Prime units offer yields of 3.5%-5% but they don't come cheap, especially in Raffles Place, Orchard Road
SMALL INVESTORS OR RETAIL OPERATORS looking for strata-titled shops in the Orchard Road belt can check out Far East Plaza (above). Some owners of prime units there want more than $10,000 psf, but units on other floors can be had for $4,250 psf. -- BH FILE PHOTO
SHOPPING, already a national pastime, is becoming even more popular, if rising retail rents and capital values are anything to go by.
Not only are the rents and values in the traditional shopping belt of Orchard Road on the up and up, but those in the business district of Raffles Place have also risen considerably.
This is good news if you are a landlord. For those aspiring to become one, shop units are an option if you have at least $500,000 lying idle in the bank.
Property consultants say retail rents in Singapore are on the rise, with double-digit growth expected for prime shop units in Orchard Road and Raffles Place.
A recent study by property consultancy Cushman & Wakefield showed that the capital values of shops in Raffles Place have risen by 23 per cent in the past two years.
Shops at The Arcade, a 77-year leasehold property in Raffles Place, were sold recently at about $1.5 million to $2.65 million, which works out to between $4,900 per sq ft (psf) and $5,300 psf.
And prices are still climbing, with asking levels now hovering at between $6,000 psf and $7,000 psf, depending on the size of the shop and its location within the building, said Mr Donald Han, the managing director of Cushman & Wakefield in Singapore.
However, before you rush out to buy one as an investment, you should know that there are very few retail units available for sale to individuals.
And those in popular malls do not come cheap.
Commercial properties are typically traded on an en bloc basis to institutional or investment companies. In any case, most are beyond the financial reach of individual or smaller investors.
'Less than 5 per cent of the commercial stock here are strata-titled,' said Mr Han. A strata title gives you ownership of a small piece of a bigger property. As a result, many small companies or retail operators tend to buy strata-titled shops for their own use instead of renting one.
Strata-titled retail properties can be found in buildings such as The Arcade, International Plaza right next to the Tanjong Pagar MRT station, and Tanglin Shopping Centre in Tanglin.
In the Orchard Road area, strata-titled retail properties include Far East Plaza, Lucky Plaza, Orchard Plaza and Orchard Shopping Centre.
Shop units typically range in size from just 200 sq ft to as much as 1,000 sq ft, with values starting from $500,000, said Mr Han.
Net yields can range from 3.5 per cent to as much as 5 per cent a year, depending on the property's tenure, location, age, tenant mix, whether it is facing the road or the main concourse and so on, he said.
Some buyers might be able to buy a strata-titled unit with an existing tenancy. But shop units with a low rental rate and a long tenancy term might not fetch market prices. In contrast, a unit that is for sale with vacant possession might be able to achieve premium pricing.
Mr Han said vacant units attract both owner-occupiers as well as investors who wish to lease out the space at competitive rates, particularly in a rising market. At Far East Plaza, asking prices have increased significantly, in line with rising rents, said an agent familiar with the sale transactions there.
The highest-priced deal to date was done recently at slightly over $11,000 psf for a 269 sq ft shop, which works out to about $2.96 million. An investor bought the shop and is leasing it out to a shoe retailing business, the agent said.
Current asking prices for shops at Far East Plaza start from as low as $4,250 psf for a fifth-floor unit, which works out to around $850,000.
But a few owners of prime units there are asking for more than $10,000 psf; last year, such units could be had for $7,000 psf to $8,000 psf, the agent added.
Tips on buying a shop
# Get a reputable agent to search for the right property in the right location. Retail units are scarce and hard to come by, and not all agents have stock.
# Get a bank's valuation first and secure financing.
# Check with the management corporation to see:
1) If the seller still owes the corporation any maintenance fees; and
2) If there are upgrading plans as the new owner might have to bear the costs.
# Verify what uses the premises can be put to. For instance, for food and beverage outlets or restaurants, you need to get approval from the relevant authorities. Know what you're buying.
# If the unit is tenanted, get the tenancy agreement, and check that deposits are in place and tenancy terms protecting the landlord's interests are watertight.
# Try to negotiate for a few units within the development, so that you can get a better feel for the price and perhaps work out a better deal.
# Get an experienced lawyer to advise you on specific issues. For example, you will have to pay 7 per cent in good and services tax (GST) if you buy from a GST-registered vendor. One way you can offset this is by incorporating your own GST-registered company.
# Get an estimate of the fit-out costs. If the unit requires renovation, make sure the purchase price and renovation budget combined are within your limits.
Copyright : Cushman & Wakefield
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