Record Price For Coffee Shop Means Higher Rents

Source : The Straits Times, Dec 5, 2007

Stallholders living with lower margins as soaring rates, competition bite

THE record price recently fetched for a Jurong East coffee shop is putting pressure on its stallholders in the form of rocketing rents.

Since new owner Koufu paid $12 million for the large property two months ago, rents at the VariNice coffee shop at Jurong East Street 132 have shot up.

They are now close to those at food courts in glitzy malls, said property experts.

Stallholders grappling with higher rents also lost a week's business when VariNice was closed for renovations following Koufu's purchase.

The 4,700 sq ft coffee shop is now clean and sparkling, but tenants say the facelift has yet to generate more business.

Some have raised food prices to cover the rent hike, but others are afraid of driving customers to the competition. There are four other coffee shops in the vicinity.

VariNice has 13 lots. Some are taken up by a single stall paying about $6,000 a month. Other lots are split between two operators, each paying about $3,000. This gives Koufu an annual rental yield of 7 per cent to 8 per cent.

The rents compare with $5,000 to $8,000 for a typical food stall in a 'good mall' such as Marina Square, said Mr Ku Swee Yong, director of marketing and business development at Savills Singapore.

Madam Ren Huai Zhen, who runs a zi char - cooked food - stall at VariNice, is now paying $6,000 a month, $1,000 more than before.

'Everything became more expensive, except the price of our food,' she told The Straits Times yesterday.

'We can survive, but our profit margins are low.'

Mr Xue Mingshou, who runs the Pin Wei Fishball Noodles stall, said he raised the prices of some dishes but had to lower them again when customers did not bite.

'Competition here is very stiff,' he said. 'If I can break even, it's very good already.' His rent has gone up by $400 to $3,200 a month.

Mr Xue shares his lot with a duck rice stall, which pays $3,000 in rent and sells about $700 worth of dishes a day.

'Your stall must sell really nice food in order to survive. There are at least 50 other stalls in the area,' said the owner, who wanted to be known only as Mr Tan. But he called the rent 'reasonable'.

Indeed, just next door to VariNice is an S-11 coffee shop, where rents are $7,000 to $8,000 a month.

Property agents say rents at prime coffee shops have escalated in recent months, and it is not uncommon for them to rival those in air-conditioned food courts.

'In the prime areas such as Geylang, Toa Payoh, Bishan and Bukit Batok, fixed rents can go up to $6,000 or $7,000 a month,' said Mr Eric Cheng of HSR property group.

Some coffee-shop chains even collect rent on a profit-

sharing basis, which means base rents could be $1,000 a month but stallholders may end up paying five figures if sales are good, he added.

On average, however, monthly coffee-shop rents range from $4,500 to $7,500. In low-end properties in the outskirts, they can go as low as $1,200, said Mr Cheng.

Clearly, there are limits to how much coffee-shop rents can be raised before stallholders are forced to pack it in. This may be why more expensive coffee shops on the market - three, in Yishun, Tampines and Bukit Batok, are said to be going for $15 million each - have yet to find takers.

So for VariNice in Jurong East to charge $6,000 in rent 'is not excessive', said Mr Ku of Savills. 'Foot traffic is very high, and it is near an interchange MRT station, a library and business parks.'

NOT STOPPING TO REST
'Competition is very stiff. There are five coffee shops nearby. I don't even dare to rest for a day because I would lose $400 in sales. At first, we thought there would be the same number of customers after the renovation. But instead, there are now fewer customers due to the higher prices of the food.' - MR XUE MINGSHOU, who runs the Pin Wei Fishball Noodles stall

FEELING THE PINCH
'Everything became more expensive, except the price of our food.' - MADAM REN HUAI ZHEN, who runs a zi char stall

'Your stall must sell really nice food in order to survive. There are at least 50 other stalls in this area.' - MR TAN, who runs a duck rice stall