Global instability and interest rate hikes in the U.S. have increased financing costs and, combined with the pandemic’s impact on lifestyles, have indirectly affected traditional real estate markets, particularly commercial properties. For instance, in New York and Hong Kong, rising interest rates have slowed real estate market prosperity and reduced leasing transactions. Additionally, the trend toward remote work has led to higher vacancy rates in office spaces.
Singapore Investors Seizing Opportunities
Despite the downturn in the real estate market, some investors are capitalizing on the situation by raising new funds to acquire properties from financially distressed sellers. They aim to profit from these investments when interest rates decline and property values increase. Notably, investors are targeting retail real estate and using tailored investment strategies to enhance property value, particularly in Singapore, which was among the first to ease travel restrictions.
Dining Sector Drives Retail Market Recovery
Reports from real estate research firms show that government relaxation of entry restrictions and the ongoing recovery of international travel have boosted tourism and retail sales. Retail revenue grew by 11.7% for goods and 6.2% for services before the increase in Goods and Services Tax. The research also indicates that retail leasing activity in Singapore’s commercial properties continued to rise in Q4 2022, driven mainly by dining operators, especially in and around hotels. It is expected that retail sales in Singapore will continue to grow strongly this year, partly due to pent-up consumer spending from the pandemic.
“New” Dining Concepts Revitalizing Commercial Properties
As life returns to normal post-pandemic, and dining industry revenues continue to grow, Singapore’s dining sector saw a 12.2% year-on-year increase in Q1 2023. This significant growth has led investors to view this period as an excellent opportunity to invest in Singapore’s dining industry. There is a unique investment asset opportunity in properties supported by the dining sector.
Singapore’s Dining Industry Model
The “new” dining concepts refer not only to potential real estate opportunities but also to Singapore’s unique local dining culture. Kopitiam, a term widely used in Singapore and Malaysia, refers to “coffee shops” in the region and originates from the local concept of “dai pai dong.”
Attracting Consumer Demand
Unlike typical coffee shops, “new” coffee shops offer affordable and diverse local cuisine and traditional drinks, thanks to pre-prepared foods from central kitchens. This creates a casual and communal dining experience appealing to both locals and tourists. These establishments provide gathering spaces for locals and, due to their unique advantages, continue to attract customers regardless of market conditions. In other words, the stable demand for “new” coffee shops and their economic flexibility may result in higher demand even during market downturns.
Dining Boom Stimulating Industrial Real Estate
Additionally, the rise of “new” coffee shops has indirectly stimulated Singapore’s industrial real estate market. Data from Singapore’s Food Agency shows an 11.3% increase in the number of licensed food manufacturing and processing businesses (including central kitchens) from 1,659 in 2019 to 1,847 by the end of 2021. The unique blend of retail and industrial features in “new” coffee shops presents potential opportunities for real estate investment in Singapore.
“New” Asset Investment
Given the strong demand for dining venues, “new” assets offer an alternative to traditional real estate investment opportunities. This investment choice provides potential benefits such as flexibility, sustained demand, and portfolio diversification. Additionally, high demand for “new” coffee shops as low-cost providers of essential services can reduce investment risk. However, it is crucial to conduct thorough research and evaluate operational costs and market dynamics to make informed investment decisions and further mitigate risks.