Shophouse market sentiment turned cautious in 2H2022: Knight Frank

The shophouse market in Singapore witnessed a contraction in activity during the second half of the year, in 2022. According to data compiled by Knight Frank Singapore, the transaction value for shophouses witnessed a 35.6% decline, when compared to the first half of the year. Mary Sai, executive director of capital markets at Knight Frank Singapore, believes that the decreasing activity in the market is attributed to the sudden surge in interest rates.

Out of the shophouses that exchanged hands in the second half of 2022, 80.6% of them were freehold properties. Notably, these properties had an average price of $4,802 psf on the land area.

While the total sales value was $625.2 million, the value of leasehold shophouses that transacted during the same period was $155.3 million. The average price of these was $4,275 psf on the land area.

One of the major shophouse deals of the second half of the year was the acquisition of 11 shophouses along Lavender Street by Hafary Holdings. This was a 99-year leasehold, and was worth $71.3 million.

The district that witnessed the highest activity during the period was District 8, with 26 shophouses worth $182.5 million being transacted. The sale of a row of five conservation shophouses along Jalan Besar was the top transaction in District 8, worth $40 million.

Mary Sai observes that with rising interest rates, shophouse owners Senja Close EC have been inclined to hold their assets for longer time periods in order to have a higher rate of appreciation. This, she believes, might be one of the contributing factors for the decrease in transaction activity during the second half of the year.

Looking ahead, private sources of wealth such as family offices and high-net-worth investors from around the region are expected to form the bulk of the purchasers. Additionally, Singaporean locals too seem to be exploring shophouse opportunities. While transaction activity in the sector is likely to be in the “more moderate range” of $1.3-$1.5 billion, Mary Sai expects Districts 7 and 8 to continue to attract investors. These areas, with their potential for gentrification and tourist activity, may offer value purchases at more affordable levels when compared to Districts 1 and 2.