Why Singapore’s retailers are shunning the shophouse

Shophouse prices to drop by 15% in 2H14.

Singapore’s retailers and F&B operators are shunning the shophouse for other locations, as the niche shophouse segment saw a sales volume decline in 1H14.

According to a report by Knight Frank, Transaction volume of shophouses continued to fall further in 1H 2014, totalling 40 transactions compared to 49 transactions in 2H 2013.

“The attractiveness of shophouses is starting to wane among Food & Beverage and retail operators, as the F&B and Retail business becomes more competitive over the recent years with more local and foreign players joining the market. Hiring difficulty and manpower crunch also inhibited several business expansion plans thus affecting somewhat the demand for retail space. Nonetheless, there are some districts that see sustained demand or rising popularity from more prospective investors,” noted the report.

Here’s more from Knight Frank:

Some shophouse owners will still hold on to their assets, betting on the limited supply of such unique properties, while buyers are waiting at the sidelines.

Some retail operators opted for leasing of retail space to operate their business instead of property purchase which requires initial high capital outlay.

As such, prices of shophouses are expected to see a decline of 10 to 15 per cent in the next 6 to 8 months. In addition, the ongoing TDSR framework may add downward pressure to price and sales volume of shophouses in the short term for at least one year. 

The average transacted price of freehold shophouses fell 10.8 per cent in 1H 2014 compared to 2H 2013. A significant proportion of the shophouses sold in both periods was in District 8 or typically Little India area, despite security concerns following the riot in December 2013. There were 13 transactions in 1H 2014 compared to 11 transactions in 2H 2013.

Prices of leasehold shophouses fell more drastically by 23 per cent in 1H 2014 to an average of $4,717 per sq ft on land area, compared to $6,163 per sq ft per land area in 2H 2013. However, the high average price in 2H 2013 was solely attributed to 2 transactions in Duxton Hill ($8,779 per sq ft on land area) and Peck Seah Street ($7,818 per sq ft on land area).