Shophouse transactions halved in 3Q2022, but average deal size up 31.3%

By Hailey Yu

November 3, 2022 5:50 PM SGT

Katong Point, formerly Katong Junction, was launched for sale by tender at a price tag of $100 million, or $2,103 psf based on GFA

SINGAPORE (EDGEPROP) - On Oct 25, Katong Point, a four-storey freehold commercial development at 451 Joo Chiat Road, off Upper East Coast Road, was launched for sale by tender. The building comes with basement parking. Built in the late 1990s, the property sits on a freehold site of 13,346 sq ft, with a gross floor area (GFA) of 47,540 sq ft.

Katong Point enjoys 100% occupancy, according to Shaun Poh, executive director of capital markets at Cushman & Wakefield, which is marketing the property. It was launched for sale by tender at a price tag of $100 million, or $2,103 psf based on GFA.

Formerly known as Katong Junction, the property underwent an extensive addition and alteration (A&A) exercise that cost $12.5 million in 2016. The property was then renamed Katong Point. From 2020 to 2021, it underwent further A&A, including reconfiguration of units, repainting of the façade, as well as upgrading of the electrical and plumbing works.

In early October, six adjoining freehold, two-storey shophouses with a dual frontage of 60m along the main Geylang Road and Lorong 17 Geylang, were offered for sale, with Savills as the marketing agent. The property has six individual land titles and a combined land area of 9,792 sq ft, with a total GFA of 17,014 sq ft. The shophouses are zoned for commercial use with a plot ratio of 3.0, and the building of a five-storey rear extension has been approved. (Find Singapore commercial properties with our commercial directory)

According to Galven Tan, deputy managing director of investment sales and capital markets, Savills Singapore, this presents “tremendous value-add potential” to tap underutilised floor area of about 12,362 sq ft. The property is offered for sale by expression of interest, which will close on Nov 9.

However, a neighbouring unit at 323 Geylang Road sitting on a 1,988 sq ft freehold site changed hands in September last year for $10.1 million, or $5,080 psf, according to SISV Realink. Based on the psf price and land area of the six shophouses along Geylang Road, the price tag is estimated to be about $50 million.

Lower number of deals

While shophouses continue to be put up for sale, there is no denying that transaction activity has been muted in the three months from July to September. In 3Q2022, just 34 shophouse deals were transacted, based on caveats lodged. This is half the number (67) of deals done in the preceding quarter. However, the figure in 3Q2022 is likely to be higher as some caveats were not lodged by buyers, says Wong Siew Ying, PropNex head of research and content, in a report published on Oct 26.

shophouse transactions - EDGEPROP SINGAPORE

In terms of transaction value, the q-o-q plunge was less severe at 31.4%, to $339.1 million in 3Q2022, from $494 million in the previous quarter, comments Nicholas Mak, head of research and consulting, ERA Realty Network.

The first nine months of 2022 chalked up $1.29 billion worth of deals, slightly short of the $1.31 billion recorded over the same period last year, according to PropNex.

Of the 34 deals done in 3Q2022, half (17) were shophouses located in District 8 (Little India and Jalan Besar), according to PropNex. District 8 led the pack as well in terms of transaction value, achieving $134.4 million worth of deals in 3Q2022. In the first nine months of 2022, District 8 clocked over 70 deals worth more than $449.9 million — an all-time high in terms of total sales value in the district, notes PropNex Research.

shophouse deals by district - EDGEPROP SINGAPORE

Based on caveats lodged, the top deal of the quarter was Lavender Place, at the corner of Lavender Street and Foch Road, which Hafary Holdings purchased for $71.28 million in July. Another notable transaction is the purchase of four adjoining shophouses at Jalan Besar for $40 million.

Higher average deal size

While the decline in the number of shophouse transactions was sharper than the drop in total transaction value, average deal size per shophouse was 31.3% higher q-o-q at $9.69 million in 3Q2022 compared with $7.38 million the quarter before, notes ERA’s Mak. “The characteristics of each shophouse can vary widely,” he adds.

The median transacted price of shophouses in 3Q2022 slipped 3.2% q-o-q to $4,434 psf based on land area, notes ERA’s Mak. However, median monthly rents of shophouses increased 2.7% q-o-q in 3Q2022 to $5.65 psf. Compared to the same period a year ago, rental rates increased 15.3%, he observes.

Rental transaction value has increased steadily since mid-2020 and risen 6.8% q-o-q to $8.8 million in 3Q2022, according to ERA Research. This translates to $9,820 per leasing deal.

However, total rental value in the first nine months of 2022 was $21.9 million, down from $25.4 million over the same period last year, notes PropNex.

“After two years of rising prices and active trading, the number of available shophouses for sale has thinned,” says ERA’s Mak. As a result, the number of shophouse sales has declined in the first nine months of 2022, with 154 reported deals. This is 20.6% fewer than the number of deals a year ago.

Rising rents have also prompted some owners to hold on to their assets instead of selling, notes Mak. This has also reduced the number of shophouses available for sale in the market, he adds.

shophouse leasing transactions - EDGEPROP SINGAPORE

Rising interest rates

While the rising interest rates, and hence rising mortgage rates, could reduce the demand for real estate for some investors, they do not deter investors who intend to invest in real estate as a hedge against inflation and for wealth preservation, observes Mak.

Besides commercial and F&B operators, the traditional occupiers of shophouse space, some up-and-coming demand drivers include hotel and co-living operators, notes PropNex. “A number of them have been consistently acquiring shophouses in the city and fringe areas to capitalise on the burgeoning hospitality sector and brisk residential rental market,” says Wong.

According to Singapore Tourism Board, the average hotel room rate hit a 10-year high of $256 per night as of July this year. This was the highest since September 2012, when the average room rate was $261.66.

Meanwhile, home rentals across the island have been hitting new peaks, notes Wong. “Landlords have a strong negotiation position, amid robust demand from both local and foreign tenants,” she adds. “With the recently imposed 15-month wait-out period for homeowners looking to sell their private homes to downgrade to an HDB resale flat, demand for rental properties, including co-living spaces, is expected to grow further in the medium term.” Hence, shophouses are likely to be a beneficiary. (Find HDB flats for rent or sale with our Singapore HDB directory)