Alibaba's SEA adventure's impact to Singapore's commercial property price

by JJ Cheng 10 Jun 2014

We all heard of the news that Alibaba group, the world's largest ecommerce company has inked a deal with Singpost, the national postal service company of Singapore. Price tag: 313m Singapore dollars in exchange of about 10% of its ordinary shares.

Alibaba’s top producing website and has changed people's buying behavior drastically. Shops sale/rental prices in China significantly dropped in recent years largely attributed to this change of shopping behavior. Prices of shops are generally similar or even lower than apartments nearby.

If same thing would happen in Singapore, a few other things are going to happen in regards to the local property market.

  1. Dropping in retail space demand, thus rising in vacancy rate.
  2. Rising in office demand, dropping in office vacancy rate (online businesses still need offline customer service support).
  3. Rising in warehouse demand, dropping in warehouse vacancy rate (more goods will be imported to Singapore, not only for local market, but to other SEA countries as a logistic hub).

So will all these really happen? Maybe yes, but not to large extend.

  1. Singapore market is too small for them. In order to achieve the same target revenue, they might have to invest a lot more than in China or in other SEA countries. The return of investment is too low, opportunity cost is too high. So Alibaba may not be eyeing Singapore market at all.
  2. Singapore shares very little similarities with China. Being an advanced westernized nation, Alibaba may not yet understand this market very well.
  3. In comparison, other SEA countries such as Malaysia, Indonesia, Vietnam, Thailand feels more like home.
  4. China is a big country; people buy online because they can get products from other cities/provinces easier. That's not an issue in Singapore.
  5. Till year 2014, I still do not believe that online shopping business in Singapore eats up any offline demands. They are there only to create new demands for pure online shoppers.

However what really worries me is the current record high price for retail spaces. Take Burlington Square as an example, shops at ground floor reached above $2,500 PSF in year 2013 (a 409 sqft unit fetched a record S$4,958 in Jun 2013), the apartments above stays at around S$1,400 PSF. That's about 1.5 times in price difference. Together with the rising labor costs, smaller businesses may soon realize that going online is a matter of survival.

burlington square

For more details about transactions and charts for Burlington Square, click here.

Another threat comes from overseas. The strategic alliance between Alibaba and Singpost could possibly mean more Chinese made goods are now more reachable by the Singaporean buyers. Previously many of these buyers want to buy goods in Taobao or TMall but are afraid of the phantom sellers or goods missing in transition. Now, with Alibaba's official presence in Singapore, such worries may eventually be eliminated. Shop owners who previously import goods from Taobao now loses advantages and may have to size down a bit e.g. close some outlets.

Nevertheless, shopping online is an inevitable trend. With the advanced infrastructure and high computer literacy level, younger generation Singaporeans are mostly welcoming this revolution. On the other hand, rising retail space vacancy rate may not be a bad thing after all. They can be turned into other businesses such as budget hotels, thus easing the stress of hotel room shortages.

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