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.”
This is a longer read than most, but the numbers tell a story that deserves your time.
The John Lewis Partnership’s withdrawal from Build-to-Rent does not withstand scrutiny. The contradictions in their own announcement deserve serious examination.
The headline loss figure of £406,000 pre-tax is not the kind of number that forces a business exit. For an organisation of JLP’s scale it is barely a rounding error, and more importantly it tells us nothing about the capital value of the underlying assets. That is where the real story lies.
Bromley alone tells a very different tale. BR1 is currently showing 5.77% annual capital growth against an average transaction price of £415,762, according to HM Land Registry data analysed through A System 4’s property intelligence platform. On a conservatively valued 330 unit Bromley scheme that represents approximately £7.9 million in capital appreciation every single year. The stated loss would be covered in under three weeks before a single pound of rental income is counted.
Look further into the data and it gets more perplexing still. The bottom 20% of the Bromley market is currently transacting at £247,814 against a long run trend price of £286,969. That is a £39,000 gap between where the market sits today and where thirty years of unbroken trend says it belongs. The market is not broken. It is temporarily suppressed and already mean reverting. That trend line has not changed direction once since 1995.
Any agent looking at that chart gives one piece of advice. Hold. You do not exit a suppressed market when the trend is intact. You certainly do not walk away from a rental income stream that bridges you to recovery. The rental income is precisely what covers your carrying costs while the transaction market catches up with the trend. Exit now and you crystallise every penny of loss with no offsetting gain. Stay twelve to eighteen months and the capital recovery will likely dwarf the total operating cost to date.
The timing is what makes this so perplexing. JLP absorbed all the fixed costs of setup including planning, regulation, compliance and operational buildout. The ARL itself describes the result as a fully operational business delivered in under 18 months. That is not a failing venture. That is a stabilised asset at the precise moment it stops costing money and starts making it.
The conditions cited as unworkable were either already known or clearly foreseeable when this decision was made. Borrowing costs began rising materially in 2022. Construction inflation has since moderated. The Renters’ Rights Act, whatever its operational challenges, does not damage capital growth in established residential assets across London and its commuter belt.
This pattern is not without precedent. In 2014 the Scott Trust, under financial pressure at the Guardian, sold its stake in AutoTrader through Trader Media Group to Apax Partners. One year later AutoTrader IPO’d at a valuation of £2.4 billion. The Trust needed liquidity for its core business and took advice that said exit now. The advisors were not wrong about the short term position. They were catastrophically wrong about the asset they were handing over. A trusted institution, under pressure in its core operations, took treasury advice over asset advice and exited a growth position at precisely the wrong moment. The upside was not lost. It was gifted to whoever came next.
The parallel with JLP is uncomfortable but it is there. The ARL response, while clearly well intentioned, actually sharpens the contradiction. It praises the operational quality, the trusted brand and the service culture JLP brought to the sector, then accepts the exit without question. If those qualities are genuinely valuable and the asset appreciation is demonstrably real, then this is not a market failure. It is a capital allocation decision by a business that needs its money somewhere else.
The question nobody in the published commentary is asking is this. Who acquires the planning consents, the stabilised managed portfolio and the operational infrastructure that JLP has just handed back to the market, and at what price relative to the value already created?
When a well resourced operator exits a growth asset citing conditions that the asset’s own performance directly contradicts, the rational response is not sympathy. It is to ask what is actually being optimised for, and by whom.
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This sounds like a ‘distressed’ sale, and someone will pick up a very profitable and established business.
My REIT recently completed it’s BTR programme and sold it’s portfolio to a local government pension fund. The numbers were excellent (no losses, fully let at the upper end of the sector, and no arrears), but the future management was not core to its business. BTR has a great future and is unlikely to be damaged by the RRA. I was very pleased with my return.
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Stick to handbags, ill-fitting men’s suits and furnishings up one notch from IKEA !
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