Demand for shophouses grows as office rents continue to rise

With their colourful facade and distinctive five-foot way, shophouses are reminiscent of Singapore’s past. But even in today’s modern business environment, there is still a demand for them.

At Amoy Street, such shophouses have been taken up by creative outfits, restaurants and even small businesses who are looking for cheaper office space. With office rents already going up by 9.8 per cent in the last year, property observers have said that they expect demand for shophouses to pick up going ahead.

As of the last quarter of 2014, median office rents in the downtown core area stood at about S$10.50 per square foot per month. Shophouses, however, have significantly lower rents.

Ms Christine Li, director of research at Cushman & Wakefield, said: “If you compare the rents for shophouses and office buildings in the Central Business District (CBD), it is really at about half-price.

“It appeals to people and tenants, particularly those from the creative industries, who do not need the Grade A specifications but still want to be in the CBD, close to their clients. So without paying S$10 per square foot per month for a Grade A office building, they can just pay S$5 to S$6 for a shophouse next to it.”

According to a recent report by property consultancy Colliers International, before 2012, quarterly median rents remained generally below S$4 per square foot a month. That is compared to S$5.42 per square foot per month in the fourth quarter of last year.

However, while rents have gone up, shophouses are not necessarily the best asset class to invest in. Their rents have seen lower growth as compared to the rise in capital value, according to consulting firm Chestertons Singapore.

Mr Donald Han, managing director of Chestertons Singapore, said: “Your yield for conservation shophouses these days is at about 1.5 to 2 per cent, definitely less than 3 per cent.

“For investors looking at shophouses as an investment class, despite it being limited in number, they would have to hold on to an asset with lower returns, compared to other asset classes like residential that might give in excess of 3 to 4 per cent. Commercial strata offices might give you yield of about 3 to 5 per cent, industrial maybe about 7 per cent.”

Since the start of 2015, 25 shophouses have been sold, according to the Urban Redevelopment Authority.

Source : Channel NewsAsia – 20 Apr 2015