3 Main Types Of Commercial Properties To Invest In

By on April 20, 2013

As property fever hit astronomical levels in Singapore, every form of property seems to generate great investment interest. And with property cooling measures mainly targeted at residential properties, it will not be a surprise that you are considering to put your money into commercial properties.

Unless you are the General Manager of an MNC who is looking to invest in resorts, hotels or country clubs, the type of commercial property that you are looking to invest in will most probably fall into 3 main main types. Offices, retail space and shop houses. We leave out B1 and B2 industrial properties as they fall into a different category.

Offices

These are typical commercial office spaces meant to be used as offices. They also include SOHO and HDB shop houses. Some of the best know commercial properties include those in Suntec City and International Plaza.

A number of global organisations that set up headquarters in Singapore actually only rent a commercial office space for their operations. Corporate tenants also tend to sign up leases with a longer tenancy. So compared to residential property that may have a lease agreement of 1+1, you can expect to sign up a corporate tenants on 3+3 leases. This means 3 year with an option of an additional 3 years. You can expect organisations to have a higher budget or rental. But this does not mean that they will pay through their noses with pleasure for your office space. It just means that they are more willing to pay market price.

Suntec City

The drawback is that you will probably be subject to high maintenance fees. Someone has to maintain a high quality building and you have to pay for it. And as you can expect longer leases compared to residential properties, you can also expect longer vacancies should you run into an unfortunate situation where your client refuses to renew.

Some of the things to check for to evaluate whether an office would be a good investment are:

  • proximity to food centers, banks and MRT
  • ample parking space
  • floor level of the office
  • security at lobby
  • windows with good view
  • city or CBD area
  • layout that suits the requirements of the clientele you are targeting

Retail space

Acquiring a good retail space is not easy

If you have your eyes on retail space, remember the concept of “location location location”. Prime areas might cost you a liver, but it could very well be worth it. In our prospering economy and openness to foreign talent, you can expect the retail industry to perform well.

Retail space is a tricky business. Before investing in one, it will be recommended that you survey the human traffic at least 3 times on different days during different hours. Sometimes locations that look like sure winners can turn out to be a lemon. Other times, a bad looking location can turn out to be a winner.

For example, retail space near food outlets, supermarkets, departmental stores or walkways from MRT exit points can mean a high volume of traffic. Some locations that are not in proximity of any MRT stations mean that a lot of visitors drive. In this case, being located near carpark travelator points can be great.

Some of the well-know retail properties include Sim Lim Square and Lucky Plaza. When you have indeed secured a unit in a high traffic area, you can expect tenants to bid huge rental fees for the use of your space. As the business of retailers has a big focus on location, they simply cannot ignore a good space that is available for lease as they know they can generate huge revenue from huge traffic with proven products.

Things to check for to evaluate whether a retail unit would be a winner are:

  • a hub for a specific category of products and services. e.g. electronics at Sim Lim, sportswear at Queensway shopping centre
  • there is an anchor tenant like NTUC, Food Republic
  • location blends smoothly into the flow of human traffic
  • proximity to MRT
  • management companies taking care of the place

Shop houses

Shop houses are another type of commercial properties

Shop houses can somewhat be a combination of retail space and office space. Many of them have a retail space on the ground floor and office space on upper levels. You can also classify them into 2 general categories. HDB shophouse and private shophouse.

Before buying into a private shop house, do a check on whether it is under conservation. There are guidelines to manage these properties. Many of these shop houses under conservation can be found in Jalan Besar area.

Although shop houses can seem like great investments, remember to take note of the costs required for maintenance especially for those are have been around for decades.

Important investment criteria:

  • age of shop house
  • URA classification
  • flow of human traffic for retail front
  • proximity to MRT
  • access to parking facilities
  • costs of maintenance

Image Attribution: modery, kodomut, bluelineswinger



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