By the end of this year 140,000 shops will be vacant and 200,000 retail jobs across the UK will have been lost, according to Experian, as retailers and landlords continue to suffer the consequences of the economic downturn.
That gives landlords of these properties an unwelcome headache since, aside from confronting a loss of rental income as a consequence of a tenant falling into liquidation, they assume responsibility for any ongoing repairs and occupational costs, including service charges, insurance and the like. Those shops which are not listed buildings – which is the overwhelming majority – are subject to 50% vacant rates liability.
But could the voluntary sector ride to the rescue of retail landlords reeling from the credit crunch?
Steve Barnett, a partner in J&E Shepherd chartered surveyors, specialising in commercial property, said, “On the face of it, the obvious panacea to retail property landlords already nursing a headache at the thought of losing a tenant and regular rental income, let alone facing 50% vacant rates liability, is to be found in the voluntary sector since, by filling any vacant retail outlets with charity shops, the charity will assume liability for any occupational costs as well as for rates. Of course, under the rating legislation, charity shops obtain 80% mandatory and 20% discretionary rates relief.”
The bad news for landlords, however, is that whilst a recession might lead to a rise in footfall for charity shops, the funds raised for charity through sales from these shops are likely to be inhibited by a chronic lack of supply of stock as homeowners rein in their spending on household goods and soft furnishings and so delay replacing such items, thereby limiting demand for retail outlets from the voluntary sector.
According to Mr Barnett, the good news for landlords is that most charities are willing to take on very flexible leases, thereby enabling them to secure a tenant on a short-term basis, such as a licensing agreement on a month-to-month basis, while the property can continue to be marketed as available for let. And as soon as the landlord secures another commercial retail tenant, the flexibility of the lease arrangement means that the charity shop is ready and willing to vacate the premises at short notice.
Said Mr Barnett, “On the face of it, charity shops could offer a remedy to all a retail landlord’s ills, whilst the charities themselves benefit from the rise in donations received through increased sales from the expansion of their retail outlets.
“Unfortunately, although property landlords are now realising the benefits to be had from offering any vacant retail units to charities, the difficulty some charities are confronting is the fact that, in the current challenging economic climate, the number of people donating stock to charities is falling rapidly.
“The knock-on effect of this preference to save rather than spend is that whilst an observer might have thought that charity shops would benefit in the current challenging economic climate because more people will be seeking to curb their outgoings and therefore be more inclined to visit charity shops in search of bargains, unfortunately, the same preference to save rather than spend means that charity shops are faced with a dwindling supply of stock as more and more households delay replacing their furniture and other goods in order to safeguard their own budgets.
“Consequently, if sales in the High Street are falling, sales in charity shops will fall too. Charity shops, contrary to what a casual observer might expect, only reap financial rewards in those times when other High Street retailers prosper also.”
So can the voluntary sector ride to the rescue of retail landlords reeling from the credit crunch? Perhaps, but only if they are confident that they can find sufficient stock to fill the vacant retail units that enlightened landlords are eager to lease them.
For further information please contact Steve Barnett on tel 0141 331 2807
Issued on behalf of J&E Shepherd by Liquorice Media tel 0141 564 8058
Date 21st April 2009