Planning to invest in a shophouse? Prime location, heritage charm and limited supply are driving investment demand for conserved shophouses in Singapore.
"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."
Related content: Shophouses: Heritage Gems report
Shophouses in Outram most sought-after
Data compiled by Colliers Research showed that shophouses in the Outram planning area was by far the most sought-after, with transactions valued at S$224.5 million in the January - October 2019 period. This was followed by properties in Rochor which totaled S$82.7 million, Singapore River at S$76.6 million, Kallang at S$72 million, and Geylang at S$42.3 million.
“Shophouses have emerged as an attractive alternative asset class for investors,” said Tricia Song, Director and Head of Research for Singapore. “This is partly due to the relatively smaller investment capital outlay compared to that of acquiring en bloc buildings. In addition, they present 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 is also growing among property funds and investment companies, as they explore 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, Colliers Research estimates that shophouses in the Central Region were transacted at around S$2,000 - 4,000 per square foot on strata area in 2019 to date.
"Investors can unlock value [in shophouses] via redesigning, conversions to higher-use options, and creating clusters to drive foot traffic."
Generally, they offer net yields ranging from 3.0 – 3.5% for assets with land tenures less than 99 years and 2 – 3% for those with 999-year or freehold land tenures. These represent a 0.3 - 1.8% yield spread over the 10-year Singapore government bond.
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.
Based on transaction data from URA, monthly rent of shophouses in the Central Region to range from S$6 - 13 psf for ground floors and S$3 - 7 psf for upper floors. Typical ground floors are occupied by F&B and retailers while upper floors could be for offices or service-oriented retailers such as spas, salons etc.
Data for retail vacancy in the shophouse subzones suggest that the majority of conserved shophouses enjoyed healthy occupancy levels at above 90% 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.
Ms. Song 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.”
Connect with our Investment Services experts to find out how you can capitalise on shophouse investment opportunities in Singapore.
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