Throughout 2020, arguably one of the most volatile years the high street has ever seen, saw investors rather than fleeing when lockdowns hit seeking shelter in those sections of the high street presenting viable and sustainable business models moving forwards. One such haven which saw investment is the humble charity shop. In 2020 Allsop sold 23 charity shops raising a total of £6.95m. Average net initial yields ranged between 3.6% and 11.60% and lot sizes between £112,000 and £925,000. Of the 28 charity shops offered, 23 sold.
Why are charity shops so popular to private investors? The answer to that may be found in their business model. In essence a charity shop doesn’t pay for the majority of its stock as it is made up of donations. The cost of staff is also mitigated with all staff, except for the manager (typically) made up of volunteers and keeping the shop in a well run and tidy manner on a daily basis. From an accounting point of view these are serious costs eradicated but it doesn’t end there.
Charity shops receive a mandatory 80% business rates relief and can be offered the remaining 20% relief at the local authorities discretion. Of course due to Covid-19 relief measures all shops in the UK have benefitted from rates relief but when this is over the minute or non existent rates bill for charity shops should continue to help the sector to thrive.
One occupier, who proved popular throughout 2020 were shops occupied by Sense, the national charity. In these shops we saw a very sensible lease structure. In all cases a new or recent 15 year lease subject to regular index linked reviews as well as break options (with a break penalty payable if actioned) and the rent set at a sustainable level, these were similar to the lease structure seen in many sale and leasebacks also. We offered 7 of these throughout the year selling all 7, a 100% success rate. Buyers of the Sense occupied shops included private investors, both experienced and new entrants to the market as well as Self Invested Personal Pension (SIPP) buyers. Due the long lease length with regular index linked reviews over the entire buildings it made these shops ideal for SIPP buyers who continue to hunt for income and not think about them for 5-15 year periods.
All of these elements, when put together, make charity shops the popular purchase many know them to be. We look forward to offering more similar opportunities in the year ahead.
