Shophouse market sentiment turned cautious in 2H2022: Knight Frank

Shophouse activity in Singapore saw a slowdown in 2H2022, following record-breaking performances in the prior half-year. Knight Frank Singapore data compiled in a market report indicates that 67 shophouses changed hands, with the deals amounting to about $625.2 million. This was 35.6% lower than 1H2022 and 38.7% lower than the same period in 2021.

Mary Sai, executive director of capital markets at Knight Frank Singapore, attributes the contraction to the recent increase in interest rates. “As interest rates surpassed the yield from recurring shophouse income, institutional investors began to shy away from the asset class,” she remarks.

Of the 67 shophouses transacted in 2H2022, 54 units were freehold. This accounted for 80.6% of the transactions within the half-year and was close to half that of each half year period since 2021. The average price per square foot on the land area was $4,802.

The total value of leasehold properties transacted during 2H2022 amounted to $155.3 million, a 34.6% drop from 1H2022 and 63.8% lower than the same period the year before. The average price per square foot came in at $4,275.

Notable shophouse deals included the acquisition of 11 units along Lavender Street for $71.3 million by Hafary Holdings, as well as the sale of a row of five conservation shophouses along Jalan Besar for $40 million by 8M Real Estate in 1H2022. There was also the sale of a shophouse unit at 35 Rowell Road for $4.9 million in October – a 20% gain from the sale of the same unit in June.

Throughout the whole of last year, District 8 saw the highest number of shophouse transactions with 26 units changing hands for a total value of $182.5 million.

Mary Sai anticipates investors to take an increasingly longer term view with shophouses, leading to price appreciation over time. Private capital investors, high-net-worth individuals, as well as family offices from regional countries are expected to Tengah Plantation EC form the bulk of investors, Sai remarks. Locals in Singapore are also looking for potential opportunities.

Despite this, Knight Frank Singapore is expecting total shophouse sales value in 2021 to come in at a “more moderate range” of $1.3 billion to $1.5 billion. Shophouses in Districts 7 and 8 are likely to remain popular among investors, due to the potential of appreciation stemming from the gentrification of city fringe areas.