Is $1.34M per key justified for this Singapore hotel?

SINGAPORE – A 49-room luxury boutique hotel in Singapore has been put up for sale with a guide price exceeding S$90 million ($67 million) or S$1.8 million ($1.34 million) per key. To some, the sums don't add up, but to others it is an investment that is more nuanced than the usual hotel sale.

What Duxton Reserve has going for it is a unique opportunity for investors to own a fairly new luxury shophouse hotel requiring limited capex. Its location in Tanjong Pagar is close to the CBD and colorful Chinatown.

Singapore’s shophouses date back to the 1920s. Their historic vibes and quaint architecture sit well with today’s consumer demand for authentic experiences and culture-loaded neighborhoods. In hospitality, they are reborn as hotels, bars, restaurants and indie shops. Overall, sales of shophouses in Singapore rose 52% to S$169 million in the first quarter of 2024 from the previous quarter, according to a Knight Frank report.

JLL's Tan Ling Wei

Duxton Reserve unites eight three-story shophouses into a stylish heritage hotel with British designer Anouska Hempel’s stamp on it. The site is 9,775 square feet, with a built-up area of 34,000 square feet, translating to S$2,650 per square foot. Room size ranges from 20 to 51 square meters (215 to 559 square feet).

Owned by Singapore-based Garcha Group and exclusively brokered by JLL, the hotel first opened in 2018, managed by Six Senses, and closed in 2020 during the pandemic. The partnership with Six Senses didn’t work out, and in 2021 the hotel re-opened as part of the Autograph Collection under a franchise with Marriott, said to expire in 2036.

While it’s a unique opportunity, the price tag of S$1.8 million per key raises the question, is it fair value?

A source who knows shophouses intimately but wishes to remain anonymous believes there is some justification for the asking price. “The hotel isn’t being sold necessarily on a per key basis, but on a conservation shophouse per square foot basis,” the source told Hotel Investment Today. “This is how you would normally value a shophouse.

The asking price is certainly up there. I would say that it reflects the difficulty in securing assets of this quality in Singapore.

Robert Williams

Share this quote

“Shophouses are trading for upwards of S$5,000 per square foot now in the core Chinatown conservation area. If you look at it that way, there is some justification for their asking price, though arguably it’s still quite expensive because the hotel only has 60-plus years left on the lease. They [the owners] have fitted it to a very high standard, still $1.8 million per key would be hard to justify on a yield basis.”

The source added, “I think they are selling because the value of the asset far outweighs the return they can get from operating it as a boutique hotel. It’s an asset that is apparently favored by family offices, but the optimal use of the asset may no longer be as a hotel.”

Robert Williams, partner and head of Hotels & Hospitality Asia Pacific at Watson Farley & Williams, said, “The asking price is certainly up there. I would say that it reflects the difficulty in securing assets of this quality in Singapore. They don’t come up often – with well resourced, long-term owners abound, there is not much liquidity typically. Whether it’s S$1.8 million a key or just under, there is undoubtedly a high barrier to entry to owning these assets.”

‘Considerable interest’

Tan Ling Wei, senior vice president, Investment Sales, JLL Hotels & Hospitality Group, said that there is “considerable interest” in the hotel, particularly from local high-net-worth individuals and family offices, underscoring the rarity of the opportunity.

Robert Williams, Watson Farley & Williams

When asked why S$1.8 million per key is fair value, she said, “The price per key reflects the high suite ratio [47%] of the property, a significant factor when assessing the valuation. In addition, when evaluating shophouse opportunities, the price per square foot serves as a crucial metric. At S$2,650 per square foot, Duxton Reserve presents a compelling investment proposition, particularly when benchmarked against recent transactions along Duxton Road, which have commanded an average of S$3,500 per square foot.”

With such data, the price looks a fair value. However, as a hotel, can the property bring in returns at that price?

Real estate broker Vimol Kogar, director, Bangkok 101, believes Duxton Reserve can achieve rates of S$325 to S$953, citing an explosion of demand for luxury hospitality and experiential stays in Singapore.

“But the cost of operations in Singapore are very high, especially with smaller properties, and can eat up a chunk of your bottom line,” he said.

We expect hotels to remain one of the most attractive asset classes due to its robust performance and Singapore’s status as a global safe haven for investments.

Tan Ling Wei

Share this quote

The anonymous source agrees. “Small boutique hotels operate at a lower margin because their size makes it hard to be efficient and to have economies of scale. The sums don’t really add up. I suspect the hotel will sell to an investor who might be looking more for a trophy asset than a true investment asset. If it sells at this price, it will set a new benchmark not just for hotels per key but also for leasehold shophouses. I am waiting with bated breath to see what it achieves.”

But Williams believes operators with existing boutique room stock in Singapore won’t be put off by the small room count as they can bolt Duxton Reserve’s 49 rooms onto their existing operations, he said.

“I don’t see a shortage of people that will want the asset and be motivated [to buy] – it’s unique. But it’s the story regionally really; matching seller and buyer price expectations has been difficult. I would love to see the Duxton Reserve sell. It would allow the next generation of owners to put their energy into the property and would underline the investment appetite that exists for these scarce opportunities to get a premium foothold in the Singapore hotel market.”

JLL’s Tan said year-to-date, Singapore recorded close to S$700 million in hotel transaction, despite a challenging high-interest rate environment.

“We expect hotels to remain one of the most attractive asset classes due to its robust performance and Singapore’s status as a global safe haven for investments,” she said.