Singapore's shophouses spark investment boom

Domestic and international investors are keen for a slice of the city-state's history which has the potential to deliver solid returns.

December 22, 2016

Singapore’s historic shophouses have sparked a buying frenzy among domestic and international investors who are keen for a slice of the city-state’s history with the potential to deliver solid returns.

Shophouse sales more than tripled during 2016 – rising from S$59.9 million in the first quarter to S$209.3 million in the third quarter, attracting attention from boutique funds, family offices and foreign high-net-worth individuals looking for alternative investment asset classes.

Dr Chua Yang Liang, Head of Research for JLL Southeast Asia, says that while shophouses may be humble in appearance, they are supported by strong economic fundamentals.

“Shophouses are attractive to investors for their heritage value, as well as the potential for capital appreciation, which is supported by their limited and static supply,” he explains.

The new owners are also reshaping the interiors of the iconic heritage properties, which were built from the 19thcentury onwards, with modern architectural designs, which have attracted healthy rental demand from food and beverage (F&B) and retail operators as well as start-ups and creative businesses.

A mixed bag of tenants

The flurry of activity around shophouses has led to steady rental demand and a steady income stream for investors – for those both on the ground and upper floors.

Dr Chua notes the two-to-three storey properties which have a narrow, sheltered frontage and often come with a courtyard, attract a wide variety of tenants. “Rents at shophouses are often less expensive than shopping malls in Singapore. Ground-floor shophouse premises are particularly popular with niche retailers. F&B operators benefit from street-front shop space and flexible operating hours,” he says.

For example, Aesop, Australia’s leading luxury skincare brand, sells its pampering treats from a shophouse on Club Street, while British pub grub specialist Oxwell and Co is resident on Ann Siang Road.

Apart from retailers and restaurants, Dr Chua says that shophouses also provide an alternative to the usual office space for rent. “Upper floor premises attract businesses in the creative fields such as architectural firms, interior designers and publishing houses, as well as startup companies. These are often cheaper than Grade A office space,” he observes.

In fact, co-working office space provider The Hub Singapore has converted a row of 10 heritage shophouses into shared spacesfor later-stage startups at Cuppage Terrace, Orchard Road.

Indeed, converting these spaces is proving to be a popular option with new tenants. “Investors are often presented with the opportunity to unlock the value of some of these older properties by expanding the floor area at the rear of the building, and especially through refurbishment,” Dr Chua says.

Another plus point for international investors is that unlike landed housing, there are no ownership restrictions for conservation shophouses.

Spanish tycoon Ricardo Peralta, CEO of Ventos, is a case in point. He has been buying up shophouses since late 2015. Among his recent purchases is a three-storey property with a roof terrace on Boon Tat Street for S$19 million.

A slice of Singapore’s architectural history

For all their financial appeal, Dr Chua also points out that investors who purchase conservation shophouses are getting their hands on a unique slice of Singapore’s history.

“Shophouses formed much of the pre-war urban fabric of Singapore’s old city center as well as that of several other parts of the island. Most of them were constructed between the 1840s and 1960s,” he says.

After Singapore’s independence in 1965, many of the traditional shophouses were destroyed to make way for new high-rise buildings. Fewer than 7,000 shophouses remainwith some conservation protection.

While heritage listing may be a challenge for some property developers, Singapore’s attempt to conserve its past by placing restrictions around development has resulted in some stunning refurbishments.

In October 2015, WOW Architects transformed its shophouse into a showcase of art and design, while others have developed splendid living spaces.

Singapore’s shophouses could not be more different to the glittering skyscrapers of the city-state’s skyline but for many investors their appeal lies in their uniqueness.