British retail partnership John Lewis has pulled the plug on its plan to build 10,000 rental homes across the UK, citing a “fundamental shift in the economic conditions” since launching the venture five years ago.
The owner of John Lewis department stores and Waitrose supermarkets announced the decision on Wednesday, stating that higher interest rates, inflation and a “more cautious” property market meant the build-to-rent business no longer met its investment criteria.
“Our rental property ambition was based on a very different financial environment: one with more stable investment returns, lower borrowing costs and more affordable costs to build homes,” the partnership told the FT.
The initiative, launched in 2020 under former chair Dame Sharon White, was designed to diversify revenue beyond retail as competition on the high street and online eroded profitability.
The project aimed to build rental homes of varying sizes, mainly located next to or on top of the partnership’s existing stores and distribution centres.
As part of the venture, John Lewis entered a £500 million joint venture with Aberdeen Investments, taking over four buildings owned by the asset manager in Reading and the London suburbs of Bromley, Stratford and Ealing.
However, the plans proved controversial with local residents and politicians, who argued the developments were too large and did not allocate enough affordable housing.
Jason Tarry, White’s successor, has since refocused the partnership on its core retail operations while working to restore morale among staff – known as partners – who have gone four years without an annual bonus.
The partnership said it would fulfil its management contracts with Aberdeen at all four sites as part of the transition.
“John Lewis Partnership are contracted to keep managing our UK build-to-rent properties until 2027, and we are strongly committed to ensuring that they maintain the high standards customers have come to expect as we work with them on an orderly handover,” Aberdeen said.
The withdrawal comes as UK developers face mounting obstacles to homebuilding projects needed to meet the government’s target of 1.5 million new homes by 2029.
Rising construction and financing costs, combined with regulations introduced following the Grenfell disaster, are forcing developers to reassess the economic viability of their plans.
The Renters’ Rights Act, scheduled to come into effect in May, will also strengthen tenant rights and ban rental bidding wars.
