There were fewer commercial shophouse sales in the first quarter of 2023, while the shophouse rental market remained active

Shophouse sales in commercial shops were down in the 1Q2023 period in the midst of cautious sentiments because of the high interest rates according to the 1Q2023 report of PropNex Research. In reference to caveats the report states that 28 shops were sold in the period. This was less than the 35 deals that were recorded in the 4Q2022. Shophouses that were freehold accounted for the largest portion of the 1Q2023’s volume of sales.

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Based on a yo-y scale the number of transactions during 1Q2023 was downwards to 46% in comparison to the 53 deals that were recorded in the 1Q2022. In conjunction with the decreased amount of sales, the retail value of transactions was $278 million in 1Q2023, which was an 11.7% drop from the prior quarter. This was the lowest quarterly total of values of sales since 3Q2020 where the value of $181 million were completed. In the 28 shophouse transactions in the last quarter, more than 80% were valued at or above $5 million. In comparison to the previous quarter the value of deals that were completed in the first quarter of 2023 was down to 40.6%.

District 8 which encompasses areas such as the Little India and Jalan Besar areas, was the site of the highest number of shophouse transactions in the in the last quarter. seven units have been sold within the district with the total amounting to $113 million. The figure was the equivalent of 41% of total value of shophouse sales during the 1Q2023.

However the activity of transactions in the prime Districts 1 and 2 was less active there were only two and three shophouses selling in the two districts, respectively. PropNex says that the lower number of deals to a smaller number of shophouses for sale in these districts.

When the cost of a unit for land surface was considered, growth was uneven across districts during 1Q2023 as compared to 4Q2022. This is due in part to the smaller number of transactions that were caveated, claims PropNex. Additionally, market research suggests that many deals, especially located in the prime districts 1 and 2 were not caved. A large portion of these purchases that were not caveated was done by foreigners as well as entities, PropNex adds.

The average unit price for land areas of leasehold freehold and 999-year leasehold shophouses decreased by 20% Q-o-Q for Districts 2 and 1, and by 14% between Districts 14, 15 and 14, in 1Q2023. The psf rates in Districts 7, 8 and 9 shophouses built on land areas increased by around 8% per month during 1Q2023, whereas remainder of Singapore was hit with an 84.3% q-o-q average unit price increase.

However, PropNex says 99-year leasehold shophouses located within Districts 1, 2 and 3 have seen the average price for land 1Q2023 decrease by 16% per month, whereas district prices within Districts 7 and 8 increased rapidly by nearly 26%. There were no deals that had been caveated for 99-year leasehold shophouses within Districts 14, 15 as well as the remainder of Singapore in 1Q2023.

For the shophouse rental sector, the activity was steady with the growth of tourism, according to PropNex. In the first period, 886 rental contracts were signed, which is a slight decline from the 904 rentals that were signed in 4Q2022. The total rent amount in 1Q2023 was $9.54 million. This is a record for the value of quarterly contracts that were signed on the market of shophouse leases.

Shophouse rentals increased steadily throughout Q12023. Median rental of $5.98 per month. That’s which is up from $5.89 per month psf in the 4Q2022 period.

Moving forward, PropNex expects interest in commercial shophouses, particularly among investors like funds, family offices and wealthy individuals and high-net-worth individuals, to continue to be strong in the face of global economic uncertainty as well as a hike in buyer’s stamp duties that was announced in Budget 2023. However, rising interest rates are likely to slow sales as investors consider the effects of costs of borrowing and a hefty price for net returns.

However, PropNex anticipates prices to remain strong this year due to the limited stock and high demand. Additionally, sales at shops levels in fringe districts remain up, due to the greater quantity of inventory and the more affordable entry costs in these regions.

In the rental market, rents for shophouses are predicted to increase further by 2023. This is due to the steady demand from occupants, backed by the growth of the retail and tourism industries, and the limited supply of rental shophouses.