely, Raffles Place, Boat Quay and Chinatown in district 1 and Tanjong Pagar in district 2, and at city fringe areas such as Jalan Besar and Little India in district 8, Geylang in district 14 and Joo Chiat in district 15 (Figure 2). Although official data for the stock of shophouses is unavailable to the public, these districts are likely to have a higher concentration of conservation shophouses which formed the majority of the urban fabric of olden-days Singapore.

From January to August 2021, there was a spike in sales volume in these districts, surpassing the levels in 2020 and 2019 (Figure 2). The only exception was district 14, where there were only 12 transactions in 2021 compared to 26 in 2020 and 15 in 2019. Of the five districts, district 8 was the top district with the highest number of transactions. This could be attributed to the more affordable pricing of the shophouses in this location, which encompasses the heritage district of Little India. For instance, in 2021 alone, 30 of the 49 transactions were priced below $5 mil each. Similarly, shophouses in District 15 were also affordably priced with 11 out of the 22 transactions sold below $5 mil each.

The largest group of shophouse investors in the five top districts were companies which include local businesses, family offices and institutional funds (Figure 3). The 99 shophouses purchased by companies in 2021 has already exceeded the numbers in 2020 and 2019. District 8 attracted the highest number of companies, by virtue of its being a more affordable location for investors venturing into the shophouse scene. The next big group of buyers were Singaporean investors followed by foreign investors. However, it is probable that some foreigners bought the properties under their company’s names.

In terms of price growth, these five districts have shown a steady compound annual growth rate (CAGR) or average yearly growth rate from 2019 to 2021August (Figure 4).  Shophouses in District 1 fetched the highest average price due to its prime location in the city centre. Based on a CAGR of 4.7%, it has risen from $8,031 psf to $9,077 psf over the period. Next in line was the price in District 2 which grew by 6.0% yearly to its current level of $7,163 psf. At the city fringe, District 8 showed an average yearly growth rate of 5.2% while District 14 showed a remarkable yearly growth of 14.3% from its low base of $2,038 psf in 2019 to $2,909 psf currently. As for District 15, prices reflected a modest growth rate of 3.2% from $2,549 psf to $2,775 psf.

Figure 5 lists 10 notable deals in 2021 so far, by transacted price and the price per square foot rate. With the exception of the sale of 22 and 23 Mosque Street, the other nine deals were closed at above $10,000 psf. This $ psf rate is calculated based on land area. As every shophouse is unique because the layout includes spaces like air well, open courtyard or attic, buyers usually take into account the total built-up area and are willing to pay a premium for it. We also observed that sellers who bought their properties within the last five years have made a decent profit when they sold their properties this year.

Sales Momentum To Continue

Shophouses are an attractive segment of the property market due to their limited supply, potential for price appreciation and strength to preserve capital value.

Riding on the current strong momentum, the total sales volume of shophouses looks on track to exceed 200 deals by the end of 2021, underpinned by the growing number of boutique companies, family offices and co-living space, strong liquidity and low interest rate environment. Aided by the strong demand, the average price of shophouses are expected to rise by some 10% from 2020 levels to above $4,000 psf.

50 Craig Road, a 3-storey shophouse, sold by List Sotheby's International Realty, Singapore for $8.90 mil in April 2021

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