John Lewis pulls out of resi JV
- Rupert Harding
- 2 days ago
- 2 min read
On 1st December 2022, The John Lewis Partnership and fund manager, Aberdeen Group, (at the time known as abrdn), announced an exciting £500m multi-decade joint venture to build circa 10,000 residential rental homes, the first 1,000 being planned for Bromley, West Ealing and Reading.
However, yesterday, John Lewis abandoned these exciting plans after apparently struggling with planning red-tape and encountering higher interest rates and inflationary pressures not envisaged at the outset, and a more cautious property market.
John Lewis said that its strategy to build and manage flats “no longer meets” its original investment criteria, adding: “Our rental property ambition was based on a very different financial environment.” This is surprising given that the retailer already owns circa 70% of the land and buildings required to bring forward the proposed new BTR portfolio.
It was an inspired idea (and remains so) to utilise and repurpose any space no longer required for supporting their physical and online retailing businesses - providing a much sought after need. Other retail centric property businesses, such as the New River REIT, have turned their businesses around in recent years by unlocking alternative uses and values.
This is both disappointing but also difficult to fully understand their reasons given. After all, inflation rates were in double figures when their announcement was made in 2022 and have continued to drop significantly since then. The sheer size of the venture seems to point towards this being a long term commitment, and this should have been supported by both average national rents and prices rising since the announcement, albeit modestly in some places.
The reasons above therefore should actually be combining positively with current plans to relax planning laws, including applications from commercial to residential uses, making the whole process more flexible and, hopefully, quicker. As a result, change of use from offices to residential could potentially be possible without full permission, especially those focussed on high-density housing schemes in towns and cities, which must be playing positively into the JV partners' original core business model.
There appear to be several additional reasons for John Lewis's decision to pull out, including an underlying concern in respect of future construction costs which are expected to rise significantly over the next few years (especially some materials). But it is their eminently sensible wish to concentrate on their core retailing activities that seems to be the main driver. It is a shame that they have dropped trying to unlock the housing potential within their portfolio in meeting this commitment.
There may be other reasons as well that haven't come to light just yet. But I do hope that they are able to revisit this exciting initiative down the line....
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