The John Lewis Partnership has confirmed it is closing its housebuilding division, five years after it was launched by former chair Dame Sharon White.
The group said the decision reflects higher borrowing and construction costs compared with when it entered the residential development market in 2020. It will also exit property management and close that arm of the business once contracts covering four residential buildings come to an end.
The employee-owned retailer said it was withdrawing from its venture into the residential property sector after “a fundamental shift in the economic conditions that underpinned the venture”.
“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,” a spokesperson said.
The decision forms part of a wider strategy to refocus on the partnership’s core retail operations.
The diversification into housing was announced in October 2020 by Sharon White, who set out plans to develop 10,000 Build-to-Rent homes over the following decade. The proposal was part of a wider strategy to generate 40% of profits from non-retail activities by 2030.
Three schemes were launched under the initiative with successful application for approximately 1,000 homes in Bromley, West Ealing and Reading. It also took on management of four buildings owned by fund manager Aberdeen.
However, the residential property business has not generated a profit. Accounts for its Build-to-Rent subsidiary for the 12 months to January show a pre-tax loss of £406,000.
John Lewis said trading conditions in London’s new homes market have been difficult, adding that other developers face similar challenges and that housing development in the capital has declined significantly.
Responding to the decision by the John Lewis Partnership to withdraw from its Build-to-Rent business, the Association for Rental Living (ARL) said it was disappointed.
Brendan Geraghty, CEO, ARL, commented: “The withdrawal of the John Lewis Partnership (JLP) from its Build to Rent property business as announced today is deeply disappointing news and a real loss for consumers. As valued members of the Association for Rental Living, JLP brought something genuinely different to the rental living sector – a trusted consumer brand, a service-first culture and a long-term commitment to quality that institutional investors and residents alike responded to. The operational improvements they delivered across their managed portfolio speak for themselves. The fact they were able to build a fully-operational business in under 18 months speaks volumes about the leadership of Katherine Russell and about the determination of the Partnership.
“Whatever people will say, the Partnership did not fail. It was ambitious, it was credible and it was doing the right thing. What has made this venture unworkable is a set of conditions entirely outside its control: borrowing costs that have roughly doubled since 2021, construction cost inflation that continues to outstrip general prices, an unwieldy planning system that has added years to delivery timescales, and the introduction of legislation – the BSA and particularly the Renters’ Rights Act – that has made it materially harder for investors to underwrite the predictable income growth that rental housing requires. Through own engagement in bringing together the Building Safety Regulator and institutional investors, we know that BTR investors support the principle that a safe building is a sound investment however the teething problems of the BSR have negatively impacted investor sentiment and contributed to JLP’s challenges.
“When a brand as well-known and well-resourced as John Lewis concludes that the economics no longer work, ministers need to sit up and think very carefully about how they respond. The UK needs institutional investment in high-quality rental homes – it is not a nice-to-have, it is essential to meeting the government’s own housing targets. This money is still very much there. But if the policy environment continues to deter exactly the kind of long-term, service-driven capital that JLP represents, we will miss a generational opportunity to deliver the homes this country so desperately needs.
“The ARL stands ready to work with government to get this right. But the window is narrowing to meet Government targets this parliament.”