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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 meets” 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 build-to-rent initiative formed the central plank of former chair Dame Sharon White’s efforts to diversify the partnership’s revenue away from retail amid difficult trading conditions.
The project, which was seen by some analysts as an unnecessary distraction, has been hindered by a series of problems.
Jason Tarry, White’s successor, has since refocused the partnership squarely on retail to simplify its business and strengthen its balance sheet.
The partnership’s ambition was 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 build-to-rent venture, it entered into a £500mn joint venture with Aberdeen Investments.
In its short existence, the venture successfully progressed three planning applications to build about 1,000 homes in locations including Bromley and Reading in the south of England. The plans were met with hostility by some local residents.
The partnership’s withdrawal from the market is another sign of the difficulties developers face in getting ambitious homebuilding projects off the ground.
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.
That is keeping some on the sidelines at a time when the government is trying to reach its goal of delivering 1.5mn homes this parliament.
The build-to-rent sector is still nascent in the UK, where home ownership has long been a national obsession as a means of building wealth. Just 2 per cent of the private rented sector in the country is build-to-rent stock, according to Savills.