Shoebox apartments are offering higher rental yields than the overall leasing market this year, but yields in the mass-market segment are likely to compress as prices continue to climb.
The report showed that yields for shoebox properties this year had averaged 4.1 per cent in the core central region (CCR), 4.8 per cent for rest of central region (RCR) and 5.2 per cent for outside central region (OCR). This compares with overall market yields of 3 per cent, 3.6 per cent and 3.7 per cent respectively for those three regions as at Q3.
In absolute terms, average rents increased in CCR and OCR in the third quarter of the year from the previous quarter to $8 per square foot (psf) and $6.58 psf respectively. But rents in OCR shoebox properties dipped to $5.91 psf from $5.93 in Q2 (see chart).
About 10,700 shoebox units are expected to be completed over the next five years, with the bulk obtaining their temporary occupation permit (TOP) between next year and 2016.
Shoebox transactions made up 14 per cent of all new sales last year and in the first three quarters this year, up from 8 per cent in 2010.
Transaction activity and price growth of shoebox units were generally strongest in the mass-market segment this year.
More than half (53.3 per cent) of shoebox sales in the first nine months of the year were for OCR units. The average price for a shoebox unit in OCR in Q3 was $1,523 psf, 10.7 per cent higher than Q2. This compares with RCR and CCR, which saw average prices grow 8.8 per cent to $1,640 psf and 2.2 per cent to $2,322 psf respectively.
This has resulted in a narrowing price gap between mass-market shoebox apartments and those from the rest of the market, which is likely to compress OCR yields over time.
Source: Business Times –16 November 2013
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