Commercial property in Singapore is a lucrative asset class, attracting businesses, investors, and tenants due to the city-state’s thriving economy and strategic location. However, purchasing, leasing, or investing in commercial real estate comes with its own set of challenges.

This guide addresses the common pain points of those dealing with commercial property and provides actionable insights, real numbers, and practical advice to navigate Singapore’s commercial real estate landscape effectively.

Understanding Commercial Property in Singapore

Commercial properties encompass a wide variety of spaces used for business activities, including:

• Office Spaces: Grade A, Grade B, and Grade C offices.
• Retail Spaces: Shops, malls, and showrooms.
• Industrial Properties: Factories, warehouses, and logistics hubs.
• Mixed-Use Developments: Properties combining commercial, residential, and retail elements.

Pain Points for Commercial Property Buyers, Tenants, and Investors

A. Buyers

1. High Capital Investment:
   • Pain Point: Commercial properties in prime areas require significant upfront investment, often exceeding millions  for Grade A office spaces.
   • Solution: Explore city fringe  districts like Paya Lebar or Telok Ayer or smaller strata-titled office spaces as cost-effective alternatives.
2. Financing Challenges:
   • Pain Point: Commercial property loans have stricter terms compared to residential properties.
   • Solution: Work with commercial banks offering competitive terms or pool resources through joint ventures with other like-minded commercial property investors.
3. Limited Options for Foreigners:
   • Pain Point: Foreigners are restricted from buying certain commercial properties, particularly shophouses in conservation areas.
   • Solution: Focus on strata-titled properties or partner with a local entity for access.

B. Tenants

1. Skyrocketing Rental Costs:
   • Pain Point: Prime office rental rates in Singapore range from SGD 9.50 to SGD 13.50 per sq ft per month (as of Q3 2024).
   • Solution: Negotiate long-term leases or consider secondary business districts like Jurong or Paya Lebar.
2. Lease Terms and Restrictions:
   • Pain Point: Tenants often face rigid lease agreements with high upfront costs (security deposit + advance rental).
   • Solution: Engage a real estate agent to negotiate favorable terms and flexible lease periods.
3. Space Optimization:
   • Pain Point: Finding the right-sized office or retail space that matches both budget and operational needs can be challenging.
   • Solution: Use technology tools to calculate space requirements based on your business model and partner with reputable interior designers who specialise in commercial real estate fit-out. They will be able to advise how to make the best use of the space, especially awkward layouts and structural pillars.

C. Investors

1. Market Volatility:
   • Pain Point: Commercial property values and yields can fluctuate with economic conditions.
   • Solution: Diversify your property portfolio with assets in different sectors or districts to mitigate risks.
2. Taxation and Additional Costs:
   • Pain Point: Buyers must pay Buyer’s Stamp Duty (BSD) and potential Goods and Services Tax (GST), significantly increasing acquisition costs.
   • Solution: Calculate all taxes upfront and work with trusted real estate agents for investment calculations, financial planning and ease of finding tenants. 
3. Tenant Risks:
   • Pain Point: Commercial property investments are reliant on stable tenants. Vacancies or defaults can lead to substantial revenue loss.
   • Solution: Target properties in high-demand sectors, such as logistics or technology.

Commercial Property Financing in Singapore

Factor	Residential Property	Commercial Property
Loan-to-Value (LTV)	Up to 75%	Up to 80%
Interest Rates	2.5% to 3.0%	2.5% to 4.0%
Down Payment	25%	40%
Tenure	Up to 30 years	Typically capped at 15-20 years

Taxation for Commercial Property

1. Buyer’s Stamp Duty (BSD):
   • First SGD 180,000: 1%.
   • Next SGD 180,000: 2%.
   • Remaining: 3%.
2. Goods and Services Tax (GST):
   • Applies to most commercial properties at 8%.
   • GST-registered businesses may claim input GST on purchases.
3. Property Tax:
   • Standard property tax rate for commercial properties is 10% of the Annual Value (AV).
4. No Additional Buyer’s Stamp Duty (ABSD):
   • Unlike residential properties, ABSD does not apply to commercial properties.

Market Trends and Investment Insights

Office Spaces

• Prime Office Rents:
  • Marina Bay: SGD 13.50 per sq ft.
  • Raffles Place: SGD 11.80 per sq ft.
• Emerging Districts:
  • Jurong Lake District: Promising returns due to the ongoing development of Jurong Innovation District and the High-Speed Rail terminal.

Retail Spaces

• Retail rents are recovering, with suburban malls showing resilience due to steady footfall from local residents.

Industrial Properties

• High demand for logistics spaces, with rental yields exceeding 5% in sectors like e-commerce and manufacturing.

Choosing the Right Commercial Property

Factors to Consider:

• Location: Accessibility for employees, clients, and customers.
• Yield Potential: Compare rental yields for different sectors (office, retail, industrial).
• Size and Layout: Ensure the property can accommodate current and future business needs.
• Amenities and Infrastructure: Parking, transport links, and nearby facilities.

Investment Potential: Pros and Cons

Feature	Office Space	Retail Space	Industrial Property
Rental Yield	Moderate (2-3%)	Moderate to High (3-5%)	High (5% or more)
Tenant Demand	Strong in CBD	Depends on footfall and location	Increasing in e-commerce sectors
Purchase Price	High	Moderate	Moderate to Low
Vacancy Risks	Moderate	High	Low

The Role of Technology in Commercial Property

• Virtual Tours: Allow prospective buyers and tenants to view properties remotely.
• Property Management Apps: Streamline tenant communication and maintenance.
• Market Analytics Tools: Predict trends and identify high-growth areas.

FAQs

1. Can foreigners buy commercial property in Singapore?
   Yes, foreigners can purchase most commercial properties, but restrictions apply to certain conservation shophouses.
2. What are the common lease terms for commercial properties?
   Lease terms typically range from 3 to 5 years, with renewal options.
3. How do I calculate rental yield for a commercial property?
   Use the formula: (Annual Rental Income ÷ Property Value) × 100%.

Commercial property in Singapore offers substantial opportunities for buyers, tenants, and investors, but it requires a thorough understanding of the market and financial implications.

Need expert advice? Reach out to me, Dominic Choa, at dominicchoa.com for tailored solutions to your commercial property needs in Singapore.