Shophouse market sees lower transactions and rents in 3Q2023: PropNex
The commercial shophouse market saw more muted activity in 3Q2023, with transactions and rents easing compared to the previous quarter. A total of 38 shophouse transactions were recorded in 3Q2023 based on caveats lodged, a 19% q-o-q drop from 47 deals registered in 2Q2023. Similarly, shophouse transaction value fell 19% q-o-q to clock $350.8 million in 3Q2023.
The number of shophouse deals comes off a high base in 2Q2023, when the tightening of additional buyer’s stamp duty (ABSD) rates likely diverted some foreigner and investor interest towards commercial properties, says PropNex Realty in its 3Q2023 shophouse research report. It adds that softening economic sentiment in the second half of the year, along with an anti-money laundering blitz that kicked off in August, could also have contributed to the slower sales.
On a y-o-y basis, shophouse deals were up 5.6% from the 36 deals registered in 3Q2022, while transaction value was 2.3% higher.
The 3Q2023 figures bring total shophouse deals for the first nine months of the year to 117 transactions worth $1.1 billion. In comparison, the same period in 2022 saw 155 deals with a total value of $1.3 billion.
Deals centred on fringe areas
Of the 38 shophouse deals that took place last quarter, most were for fringe areas such as Districts 8 and 14, PropNex highlights. District 8, which includes the Little India and Jalan Besar areas, saw the highest number of transactions at nine units worth $84.5 million.
District 14, covering Geylang and Eunos, saw six deals, followed by District 12 (Balestier, Toa Payoh and Serangoon) with five shophouse transactions. District 1 (Raffles Place, Cecil Street, Marina and People’s Park) and District 2 (Anson and Tanjong Pagar) saw three and two deals respectively based on caveats, though PropNex, citing market observers, adds that figures could be higher as caveats for “a number of deals” in the two districts were not lodged.
The single largest shophouse transaction in 3Q2023 was the sale of a three-storey shophouse along Cheong Chin Nam Road in the Beauty World area in District 21. The freehold shophouse, which has an area of 11,947 sq ft, changed hands for $41 million or $3,432 psf in September.
The second-largest deal was for a row of three adjoining freehold shophouses on Jalan Besar. The two-storey properties sit on a site spanning 6,378 sq ft and were sold for $38.5 million ($6,037 psf).
Uneven price growth
In terms of price trends, PropNex observes price growth across districts was uneven in 3Q2023 due to fluctuating sales volume. For freehold and 999-year leasehold shophouses, average unit price on the land area in Districts 7 and 8 grew 7.3% q-o-q to $5,679 psf; while in Districts 14 and 15, prices plunged
Average unit prices of shophouses in 3Q2023 by tenure and district ($ psf) 39.4% q-o-q to $2,375 psf. Prices in Districts 1 and 2 also declined, falling 13.2% q-o-q to $14,333 psf. In the rest of Singapore, prices grew 3.2% q-o-q to $3,988 psf.
For 99-year leasehold shophouses, average unit price on the land area in Districts 7 and 8 also led the way, increasing 12% q-o-q to $5,059 psf, while prices in Districts 1 and 2 rose 3.9% q-o-q to $9,623 psf. Prices in the rest of Singapore fell 12.8% q-o-q to $675 psf.
Easing rents
After seven consecutive quarters of growth culminating in a record high in 2Q2023, shophouse rents saw its first decline since 4Q2021 last quarter. Median shophouse rents stood at $5.97 psf per month (psf pm) in 3Q2023, easing 3.9% q-o-q from the peak of $6.21 psf pm logged in 2Q2023.
However, leasing volume remained steady, with 926 rental contracts valued at $9.2 million signed last quarter, compared to the 908 contracts worth $9.25 million recorded in 2Q2023.
In the first nine months of 2023, 2,756 shophouse rental transactions worth $28.3 million took place, beating the 2,685 transactions valued at $25.4 million achieved across the same period last year.
Tight supply, recovery in tourism to support market
Following the strong showing in the shophouse market in the last couple of years, PropNex believes 2023 will see a more subdued performance. “The shophouse market in 2023 looks on track to underperform the stellar sales achieved in 2022 and 2021,” it states in the report. There were 253 and 191 shophouse deals recorded in 2021 and 2022 respectively.
PropNex attributes the lower sales expected for the full year to the limited selection of choice shophouses available for sale, along with firm prices arising from the segment’s growth in recent years. “In addition, it is possible that the flightto-safety mindset among investors, which was rampant following the pandemic outbreak in the past years, has waned slightly,” it adds.
Nonetheless, the firm believes investment appetite for shophouses should remain “fairly resilient”, given the scarcity and defensive nature of such assets, along with stable occupier demand coming from businesses looking to acquire space post-pandemic.
While the current cautious economic sentiment, combined with higher rentals, could potentially impact leasing activity, PropNex reckons the ongoing tourism recovery and the growth in the services sector will support the shophouse rental market. The firm predicts full-year shophouse rental transactions this year to be on a par with or possibly exceed 2022’s performance of 3,589 contracts worth $34 million.