Shophouse market sees lower transactions and rents in 3Q2023: PropNex
In 3Q2023, the commercial shophouse market saw lower transactions and rents compared to the previous quarter. A total of 38 shophouse transactions were recorded based on caveats lodged which comes off a high base in 2Q2023. Transaction value fell 19% q-o-q to $350.8 million.On a y-o-y basis, shophouse deals were up 5.6% from the 36 deals registered in 3Q2022, while transaction value was 2.3% higher.
The number of shophouse deals for the first nine months of the year totalled 117 transactions worth $1.1 billion. This is compared to 155 deals with a total value of $1.3 billion seen over the same period in 2022. Most of the shophouse deals in 3Q2023 were for fringe areas such as Districts 8 and 14, with District 8, which includes Little India and Jalan Besar, seeing the most transactions.
The single largest shophouse transaction of 3Q2023 was a freehold property along Cheong Chin Nam Road in District 21 sold for $41 million or $3,432 psf. In terms of prices, freehold and 999-year leasehold shophouses saw an average unit price on the land area in Districts 7 and 8 grow 7.3% q-o-q to $5,679 psf, while in Districts 14 and 15, prices plunged 39.4% q-o-q to $2,375 psf.
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Meanwhile, median shophouse rents declined for the first time since 4Q2021, slipping 3.9% q-o-q to $5.97 psf pm in 3Q2023. However, leasing volume remained steady, with 926 rental contracts valued at $9.2 million signed last quarter.
PropNex believes the shophouse market in 2023 is on track to underperform the stellar sales achieved in 2022 and 2021 due to the limited selection of choice shophouses available for sale. Nonetheless, investment appetite for shophouses should remain “fairly resilient” given the scarcity and defensive nature of such assets.
The firm predicts full-year shophouse rental transactions this year to be on par with or possibly exceed 2022’s performance of 3,589 contracts worth $34 million. This is attributed to the ongoing tourism recovery and the growth in the services sector which is expected to support the shophouse rental market.
In sum, PropNex anticipates a more subdued shophouse market performance in 2023 as well as a decrease in transaction volume. However, it expects steady occupier demand for shophouses due to its scarcity and defensive nature, along with the recovery of the tourism and services sector, to sustain the market despite softer sentiment.