City&Country: Investing in shops

Investing in shophouses or shopoffices is not for everyone. Unlike buying a residential property,  there is a lot more to consider when buying a shophouse.

“For a shophouse, you need to know which floor to buy, which side is facing outside or inside, where the traffic is and so on. The quantum of investment is also higher than for a home,” says Gerard Kho, senior vice-president of Reapfield Properties Sdn Bhd.

On the other hand, investing in shophouses can offer a number of benefits over residential property. It often allows owners to enjoy long-term leases, while capturing two different market segments — retail and office — at the same time.

“Investors often sell the shops along with the lease,” Kho says, adding that shophouses usually receive yields of 3.5% to 10%, depending on the location and potential capital gains.

The first two floors of a normal, 4-level shophouse are usually used for retail while the upper two floors are more suitable for office space.

“The retail space will usually be let for a long lease, say for at least two to three years. The tenants come in and refurbish the place, so you can lease it as an empty shell. You usually don’t need to maintain or renovate the place that much as the tenant retailers usually do it themselves. In that sense, you get tenants who have a vested interest in the property because they put in the money to do it up,” says Kho. Office space is different, however, and the owners themselves have to maintain the units.

But Kho says retailers in shophouses are facing rising competition from malls.

“New concept shopping malls are constantly being developed. For areas like Bangsar, for example, both malls and shophouses are thriving and the yield of some of the shophouses there is high,” he says.

Kho will be one of the speakers at The Edge Investment Forum on Real Estate 2011, titled, “Buy, Sell or Hold?” on April 9 at the Sime Darby Convention Centre in Kuala Lumpur.

His talk on “Talking shops” will take a look at the upside and downside of investing in shopoffices and shophouses, giving investors an insight into how shops have performed historically in terms of yields and capital appreciation as well as the investment hot spots.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 851, Mar 28-Apr 3, 2011

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