The John Lewis Partnership has pulled out of a £500m deal to build almost 1,000 rental homes in Bromley, Reading and West Ealing, blaming higher interest rates, inflationary pressures and a more cautious property market.

When it first launched the venture in 2020, John Lewis aspired to build as many as 10,000 rental homes as it aimed to generate 40% of profits from outside retail by 2030. The partnership had been planning to build three rental home tower blocks under a £500m joint venture with Aberdeen. It is now considering options for the schemes – in Reading, West Ealing and Bromley - with outside developers expected to be brought in.

A John Lewis Partnership spokesman says: “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.

Climate

“Unfortunately, the current climate – higher interest rates, inflationary pressures and a more cautious property market – has meant the model no longer meets the partnership’s investment criteria.”

John Lewis is also withdrawing from its management of other rental homes. In its build-to-rent business, it manages a number of properties owned by financial partner Aberdeen. It said it would fulfil its existing management contracts before handing over to another manager.

A recent report into the BTR sector by Centre for Cities tracked huge growth in urban areas and city centres where it is taking up the slack from traditional landlords. The supply of new BTR homes jumped from less than 1,000 in 2004 to almost 90,000 in large cities in 2024 - 14% of new homes.

Costs

However, Nick Biring, co-founder at BTR Group, says borrowing costs have roughly doubled since 2021, construction cost inflation has remained elevated, while planning and gateway processes have lengthened delivery timelines. “The layering of building safety reform and the forthcoming Renters’ Rights Act has made it more complex for institutional investors to underwrite predictable income growth - something rental housing fundamentally depends on.”

He adds: “When a business with the brand strength, balance sheet and long-term outlook of JLP concludes that the economic shifts that underpinned their strategy has shifted, that should give all of us pause - including government.”

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