Ep 12: Commercial Strate Properties & the Important Matrixes Behind them – Jacqueline Wang from JMD

Whether you’re looking at your first property or building a bucket of gold through properties, there’s something for you here. Ultimately it’s about helping you find your unique game plan. 

Our guest today is Jacqueline again, because she’s also very experienced in the strata commercial property sector. And she’s back with us today to give us some insights about this sector.

Let’s go!

Reggie: I think you spent a lot of time with shophouses and that’s how you start at your early days, right. But strata commercial is something that people don’t really talk about it. It feels like something there to die, you know? Like Beauty World, Golden Mile, those kind of very, very old building? LIke there’s nothing going on. Fu Lu Shou Complex, those kinds of stuff, very old buildings. 

But recently I’m seeing a little bit of rejuvenation in the space, right. Where if they don’t enbloc, there are interesting operators that will wanna potentially come in. Do you have some thoughts in this space? Like what is going on in this strata commercial area? 

Jacqueline: Maybe how I approach this question is, let’s talk about the end-user first – the target market. You have mentioned there are interesting concept who wants to go into the strata office. What’s the incentive for them to go in? That incentive is because the strata office market, the rent, is more affordable. And hence you want to go in and anchor the space and change a new concept. You can’t afford to pay $8, so you pay $6 to try out a new concept. Right? That’s why there is the end-user trying to spot and see that space. Same location again, $8 if you rent from, say, the big boys, $6 you rent from a strata owner.

Then it based to the next question. Strata owner, because it’s not one single ownership, everybody can have different holding costs. So I share with you. I know this uncle. He holds a lot of strata offices. His take is, if everybody is asking for 8,000, I will ask for 6,005. 

Then I say, “Why?” 

He said, “Because once I get in that 6,005, he’s not going to leave me. And one day I will get back and slowly crawl back to $8,000. But I need to make myself attractive, among others.” 

So your competition as a strata owner really depends who else is holding this asset together with you? Are they all empty at the same time? Are they vacant at the same time? Is their asking price able to drop? If everybody drop, you will also have to drop. So it’s hard to predict rent structure, right. Or your financial modeling. 

But again, strata office works. Why? It’s because actually, if you really look at Singapore property owners, all the commercial offices are held by your REITs, your big player. 

Reggie: Ascendas, CapitaLand. 

Jacqueline: Yes. And their floor plates are 15,000, 20,000 per floor plate. If you are a 10-person company or a 20-person company, you need a 2,000 square feet space. You go into the big landlord. They say you either take 15,000, or else I don’t have much of the capacity. Some probably will have 5,000, but too small a space they don’t really have. And so the strata offices do work because it helps smaller companies able to anchor the space. If not, otherwise, you realize that there’s a surge in family offices, right? 

Reggie: Yes. 

Jacqueline: Family offices only operate five, six, seven people. They cannot go to coworking because they are sensitive, they are managing family funds, they need a proper office. So would they then go to your Big 4 and ask for a 5,000 square feet space just to house seven people? It can’t. So there is that demand out there. 

So I think that strata office has its demand. But location also plays a very important point. How many fragmented owners are there in the entire building? Is your location something that people wants too? Like International Building – it’s a strata office, but most of it are not empty. Suntec City is a strata office. It’s not empty. There is demand up there. Unlike your other strata office, that… 

Reggie: Like Havelock 2 or something? I know you cannot name names. I know. I know. Essentially, I get what you’re saying because there’s a general disdain for strata today, right. A lot of people are saying like, strata commercial 不会赚钱 (won’t earn money), strata office is out to… you know, it’s like you buy this right, you’re just empowering the landlord in that sense. Empowering the developer. The developer make money after they buy and redo the whole thing. But then you as the last leg as a retail investor, you can’t make that profit.

So what you’re saying is if you go into a strata commercial area, where rental rates are pretty high, then you have strategic rental numbers that you can actually bank on. Compared to if you’re going into a place that’s totally new, like a new redevelopment, and then, they’re selling it, they cut it up bits and pieces. This will be a bit harder because there is no basis for rent in that sense. So that a lot of competition. Then your numbers will not work. 

Jacqueline: So ultimately it’s back to location, who is the end-user, is there such a demand versus the supply. If I’m a strata owner, if I want to buy a strata office. Five hundred, one thousand, two thousand. I will go ahead and extract data from ACRA to see how many entrepreneurs are setting up business in a year.

And I take… You take your own calculated risk. What kind of sector is that? Are they a 5%, 7%, 10%? What is the demand out of that? Would they come in? Would they pay $6? If you buy this at how much, would they pay you this amount? If it does…. So it’s a whole entire study of that. 

But again, strata office work if you are a family office, you have money and you don’t want to be in the landlord’s, you don’t want to be succumb to the landlord’s rising of interest. Then you buy a strata office and you operate yourself. And then this is the premises that you own. And that makes very good sense, right? So there are a lot end-users who buy strata offices. If you want to buy it for investment purpose, then you have to look at who is the demand, what kind of price, what kind of yield, are you fighting with a lot of people getting the demand? 

Reggie: Nice. Same principles. 

Troy: Yeah. Same as shophouses, right. 

Jacqueline: Yes. It’s the… Yeah. 

Reggie: Okay. Okay. And then just a little bit curious. I’m like, how are you seeing the commercial space change in that sense of like, exactly like you point out – a lot of the big commercial spaces are held by big developers and they’re not here to chop it up right, they’re going to rent you the whole thing. And then there’s the whole move to remote working. 

So being deep in the space, how are you seeing commercial spaces change in terms of the user profile in terms of what is the kind of demand that we’re looking at? Is it really the death of the office? Really 没有 office 了 (Really no more office)? Is that where we’re heading towards?

Jacqueline: So interestingly, I think for the commercial office spaces, I see a shift of mentality towards coworking spaces. I find that coworking spaces in the past right, it’s either for startup, you want a temporary kind of space, you go in, and then after that you shift out to a more permanent space when your business has traction. That’s how it all started, right? 

Reggie: Yes. 

Jacqueline: But now I see that coworking space are actually a flexible working space. It allows flexibility even for MNC. And we do see that MNC are looking into taking up flexible working space in such an operator to house a particular division. It may be MNC wanting to come to Singapore to start up a division, or they want to separate Team A, Team B, for…

Reggie: Covid, covid. …

Jacqueline: …for situation we can’t process, okay. So back to our owners. They realize that in a particular building, I may want to have spaces for flexible arrangement. In the past, landlord doesn’t want to do a short-term because we can’t do financial projection for the long run. Right? We are in it for the long space. I do a 10-year projection. If I have to six months, six months, six months then how do I account for how much vacancy do I have in between these six months? 

But interestingly, the bigger landlords realize that, no, I think flexible spaces are there to stay. I want to recreate my offices. I probably turn two or three floors to flexible spaces. Able to give you a six months or one year kind of space.

And then when you are stable, don’t worry, I got another floor upstairs. Then you sign a three-year lease. And they just move the tenant depending on what growth stage you are, to different floors. 

Reggie: They build a whole ecosystem there. 

Jacqueline: Yeah. If you want a 2,000-3,000. Ah! I’ve got level two and three which is flexible space, I can house you here. By the time you need a 5,000 square feet, don’t worry, I have a office at the six floor cater for 5,000. And then when you are a tech company, exponentially, you grow out of your number, move to my 20 floor, you have the 16,000 square feet of space. 

So we see that in the change of mindset in the big office landlords. They are looking ways to be flexible in terms of that entire office building. So office landlord are also pivoting and changing. 

Reggie: Changing their strategy. 

Jacqueline: Yes. Or if not, then they will bring in, they will collaborate and joint venture with a coworking operator. 

Reggie:  Like WeWork, Live, whatever.

Jacqueline: Yeah. And you operate for me, but we do a joint venture so that if I got demand, I can also house in my office building. What essentially the office landlords are doing is that – we know that offices or tenants may downsize, but when they are back in their growth mode, they may upsize also. So let’s create something more flexible. Let’s not go out in the market and say I only have 15,000 square feet space.

Reggie: Nice. Interesting.

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And in this process, right, give me a general idea. If I’m a small, you know, guy, that potentially want to enter this coworking space kind of structure, or if I want to buy like a small commercial space to convert into an office. What are my tenants going to look like? And what do they really look out for?

Cannot just be swee swee (beautiful) place, right? What are some basic infrastructure that I have to, I have to have? 

Jacqueline: If you want to… 

Reggie: If I want to start a office space. That means I’m a small investor. 

Jacqueline: You want to buy an office. 

Reggie: Yeah, I’m gonna buy like a B1 industrial. I’m going to convert this whole place to become a, you know, recently very popular right, convert into small working space and all that right. So what will my client profile look like? And what do they look out for, if someone’s renting an office? 

Jacqueline: So if I’m an investor, I want to purchase a shop, a strata office. And then I want to be a mini landlord lah, right? 

Reggie: Yeah. Essentially lah. Everybody tune in to want to be mini landlord lah.

Jacqueline: Okay. So what you have to do is – if I were to play a game of a strata office, and I buy a strata office with a lot of people all buying at the same time, I know when it comes to leasing demand, I have a lot of competitors to fight with. Hence, what I will do is I will think it more creatively and differently.

Don’t sit there, just to wait your tenant go and come to you. Or your agent is going to find you a good tenant without negotiating the price, right. Ask yourself, can I then say, if I have a 500 square feet space, this occupier is going to come in as a very, very small startup. Cost is an issue. Can I fix a night nicer lighting, make sure that the electrical points are all nicely laid out. He don’t need to come in a higher CapEx value just to sign a two-year lease. Can I make it ready for him to move in? Can I make him faster to settle into the office space? How much would that cost me? If you can and that cost if you divided and it makes sense for you, then do it because you are going to stand out from the rest of the competition. 

Essentially, if you want to buy a office space and it makes sense and the, say the per square feet all makes sense, right. What you have to do is then make sure your product is good enough to capture a tenant and make sure you have a good relationship with your tenant. 

Because you are concentration risk, you have tenant concentration risk. You have one shop, one tenant. That one tenant is going to pay your bank. They are your boss actually. Yeah. So make sure that your relationship with that tenant is good. On and off, take a look, ask what’s the tenant doing. Treat them for coffee. 

Reggie: Send hamper during New Year. All those things still work, right? 

Jacqueline: Of course! Treat them for coffee, get there and understand their business and see how they are growing. So don’t be just a passive owner. Whichever asset that you, that I feel people out there are buying, don’t be just passive, looking for passive income. There must be some work to be done. Else, find an operator who doesn’t mind to be the hard work, and then, you know, you collaborate together with them. 

Like my own personal capacity, I bought an overseas asset, thinking that it’s affordable and stuff. You know, that dream retirement home or holiday home that you’ve purchased.

Then you realize, but you don’t know the agent out there. You don’t know who is the best agent that is going to get you a good tenant. Then you get a tenant, the agent call you and say, Miss Wang, your air-con spoil, it cost $500. I don’t know what is the market price. So what would I do? I will look to work, collaborate together. Are there good property major out there? Can they be a… can I work together with an agent? 

Reggie: Okay. That makes sense. Especially when you’re managing it remotely right. You’re not around, you don’t know what’s going on. 

Jacqueline: Yes. 

Troy: I think from what we heard throughout all this, I think there’s one common lining, which is, if you want to do great business, you have to be empathetic. You have to think from the demand side first, you cannot always think of I want to earn fast money or things like that. 

Jacqueline: Yes. 

Reggie: Is there even fast money in property? So much capital into the thing!

Jacqueline: It’s an efficient market. Especially in Singapore. 

Reggie: When you say efficient market, indirectly you’re saying there’s no loopholes right? 

Jacqueline: Today you can find a value proposition very fast if the barrier of entry is not high. Other players will come in. So it’s efficient. So what’s going to stand out in the long run, if you’re in for the long game, is to make yourself different from others. Go down to holding on your tenants, go down to understanding who your target market is.

I still feel that it’s back to marketing principle. 

Reggie: Nice. Okay, cool. If anybody wants to be a first-time property buyer, any last, any… I think you already said a lot already, but any last juice, like if okay, today… Envision me, okay, 35 years old, I’ve worked many years. Gotten my HDB, now I got extra cash sitting around and then I subscribe to this idea that, oh yeah, maybe I want to be a landlord. I want to make money from property. And I cannot afford to buy residential because residential has its own game. And I’m thinking of like strata or like commercial, you know, smaller commercial spaces. What is your advice for me? 

Jacqueline: My advice for you is make sure you have the ability and capability to fund your interest payment and your bank financing. Because then you wouldn’t get pressured into getting just any tenant. So work out that you are comfortable. Then go and look at how to differentiate your product and get your target market. 

Don’t be a strata… Look at strata retail – because some are more kanchiong (anxious) than others, they go and get money changer and then you see, wow, first floor, all money changer. Because there is pressure to pay the bank. Whatever tenant that come in, you take. 

Reggie: Sounds like The Arcade. 

Jacqueline: Yeah. I’m not going to be saying…  

Reggie: I know, this one is I say one, I say one!

Thank you. Thanks for joining us, we had a great time, we appreciate it. 

Jacqueline: Okay thank you!

Troy: Hey, thanks for taking time to tune in. I hope you’ve learned a little bit more about property investing today. If you feel like you have benefited from this podcast, do share this with your loved ones. And also, do follow us on all our socials and join our community telegram group. And tell us what you’re interested to know about next. Everything is in the description below. Have a great day ahead guys, and always remember, when we are better prepared, the next opportunity is just around the corner. See you next week. 

Do you hear what I hear in how Jacqueline manages her properties? I hope it’s yes. What I want to point out is you can see a recurring theme in how she manages her properties. And the recurring theme is she always puts her clients first.

If you believe in building long-term business relationships, don’t go for the shortcuts. Always serve your clients better than what they expected. Always value-add them. If you can do a certain thing to remove their worry or to lower their expense, do it. Because it will really impact long-term business. And this is definitely something she has impressed upon us today. I think she also mentioned the same thing last week. 

COVID has definitely brought changes to how we work. But I think as many people would agree, it’s hard to work effectively at home. The working environment is just different. Being with people, having serendipitous idea exchanges, it just cannot be replicated on zoom. 

Finding the right tenants sounds simple, but I can assure you I know a lot of people out there, they just don’t do that. So yeah, if you ever have thoughts of buying a property space and to rent it out as an office to small companies, come back to listen to this episode. There’s a lot of good juice here. 

And that’s all for this week, folks. I’ll see you next week.