From build-to-order public flats, mass-market condominiums, integrated projects and high-end condominiums, Singaporeans aren’t afraid to dabble in the different tiers of the residential property market. However, many are hesitant when it comes to treading into the unknown realm of commercial properties in Singapore.
Apart from potentially giving higher yields, commercial properties aren’t subjected to Additional Buyer’s Stamp Duty (ABSD) unlike residential properties. This article aims to introduce the different types of commercial properties that are available to investors. We will look at Office spaces, Retail spaces, Shophouses and Medical suites.
Let’s take a closer look at each of them.
Most of us work in an office. However, how many of us would actually consider investing in an office space? If we look at the trend set from 2013 till now, based on the URA Property Price Index for Office spaces, we can see a steady upwards trend in the prices of commercial properties.
With the government’s plan to decentralise commercial activities away from central areas and to spread office jobs outside of the central precinct, more commercial projects are now being built in estates such as the Jurong and Woodlands regions. Based on Chesterton Singapore’s estimates, about 32% (2.7million sqf) of upcoming office supply from 2014 to 2018 will be strata-title (strata-title refers to individual titles issued to units of houses, apartments or office jointly developed within a development that shares common facilities) That mean investors would be able to invest in smaller, more affordable individual units.
Various tiers of office space
Similar to residential properties that have different tiers (ie: mass-market, mid-end and high-end), Office spaces are also classified among Grade A, B and C office spaces.
According to the (office), demand for office spaces in the CBD was boosted by the information, communication and technology-based industries. It expects the average monthly gross rental for premium grade space in the Raffles Place area to increase by about 5% – 10% in 2015, while overall rents for CBD grade A & B office spaces to rise by up to 5% for the entire year. The same report expects the strong demand for quality office spaces to continue appealing to investors as Singapore’s status as a global business hub fosters growth in rent and capital values for office properties.
As the number of businesses in Singapore increase, it would be natural to expect that there would be smaller start-ups or businesses that would want to have a quality space in a regional centre. Seen as a viable alternatives for the central business district, these regional centres are located in Woodlands (north region), Tampines (east region) and Jurong (west region) and would offer businesses a lower rent. Strata-title offices in these areas may offer investors one of the better opportunities to acquire yield accretive investments.
An example of an upcoming office development in a regional centre would be Woods Square at Woodlands Regional Centre. This integrated office development with retail and F&B, developed by Far East Organization, would have strata-title offices and a childcare centre available for investors to consider investing in.
Since the first strata-title residential and commercial building, People’s Park Complex, built in 1970, Singapore has had over 55 strata-titled retail malls. According to Ms Lee Lay Keng, regional research head at DTZ, of the 5.5million sq ft of retail space expected to come onstream from 1st half 2014 to 2019, only about 10% of it would be strata-title.
One of the reasons for this could be because developers typically prefer mall ownership to be controlled by one entity, who would then be able to exercise better control over the retail mix of tenants operating in the mall.
In recent years, we have seen the proliferation of suburban retail malls that are big and attractive destinations of their own. Gone are the days where a person would need to travel all the way to Orchard Road to buy what he or she needs. People do their shopping now in malls that are near their homes. Investors who are able to invest in these retail spaces, particularly in areas that they are familiar with, could ride on this trend.
Though these strata-titled malls may not have the ability to provide a good mix of tenants compared to those managed by professionals REIT managers, some of these malls have their own identity. Examples of such strata malls include Lucky Plaza (frequented by Filipinos), Golden Mile (frequented by Thais) and Queensway Shopping Centre (known for sports shoes). To curb any bad reputation for the mall through unsavoury tenants, developers have started to introduce restrictive covenants for its commercial development to protect the collective interests of other investors. Such measures ensure that the quality of the mall is maintained in the long run.
Moreover, URA in March 2013, set the minimum average size of retail units at 50 sqm or 538 sqf to ensure the sustainability of retail spaces and in the process preventing a “mickey mouse” (units that are built too small) phenomenon in the retail scene.
Shopping along Chinatown, eating at little India or having a drink or two at Duxton hill, shophouses are a familiar sight despite their rarity. These buildings, which are highly sought after by investors, are of historical architecture, rich heritage and have a rustic charm compared to the modern building usually surrounding it.
These buildings can be used for both business and living. According to URA website, these buildings were constructed between 1840s to 1960s, are generally two to three storeys high, built in continuous blocks with common party walls, also form the bulk of the gazetted conservation buildings.
Apart from these privately maintained shophouses, there are also HDB maintained shophouses. The latter are even rarer than the privately maintained shophouses. Given the rarity of the properties, a higher premium is maintained in this asset class, making it less affordable for investors with a smaller budget to invest.
With a target population projection of 6.9 million by 2030, as set out in the population white paper 2013, our population is set to grow and age steadily in the coming years to come. These mean a greater demand for healthcare needs. Furthermore, growing affluence from our neighbouring nations also heightens the demand for top quality medical services that Singapore has become synonymous for.
To cater to this need and growth for medical services, the master plan for Health City Novena was introduced in August 2013. Health City Novena will anchor the Regional Health System (RHS) for the central region and becoming a key component under MOH’s capacity building strategy to develop medical excellence and provide more accessible and quality care to Singaporeans.
How Does All These Translate Into Investment Opportunities?
First-mover advantage is important when it comes to property investing. As a region starts developing, early investors would tend to see a greater appreciation on their initial investments, and would naturally be able to reap the best gains, even as other similar developments start coming into the market. This applies to commercial property as well.
As with all types of investments, do note that there would be a risk-return tradeoff. Since the area will be new, and possibly, not well tested for the type of development it is building, investors would need ensure that they have the financial muscle to hold on to their asset for a long enough period of time to reap the full gains of their investment.
If you are keen to consider investing in commercial properties as an alternative to residential properties, you can consider the upcoming office launch at Woods Square. With Woodlands already being identified as one of three regional centres in Singapore (along with Tampines and Jurong), the potential upside for office development in the area is good.
While the price pertaining to this launch have not been released yet, we believe it would be competitively priced so as to attract the interest of investors in Singapore.