Shophouse Sales Treble As Firms Seek Cheaper Rentals

Sep 11, 2007

33 units worth $308m sold so far this year but prices and rents are also rising, says consultancy

SHOPHOUSE sales have been shooting through the roof recently, as escalating office costs drive smaller businesses to seek out cheaper alternatives.

The number of shophouses that have changed hands so far this year is already more than treble that in an average year, according to new figures from property consultancy CB Richard Ellis (CBRE).

And as demand for shophouses soars, the sale prices and rents of such properties are also quickly climbing, added the company.

Its figures show that since January, 33 shophouses have been sold for a combined $308.2 million.

This is a huge jump from just two years ago, when only 10 such properties were sold. Their total value: a mere $85.1 million.

The booming demand is mainly coming from smaller firms that are being squeezed by soaring office rents, said Mr Li Hiaw Ho, executive director of CBRE Research.

Singapore's strong economy and appealing business environment have prompted many companies to start a new business or expand their existing operations, he said.

But this comes at a time when office space is in acute short supply, thus driving up office rents and values continuously over the last year.

'While multinational corporations, especially the banking and financial institutions, seek the prestige of prime office locations and are willing to pay a premium for it, small and medium- sized companies are feeling the pinch,' said Mr Li.

'To ease their expenditure on rents and with their options running out, some companies have creatively sought alternative spaces such as shophouses.' The types of firms that use shophouses range from creative agencies and architectural practices to recruitment companies and financial advisers, he added.

But with more firms turning to shophouses as an substitute for offices, the cost of this space is starting to increase, according to CBRE data.

A row of eight shophouses in Telok Ayer Street sold for $18.6 million in November 2005. In March this year, they changed hands again - for almost double the price, at $35 million.

In Tras Street, four units with a total strata area of 6,311 sq ft were sold en bloc for $7.7 million in November last year. But two months ago, a single 3,618 sq ft unit right across the road managed to fetch $9.42 million.

Rents are also on the rise. In the prime shophouse areas downtown - including Tras Street, Boon Tat Street, Amoy Street and Telok Ayer - current asking rents are between $5 and $6 per sq ft (psf) a month, said CBRE.

This has doubled from the beginning of the year, it added.

In the fringe areas, such as Beach Road, monthly rents are also up, from $2 to $3 psf earlier this year to between $3 and $5 psf currently.

However, Mr Li notes that while the rises seem 'hefty', the rents are 'reasonable considering the prime location'. Prime office buildings are now asking about $12 psf per month in the Central Business District, and $6 to $8 psf in the fringe areas.

'For the same amount of space, companies renting shophouses are paying about 50 to 60 per cent less in rental compared to a prime office building,' he said. 'This is extremely attractive, especially for small or medium-sized companies which are able to operate without the glossy facade and facilities of a prime office building.'

Such facilities include security features and reserved parking lots. But 'the savings in rents and building maintenance often more than make up for it', added Mr Li.