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The John Lewis Partnership has scrapped its controversial plans to build 10,000 rental homes in the UK, citing “a fundamental shift in the economic conditions” since it launched the venture five years ago.
The owner of John Lewis department stores and Waitrose supermarkets said on Wednesday that higher interest rates and inflation, as well as 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 said.
The ambitious initiative, launched in 2020, formed the central plank of former chair Dame Sharon White’s efforts to diversify revenue beyond retail as fierce competition on the high street and online eroded the partnership’s profitability.
The project, which was seen by some analysts as an unnecessary distraction, aimed to build 10,000 rental homes of varying sizes, mainly located next to or on top of the partnership’s stores and distribution centres.
As part of the venture, it entered into a £500mn joint venture with Aberdeen Investments, taking over four buildings owned by the asset manager.
But plans for the sites — in Reading and the London suburbs of Bromley, Stratford and Ealing — were controversial with local residents and politicians, who said they were too big and did not set aside enough affordable housing.
Jason Tarry, White’s successor, has since refocused the partnership squarely on its traditional retail businesses and sought to restore morale among staff, known as partners, who have gone four years without an annual bonus.
The partnership’s plans to attract more customers back include an £800mn upgrade of some of its department stores and reintroducing brands such as Topshop. It has also committed to a £1bn revamp of its 320 Waitrose food stores.
The mutual 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 partnership’s withdrawal from the market comes as developers face increasing obstacles for their ambitious homebuilding projects to help meet the government’s target to build 1.5mn new homes by 2029.
Rising construction and financing costs, coupled with regulations introduced in the wake of 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 the rights of tenants and ban ‘rental bidding wars’ in which prospective renters bid beyond the advertised rent.