We are about to turn to yet another chapter of our life as the new year is just around the corner. This year has seen quite a lot of fluctuations and property price movements as the world went through a roller coaster of events.
Where we were surfacing from the pandemic, the global conflicts, rising inflation and the Russia-Ukraine war threw us off balance. The property industry saw yet another cooling measure in late 2022 to balance the demand and supply of properties.
In light of current cooling measures, residential property buyers have diverted to the commercial segment. That is because most of the cooling measures have a direct impact on the residential segment.
As such, at the end of the year, which property segment is showing the most promise? If you are an investor, will you go for commercial properties? If yes, which ones?
We reviewed the commercial segments, and for 2023, 2 commercial property segments look most promising to us.
- Shophouse property segment
- How shophouses performed in 2022?
- What’s shophouses’ outlook for 2023?
- Hotel property segment
- How hotels performed in 2022?
- What’s hotels’ outlook for 2023?
- Key points to watch out
1. Shophouse property segment
Over the years, the average price of shophouse land per square foot (psf) has steadily increased, making them a valuable asset to many real estate portfolios. Whether you’re looking to add character to your home or to make a sound investment, shophouses are a great option.
Their limited availability has made them even more lucrative to investors. This is because the supply of shophouses is restricted. So, whatever demand is pouring in is just adding to its demand value.
Besides, most people who buy shophouses plan to build a legacy estate with it. They are unlikely to sell it anytime soon. So, one shophouse selling is one less supply in the market. In the coming years, there may be only a handful of shophouses left available to buy. This makes them one of the most attractive capital-appreciating properties with high rental value.
How shophouses performed in 2022?
In 2022, a total of 182 shophouse transactions took place. Even with the volatile global economy, shophouses continue to maintain their momentum, reaching their highest peak in June.
Though the fourth quarter shows a relative drop in transactions compared to the prior quarters, this property segment is always high in demand, and its overall performance throughout this critical year has been healthy.
If you look at the prices, you will see how the prices have hiked up in recent months. However, the price of the shophouses depends on their strategic location, benefits, usage allowance and more.
What’s shophouses’ outlook for 2023?
It’s an opportunity you can’t miss!
Shophouses turned out to have a healthy performance even in a challenging year like 2022. Hence, in 2023 their performance is expected to be firm and bullish. According to statistics, there are only 6,760 shophouses in Singapore.
Among them, shophouses that are zoned fully commercial are eligible for foreigners to purchase. They account for almost half of the shophouses in Singapore. Moreover, both Singaporeans and foreigners can get an exemption from Additional Buyer’s Stamp Duty (ABSD) if they buy shophouses without any residential component. So, the demand for such shophouses is immense.
The remaining shophouses, approximately 3,500, are mostly from inheritances, so they are unlikely to sell. So, only about 1,000 shophouses are currently available whose owners can be motivated to sell.
But take note that shophouses are a huge attraction to foreigners. Each shophouse is an art, they are unique to their nature and have a story to tell. Everyone wants a slice of this rare heritage. So, wealthy foreigners, new investors and family offices are highly motivated to acquire the available shophouses in full cash payments.
They won’t be affected by the escalating high interest as they will need only partial (if any) finance clearing to purchase the shophouses. And after they purchase these rare gems, they are unlikely to sell. This rare and highly sought-after property will be part of their long-term plan to add to their portfolio. If anything, they would look to buy more, not sell!
As such, shophouses’ supply is not only limited but shrinking with each passing day. If you like to own or invest in shophouses, the time is now before someone else grabs the last pieces available.
2. Hotel property segment
The second lucrative property segment, in our opinion, in 2023 is the hotel industry. As international borders fully reopened in late April 2022, hotels in Singapore experienced a rapid bounce-back in performance.
Despite not having the key mainland Chinese market, Singapore saw an influx of international visitors from neighbouring countries such as Indonesia and Malaysia and from India. With China’s opening, the influx of visitors will make the hotel industry even more bullish, demanding more supply.
How hotels performed in 2022?
Singapore hotels had a raving performance in 2022, with RevPAR performance doubling in the year to July 2022, achieving a 20% year-on-year increase in occupancy rate. With the easing of restrictions on international arrivals in the second quarter, major domestic hospitality trusts and Reits with lodging assets in Singapore reported strong mid-year results, demonstrating the swift rebound in hotel performance.
According to The Straits Times, the hotel occupancy rate has increased from 78% in the first quarter of 2022 to 84% in the third quarter of 2022. As per Singapore Tourism Analytics, the country is experiencing 14 years high in hotel rates, hitting an average hotel room rate of S$280 per night as of October 2022.
What’s hotels’ outlook for 2023?
The latest hotel data this year counts for tourists excluding China. Before the pandemic, in 2019, China tourists made up 20% of all international tourists coming to Singapore. Hence, when China visitors start coming, the demand for hotel rooms will soar even more because tourists from China have been the highest volume for Singapore since 2012.
The table below from URA shows how the hotel industry is gearing up in the coming years to welcome the increasing number of tourists. A total of 8,835 hotel rooms are in construction, out of which 1,366 is expected to be completed in 2022. The following year, 2023, will see a further uptick in hotel rooms at 2,890, which is more than twice the amount that has been constructed in 2022.
Supply in the pipeline for Hotel Rooms by development status and expected year of completion as at Q220221
Big brands, including Voco, Hilton, Independent, Tribute, Vibe Hotels and Pullman, have shown confidence in hotel construction in 2022, as these were some of the titular brands to have laucnhed new hotels this year.
The following year will also see continued demand for hotel construction as Mondrian, Independent, Pan Pacific, Edition, The Standard and Banyan Tree are set to launch hotels in the upcoming year.
However, this supply of hotel rooms won’t be enough to accommodate the influx of tourists, especially after China visitors start pouring in. So, 2023 will be seeing a high demand for hotel rooms while supply is trying to catch up. This will also escalate hotel room rates even higher
Key points to watch out!
1. Shophouses are limited, and prices will remain firm in the upcoming years
2. Due to the shortage of hotel rooms, shophouses converted into hotels will have even more demand.
3. Hotel supply will not catch up with the influx of visitors estimated to be coming in 2023.
4. With China’s opening, we are very bullish on the hotel segment.
Want to know the right investment for you?
I am Tyson Yuk, the founder of the blog Commercial Realty Singapore. With over 15 years of experience, my forte is in the commercial and luxury property line. With my blog, I aim to educate, advise and share tips and tricks with potential property buyers and investors to help them make successful property ventures.
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