Are there still opportunities in the strata retail market?

By Feily Sofian

/ The Edge Property |

November 18, 2016 10:23 AM SGT

The retail sector is still facing challenging times. However, there are some bright spots in the market. The partial completion of the Downtown Line, for example, has boosted footfall at Beauty World Centre, a strata mall located next to the Beauty World MRT station. There could also be opportunities along the upcoming Thomson-East Coast Line (TEL) given that retail properties are extremely location-sensitive.

Helena Kim, proprietor of Pink Candy Korean Snack Restaurant at Beauty World Centre, says business has improved by around 20% since the Beauty World MRT station opened last December. She reckons the increase could have been more pronounced if not for the ailing economy. Her rent, meanwhile, was up by 10% in the latest revision this year.

Another retailer, who only wants to be known as Ms Phang, echoes the sentiment. According to her, level four of the mall benefits the most from the station’s opening as it houses several F&B outlets and an open-air food centre known for its hawker fare. “On weekends, the food centre is also frequented by hikers returning from the nearby Bukit Timah Nature Reserve,” Phang notes. Her family has run Sin Wah Jewellers & Goldsmith from the same premises on the ground floor for more than 30 years. Beauty World Centre opened in 1984.

Pidemco Land acquired the mall in 1989 from URA. In 1998, it sold the mall for nearly $80 million to 194 individual buyers, including Sin Wah. “We had to beg, borrow, steal to raise the money and retain the business premises,” recounts Phang. It has turned out to be a lucrative deal, albeit on paper. Based on URA caveat records, ground-floor units went for an average price of $1,003 psf in 1998. This year, a 301 sq ft unit on the ground floor fetched $2,986 psf. The property has a remaining lease of around 62 years.

For retail properties, it makes a difference to be located right next to an MRT station versus some walking distance away. We spoke with three retailers at Bukit Timah Plaza, a strata mall that is located more than 300m from the Beauty World MRT station. Two of them say there was no significant difference in footfall after the station’s opening.

Damian Lim, who runs Nonya Delicatessen at Bukit Timah Plaza, says his pool of customers remains relatively unchanged. Lim owns part of the premises, but leases a common area from the MCST for seating. A sports shop employee who declined to be identified also says the number of visitors remains pretty much the same after the station opened.

Muneer Reshi, proprietor of Kashmir Concepts, which sells Kashmiri handicrafts, did witness a higher footfall. However, he attributes it mainly to the relocation of his shop from another part of the mall to the current location near FairPrice Finest supermarket.

The Downtown Line has boosted footfall at Beauty World Centre strata mall

Tenant mix

Retailers also attribute the healthy traffic at Beauty World Centre to its flourishing ecosystem of tenants. Pink Candy’s Kim notes that her dinner patrons comprise mainly families who accompany their children to the various enrichment centres within the development. There are close to 20 enrichment centres in Beauty World Centre such as Cristofori Music School and Kumon Method of Learning.

Maid agency Zecruitx was drawn to Beauty World Centre because of its tenant mix, which helps to generate walk-in visitors for the firm, according to its recruitment manager Irene Oo. The agency relocated to the mall last year from an HDB shophouse in Bukit Merah. “The variety of tenants also means less competition for Zecruitx, unlike in some malls, which are packed with maid agencies,” notes Oo. Based on the mall’s directory, there are five maid agencies in Beauty World Centre, including Zecruitx, spread across different levels.

Besides F&B outlets, enrichment centres and maid agencies, Beauty World Centre also hosts 12 clinics and pharmacies, nine jewellery shops and eight renovation firms. The mall enjoys high occupancy and Sin Wah’s Phang notes that vacant space gets taken up relatively quick.

Active management helps a strata mall stay competitive in a challenging retail market. Bukit Timah Plaza, for example, also enjoys high occupancy, underpinned by a balanced tenant mix, asset enhancement initiatives and an immediate catchment of residents from the adjoining Sherwood Tower.

Active management helps a strata mall such as Bukit Timah Plaza stay competitive in a challenging retail market

Opportunities along the upcoming TEL?

The TEL will be completed in stages from 2019. Major strata malls that will be located less than 300m from an upcoming TEL station include Concorde Shopping Centre, Katong Plaza, Roxy Square and Thomson Plaza. As with any investment, entry price is crucial.

“Strata shops have lower yields than malls. The current net yield would be in the low- to mid-3% levels,” notes Alan Cheong, head of research at Savills Singapore.

At Beauty World Centre, a 200 sq ft unit on the ground floor has an asking monthly rent of $9 psf, while a 462 sq ft unit on level two is available for rent at $10.39 psf. Based on the latest transacted price of $2,986 psf for a 301 sq ft unit on the ground floor, the net yield would work out to around 3.5%, assuming a monthly maintenance fee of $1 psf.

Lee Nai Jia, head of research for Southeast Asia at Edmund Tie & Co, reckons that owners might be reluctant to lower their prices. “If the strata mall is old, most of the owners would have paid up their loans. With the TEL completing, they have more reason to stay firm on their asking prices,” he explains.

Should a good deal arise, however, it might be worthwhile to consider a strata shop near an MRT station. An F&B outlet proprietor at Beauty World Centre revealed he was paying a monthly rent of $6,000. Tracking the caveat and purchase price of the unit, the landlord who bought the property in 2009 would be netting a gross rental yield of 8%.

Prices of strata shops near an MRT station might also appreciate faster in a market upcycle than those that are located further away. In the chart, Beauty World Centre, People’s Park Centre and People’s Park Complex are located next to an MRT station. However, prices at Sim Lim Square, which is located next to the Rochor MRT station, do not exhibit a clear trend.

Lee says the completion of the TEL will definitely improve the prospects of strata malls that are located in the immediate vicinity of the stations. “However, other factors such as the tenant mix and positioning will also play a part,” he adds.

Cheong says the nuisance brought on during the construction of a station may suppress prices. The opportunity therefore arises for potential buyers to acquire such properties and patiently wait out the completion of the station. One must also anticipate whether the opening of the station may divert pedestrian traffic from the shops as the orientation of the entrance to the station may cause people to change their walking paths.

In addition to the property’s tenant mix and catchment population, aspiring buyers should also note that the presence of a bigger non-strata mall nearby would pose a competition and draw shopper traffic away from a strata mall.

Thomson Plaza will be located around 200m from the upcoming Upper Thomson MRT station of the Thomson-East Coast Line