Conserved Shop Houses as a Safe-Haven Investment

Beautifully conserved from its original construction between the 1840s and the 1960s, Singapore’s Heritage Shop houses are a distinctive architectural style in the city’s ever-changing skyline.

In Singapore, there are around 6,760 shophouses that have been preserved. More than sixty percent of these shophouses are situated in very desirable places including Rochor, Singapore River, Outram and the Central Business District.

Historic shophouses, especially in prime downtown locations, sell quickly and fetch premium prices because of their unique character and scarcity.

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Healthy Transactions in Shop Houses

After dropping 53.6% Quarter on Quarter in 1st quarter 2021 due to pent-up demand in 4th quarter 2020, shophouse sales surged 132% QOQ to SGD310 million in Q2 2021. All all, the first half of 2021 saw SGD444 million in shophouse sales.

Investment in shophouses, which combine residential and business space, reached a record high in 2018, according to Steven Tan at Colliers. Our research shows that demand for shophouses as an investment vehicle is still steady, albeit some buyers may be pausing to catch their breath in light of rising costs.

Although sales have slowed this year, we anticipate that the market will resume its normal pace in 2020. Speculative demand for city-center shophouses is still being backed by solid fundamentals.

According to Donald Goh, “shophouses have emerged as an attractive alternative asset class for investors.” This is due in part to the lower initial expenditure required, as compared to buying a whole building. They have the potential for greater returns than single-family homes and may increase in value over time.

Boutique investors have continued to drive demand, although property funds and investment corporations looking to diversify their portfolios have shown increased interest in shophouses.

Location, residual land tenure, present condition, and allowed uses all have a role in the prices and yields of preserved shophouses. URA reports that, as of early 2021, the average sale price of a shophouse was between S$2,000 and S$5,000 per square foot on stratum space.

Redesigning, converting to higher-use choices, and forming clusters to encourage foot traffic are all ways in which investors might “unlock value” in shophouses.

Currently yielding between 2.0 and 3.0%, shophouses provide tenants with managerial independence, a one-of-a-kind aesthetic, and a price point that is hard to match.

Shop House Offices complement CBD Office Supply

Shophouses provide companies with another option for renting commercial space in an area with high office rates and little vacancies. The historic buildings are a welcome addition to the limited number of available office spaces in the Central Business District.

Colliers believes that the monthly rent for ground-floor shophouses in the Central Region is S$6 to 12 psf and that the rent for upper-floor shophouses is S$3 to 7 psf. Typically, the first level is dedicated to food and retail, while the higher floors house either offices or service-oriented businesses like spas, hairdressers, and the like.

Retail vacancy data for shophouse districts suggests that historically significant stores have been consistently well-occupied in recent years.