SINGAPORE (EDGEPROP) - Loo Soon Huat, owner of a corner coffee shop at Block 136 Bedok North Avenue 3, was sitting at the outdoor refreshment area at about 3pm on a recent Friday afternoon. He is co-owner of the beverage stall, one of 10 stalls in the coffee shop.

“There are quite a few famous stalls here — the ‘chao mian’ [fried noodles], ‘Fujian mian’ [Hokkien noodles] and ‘xi can’ [Western food],” says Loo in Mandarin. “In the evenings, there is usually a long queue at the Hokkien mee stall because it’s very popular for tapau [takeaway].”

The corner HDB coffee shop is one of four that Loo owns together with different partners. At 4,241 sq ft, it is the biggest in his portfolio. The other three are located at Blk 529 Ang Mo Kio Avenue 10, Blk 678 Hougang Avenue 8 and Blk 171 Yishun Avenue 7. They range in size from 1,743 sq ft to 3,907 sq ft, with leases of 84 to 93 years, with effect from 1994/1995.

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Having been a coffee shop operator for 33 years and an owner of such properties for over a decade, Loo professes to investing exclusively in this asset class. He likes coffee shops because of their stability in terms of rental yields, which, he says, generally average around 4% a year. “They are located in the suburban HDB estates, and mainly patronised by the residents in the area,” he adds.

Check out the latest listings near Blk 136 Bedok North Avenue 3, Blk 529 Ang Mo Kio Avenue 10, Blk 678 Hougang Avenue 8 and Blk 171 Yishun Avenue 7

‘Things are improving’

No doubt, Covid-19 and the two-month-long “circuit breaker” from April to May resulted in a significant drop in F&B sales. According to the Department of Statistics, restaurants saw a plunge in F&B sales of 69.3% y-o-y in April and a 68.7% y-o-y drop in May, while cafes, food courts and other eating establishments saw declines of 42.7% in April and 41.4% in May.

While business was “difficult” in the past four months, Loo says it has improved significantly since the Phase 2 reopening in mid-June. “A coffee shop that typically makes $6,000 a day may have seen business fall to over $1,000 a day during the circuit breaker,” he estimates. “Since the reopening, business has recovered to about $4,000 a day. It’s not back to where it was before, because of the safe management measures. But things are improving.”

According to Loo, he had offered two months’ rental relief for his tenants even before it became mandatory, in addition to passing on the 100% property tax relief offered by the government to landlords. “As a landlord you have a choice: either give your tenants the rental relief immediately or wait until it’s enforced by the government,” says Loo. “But as a coffee shop operator and tenant before, I know how difficult it is. Business was already so challenging, how long can they wait? So I gave them the two months’ rental relief immediately. We have to help each other during this difficult period.”

Read more: Small businesses whipsawed by Covid-19 crisis get some financial relief

‘Still resilient’

Has Covid-19 curbed the appetite of investors and coffee shop operators for such properties? Apparently not, says Yap Hui Yee, Savills’ director of investment sales and capital markets. “Overall, we feel that coffee shops are still very resilient, especially in the neighbourhood areas. Even during the circuit breaker, you see residents from around the area coming to buy food for takeaway.”

Loo agrees. “Coffee shop business is good — even if the economy is not doing well, people still need to eat and drink. And they will choose to dine at coffee shops because of the more affordable options available,” he says.

In January this year, there were reports that a coffee shop at Jurong West had an offer from a food and beverage company, K2 F&B Holdings, for $31 million. This was the same record price achieved for another coffee shop at Bukit Batok Street 11 back in 2015. Prior to that, a coffee shop at Hougang Avenue 4 was sold for $23.8 million in 2013 — which was a record price then.

Big F&B chains have maintained a healthy appetite for such assets in recent years. In February this year, Singapore-listed Kimly announced the purchase of eight food outlets for $55.815 million. They comprised four HDB coffee shops, three industrial canteens and a restaurant unit.

The purchase of six of the food outlets for $35.5 million was completed in early June. This was followed by the completion of the $12.9 million purchase of the HDB coffee shop at Blk 347 Ang Mo Kio Avenue 3 at the end of June. The purchase of the last coffee shop at Block 380 Clementi Avenue 5, for $7.415 million, will be completed at a later date, pending HDB approval.

The completion of these HDB coffee shop purchases was delayed due to Covid-19 disruptions, according to Kimly. These purchases will increase Kimly’s portfolio to 79 food outlets and 137 food stalls.

Last September, BreadTalk Group announced that it was acquiring Food Junction for $80 million. With the deal approved by the Competition and Consumer Commission of Singapore, BreadTalk took over ownership of the 12 Food Junction outlets it already manages, in addition to the 14 food courts it already owns and manages under the Food Republic and Food Opera brands.

Meanwhile, NTUC Enterprise acquired homegrown food court operator Kopitiam Investment and its subsidiaries in September 2018. Kopitiam controls 80 outlets, including Lau Pa Sat Festival Market in the CBD. Three years earlier in 2015, coffee shop chain Broadway reportedly paid $200 million for all 23 coffee shops managed by S11, which works out to an average of $8.7 million per coffee shop.

Limited supply

Loo himself has experienced first-hand the strength of demand for such assets. In January 2017, Loo’s HDB coffee shop at Telok Blangah Drive was snapped up within a month of being put up for sale by private treaty. “It was sold for $8.18 million, pretty close to the asking price,” recounts Loo.

The sale of the coffee shop was brokered by Savills’ Yap. It was purchased by another coffee shop operator. “While the Telok Blangah Drive area was relatively mature, the new HDB estate that came up nearby had very few coffee shops,” she says.

According to HDB’s annual report for 2018/2018, there are a total of 930 eating establishments under its management as at March 2019. Savills’ Yap reckons that only slightly over 400 are available for sale in the open market.

HDB has also stopped selling coffee shops since 1998. “There are hardly any coffee shops for sale in the new HDB estates,” says Yap. “Supply is therefore very limited, especially in prime heartland locations. As they are tightly held, the opportunities for purchase are extremely rare.”

Originally from Penang, Loo moved to Singapore more than 50 years ago and is now a Singapore citizen. He remembers his first coffee shop: It was located at Blk 325 Woodlands Street 32. He rented the entire coffee shop from HDB in 1987. He operated the drinks stall while subletting the food stalls to others. “I didn’t have the capital to buy then,” he relates. “So I rented. I always operate the drinks stall and sublet the food stalls to others. From there, I made enough to buy my first coffee shop.”

Loo’s maiden purchase was at Blk 150 Bishan Street 11. It is located near the market and just off Braddell Road. The capital outlay to purchase a coffee shop is high, adds Loo. “Even back then, you’re looking at $3 million for an HDB coffee shop,” he says. He started with one coffee shop, and progressively bought the subsequent coffee shops over time.

Good location, potential of area

Of the four coffee shops in his portfolio today, Loo has held the one at Yishun Avenue 7 the longest — more than 10 years. “I’ve had unsolicited buyers in the past, but I didn’t want to sell then,” he says. “The kway chap stall [Huat Kee Kway Chap] is very good. If you like kway chap, you have to queue for more than an hour. And after 12pm, it’s all sold out.”

Sometimes, beyond a good location, it is also about whether there is potential in the area, says Loo. He had purchased the 1,743 sq ft, coffee shop over a decade ago. It is the smallest of the coffee shops in his portfolio. “But the area is quite vibrant — there’s a supermarket and wet market nearby too,” he adds. “And it’s the only coffee shop in that area.”

His coffee shop at Blk 678 Hougang Avenue 8 is about 1,959 sq ft. It has a prominent road frontage, located in the heart of the HDB estate, next to Xin Min Primary School and just across the road from Hougang Stadium, Sports Centre and Swimming Complex.

What drew him to the corner coffee shop at Blk 136 Bedok North Avenue 3 was its frontage along Bedok North Avenue 3 and its facing, opposite Bedok North Street 1. There is also a big HDB open air carpark at the back, which makes it very accessible. The unit at Bedok North has living quarters on the second level too, which is convenient for the workers who help at the stalls.

Most of the HDB coffee shops feature living quarters on the upper floor, says Savills’ Yap. Despite that, Singapore permanent residents and foreigners are allowed to purchase such coffee shops with living quarters, since they will be tenanted out or sold as a commercial property under HDB rules, she adds.

The coffee shop at Ang Mo Kio Avenue 10 is leased to ABC Food Court, a halal food court. The space is 3,907 sq ft, and it has a prominent frontage along Ang Mo Kio Avenue 10.

After receiving unsolicited offers from various property agents, Loo has decided to put his portfolio of coffee shops for sale. Savills’ Yap is marketing Loo’s portfolio. The coffee shops will be offered for sale individually, she adds.

“It’s hard to find a good coffee shop,” says Loo. “It doesn’t mean that if you feel like buying a coffee shop, you can just go out and buy one. It’s not that easy to find.”

Check out the latest listings near Block 678 Hougang Avenue 8, Block 171 Yishun Avenue 7, Block 529 Ang Mo Kio Avenue 10, Block 136 Bedok North Avenue 3

For price trends, recent transactions, other project info, check out these projects' research page: Block 678 Hougang Avenue 8, Block 171 Yishun Avenue 7, Block 529 Ang Mo Kio Avenue 10, Block 136 Bedok North Avenue 3

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