Demand for office space buoys up prices of shophouses

Straits Times - March 13, 2007

Demand for office space buoys up prices of shophouses

Firms are turning to cheaper option amid supply crunch and escalating rent
By: Fiona Chan

DTZ, which auctions shophouses regularly, said it has seen up to 20 per cent more shophouses being
put up for sale in the last six to nine months. A row of shophouses in Serangoon Road was reportedly
bought for $4.6 million and resold for $5.2 million within months. The same row is said to be on sale
now for $10 million.

THE current spike in office rents is spilling over to a less common type of commercial space:
shophouses. As firms scramble for affordable offices amid an acute supply crunch, some are turning to
shophouses as a cheaper alternative.

This is boosting demand and prices of these properties and attracting more investor interest
in them, market players told The Straits Times.

Sources said some savvy buyers have even “flipped” shophouses for a quick buck.
DTZ Debenham Tie Leung, which auctions shophouses regularly, said it has seen up to 20
per cent more shophouses being put up for sale in the last six to nine months.
Asking prices have also gone up by 10 to 40 per cent, said DTZ director of auctions and
investments Shaun Poh.

Also, Colliers International said eight shophouses were sold at its auctions in the fourth
quarter of last year. In contrast, it sold only two in each of the previous two quarters and
none at all in the first quarter.

“There is renewed interest in shophouses partly because a lot of office users are being
priced out of the central areas,” Mr Poh said.
Islandwide office rents rose by 20 per cent between October and December last year, led by
a 62 per cent increase in prime office rents.

This is stirring excitement in the commercial shophouse market as owners start enjoying
higher returns for their upper floors. In the past, such shophouses banked mainly on the
rentals drawn by their ground floors, which are in demand from retailers or restaurants. But
the upper floors, slated for office use, were often left empty due to a shortage of tenants.

However, shophouse investors such as Mr Kishore Buxani are now seeing keen interest in
the upper floors from small-office users.
“Usually when I buy a shophouse I ignore the upper levels. This was until about six months
ago,” said Mr Buxani, a director of property investment firm Buxani Group. He has been
investing in shophouses since 2000 and now owns more than 10 of them.
He said that since the middle of last year, rents on the second floor of his shophouses have
mostly doubled to $2.50 or $3 per sq ft (psf), from $1 or $1.50 previously.

An Amoy Street shophouse which was asking for $2 psf for its second level six months ago,
is now going for $3 to $3.50 psf, he said. A Grade B unit along Cecil Street is asking for
$4.50 to $5.50 psf on average.

However, although shophouse prices have increased alongside their rents, Mr Buxani
believes they remain good investments. With only 5,600 in Singapore, they are in short
supply. “Depending on the location, their prices are still 20 to 30 per cent below their peaks,”
he said.

DTZ’s Mr Poh said shophouses in Boat Quay and Telok Ayer are the most prime, but
demand is also strong in areas ranging from Middle Road to Little India.
Not all shophouse buyers are investors, though. Some are owner-occupiers who would
rather buy their own office space than rent, said Jones Lang LaSalle’s head of auction and
sales, Ms Mok Sze Sze. “Shophouses are self-contained and provide flexible hours for air-
conditioning, which may save on electricity costs if you work longer hours,” she said.

The rise in shophouse prices has prompted some buyers to resell them in a short time for a
quick profit. A row of shophouses in Serangoon Road was reportedly bought for $4.6 million
and resold for $5.2 million within months. The same row is said to be on sale now for $10
million.

fiochan@sph.com.sg

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