Too much for a coffee shop?

SINGAPORE - Earlier this week, a nondescript Hougang coffee shop was sold for the eye-popping sum of $23.8 million.

"Why so much?" went the headline in a tabloid paper. But, some experts here are not surprised at the not-quite-kopi-money price.

English-language newspapers reported last Monday on the record-breaking sale of Coffee Express 2000 in Hougang Avenue 4, with 4,025 sq ft and 17 stalls, for that hefty sum. The buyer, Broadway F&B Management, runs 15 eating houses, food courts and a restaurant here.

When contacted, Broadway declined to comment. The coffee shop is not in a prime area, near an MRT station or shopping mall which generates human traffic. But experts interviewed say the sale should be seen as more than a real-estate transaction.

Associate Professor Sing Tien Foo of the National University of Singapore's department of real estate says that transactions involving coffee shops should not be seen purely as real-estate deals.

Says Prof Sing, 46: "You are looking at a business. There are other factors involved, such as economies of scale for big food chains and the smaller operation risks for those with expertise in running coffee shops."

Property analysts who spoke to Sunday-Life! say that paying a high price for commercial property is not as counter-intuitive as it sounds.

International Property Advisor chief executive Ku Swee Yong says that a $23.8-million price tag for the Hougang coffee shop is "reasonable" if it can yield a 4 per cent annual return which he adds, is a reasonable expectation of retails shops in general.

HSR International Realtors' head, service and support, Mr Donald Yeo, says it is likely that the new owners of Coffee Express 2000 will run some of its stalls themselves to generate profits.

Adds Mr Yeo, 51: "That way, they can get direct revenue. If they are planning to lease out all the stalls, they might not have paid this price."

Ms Edith Tay, in her 40s, director of Property-Bank which specialises in commercial properties, says F&B operators consider factors such as capital appreciation over time, market share and income stream.

She explains: "We always hear about record-breaking prices, but some of these big players really have the muscle to make such purchases. Whether they can later sell the property at a higher price depends on what they do to enhance the coffee shop's tenancy mix and income."

Other coffee shops have been sold for seemingly astronomical sums before.

Two years ago, six coffee shops were sold for close to $60 million. The most expensive of the six was in Bukit Batok Street 11, with 13 stalls, which reportedly was sold for $14.5 million to trading company Lubritrade.

In 2007, foodcourt operator Koufu bought a 4,700 sq ft coffee shop in Jurong East Street 13, with 13 stalls, for $12 million.

And nearly a decade ago, coffee shop chain S11 F&B Holdings bought an 8,000 sq ft coffee shop in Ang Mo Kio Central, with 16 stalls, for $17.8 million.

Ironically, some tenants in the coffee shops sold at high prices are struggling to make ends meet these days. A 50-year-old hawker, who runs the vegetarian stall and wants to be known only as Madam Chua, in the $14.5-million coffee shop at Block 155 in Bukit Batok, says: "I don't know why it was sold for so much. Business is just so-so here.

Adds Madam Chua, who has been running the stall since 1994 with her husband: "The location is central and there are a lot of people around, but there are also quite a number of coffee shops in this area."

Miscellaneous costs, such as the cost of cleaners, have gone up at this coffee shop from $350 to $550 a month in the past one year.

A worker at a stall, who declines to be named, says: "Rent is expensive, so we have to raise prices from between a few cents and $1. But we still cannot make much nowadays. My boss said there's a possibility of giving the stall up."

Over at Xi Duo Fu - Happy Hawkers, the $12- million coffee shop in Jurong East bought by Koufu in 2007, a stallholder who wished to be known only as Madam Lin says: "Every time a new owner takes over, there will be some adjustments made to the rental fees." Since she opened her fish soup stall there 14 years ago, the ownership of the coffee shop has changed hands about four times.

While she declines to reveal her rent, other stallholders tell SundayLife! that rent and other miscellaneous costs have gone up twice since 2007, between $300 and $500 each time. More than a decade ago, a bowl of fried fish soup at her stall cost $3.50. It now costs $4.

Adds Madam Lin, who is in her 40s: "When rent and the cost of ingredients go up, we have to increase prices a little, but if it is too expensive, no one will want to eat here."

Meanwhile, tenants at Coffee Express 2000 have not met the new management to discuss rent and other issues yet. The property transaction will be completed only in September, and SundayLife! understands that the new owners will meet tenants later this month.

Mr Lee Kim Huat, 57, owner of the Geylang Prawn Noodle stall there, says: "We are taking things one step at a time. If rent goes up and profit margins drop too much, we might have to increase prices slightly."

Mr Lee's five-year-old stall in Hougang is a branch of his main stall in Upper Paya Lebar.

Mr Peter Ho, 26, manager of Char-Grill Bar which has a branch in the same coffee shop, says: "We have been here for four years. We hope to continue and that business won't be affected."

Both Geylang Prawn Noodle and Char-Grill Bar declined to reveal their monthly rent.

When SundayLife! visited the coffee shop in Hougang on Wednesday and Thursday, there was a good lunch crowd.

It is known to be packed in the evenings, especially on weekends, when people frequent the place for drinks. There are five other coffee shops within a five-minute-walk radius.

Technical support officer John Lim, in his 50s, who lives and works nearby, says: "There is no shortage of coffee shops in the neighbourhood, but I like the food here best. I will still come here if prices are raised by less than 50 cents."

Another frequent patron is massage therapist Pang Kim Suan, 53, who eats there at least twice a week.

He says: "It's my favourite coffee shop because it is airy and open. I like the ambience. My friend and I nicknamed this place the 'oasis', because it is our watering hole."

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