Consultant Alastair Stewart on how John Lewis misjudged the BTR basics

Alastair Stewart is an equities analyst and consultant

JLP originally planned to develop 10,000 build-to-rent (BTR) homes as part of its diversification drive – its stated aim at the time was to generate 40% of profits from outside retail. The staff-owned group said in 2023: “At a time when there is a housing crisis, we are making a huge contribution. John Lewis is offering quality service and security in a high-quality home.”

It all seemed to make sense. New Waitrose locations have always been painstakingly plotted to meet the best rent-paying demographic. With half of the 10,000 units due to be delivered on its own sites, blocks would be built in new over-store developments or on non-income-generating car parks, often near transport hubs. And there was the adored brand: flats would be kitted out in John Lewis furnishings and hungry commuters would be just a lift journey away from that night’s prawn biryani and Prosecco.

Three schemes were initially launched, for 1,000 homes at supermarkets in Bromley and Ealing and a warehouse in Reading. It also took on management of four buildings owned by fund manager Aberdeen. I’m told another three were considered in London, on Holloway Road, in Mill Hill and at Clapham Junction.

Retailers haven’t had much success in sprinkling their ‘magic dust’ on housebuilders

White, who had been a career civil servant, didn’t last the course. She announced in 2023 she would not seek a second five-year term after it ended last February, making her the shortest-serving chair in John Lewis’s history.

Tarry, by contrast, was steeped in retail, albeit serving his 33-year career at the rather less salubrious Tesco, where he began as a graduate trainee in 1990, before climbing to UK and Ireland chief executive. He is now expanding the network of stores after the portfolio shrank over the past decade.

Brendan Geraghty, chief executive of the Association for Rental Living, lamented: “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.”

Flat out: John Lewis has cancelled its plans to expand into build-to-rent housing

Quite the contrary. JLP’s strategy was “pretty nuts” from the start, according to one leading BTR figure made privy to JLP’s plans during ‘soft market testing’ of potential funders and partners in the earliest days of the scheme. Ominously, his views seem to be shared by past and present members of JLP’s property teams, who hinted to me a picture of clashing egos and nothing near to the required financial and development nous.

Ethical leanings

The land valuations – in effect JLP’s starting equity – outlined in the market testing seemed wildly optimistic, my source says. Initial ‘affordable’ housing commitments were fanciful and seemed based on JLP’s ethical leanings, rather than planning necessity or financial reality. Likewise JLP’s assumptions on returns, set at a time when capital market conditions were far more benign – a charge the retailer conceded in last month’s announcement. Planning also proved more fraught than anyone had twigged.

Retailers haven’t had much success in sprinkling their ‘magic dust’ on what they imagined were antediluvian housebuilders. Former Asda supremo (and now executive chair) Allan Leighton failed spectacularly to transform mid-ranking Wilson Connolly into “the best housebuilder in the world” when he was made chairman in January 2000. Never one to hide his light under a bushel, he told Building magazine: “I am a change agent. Since I was appointed and announced my vision of rationalisation, vertical integration and 10% of business on the internet, our rivals have gone into a tizz. It has shaken the industry up.”

Just over three years and a profit warning later, Taylor Woodrow, prior to its Wimpey mega-merger, swept ‘Wilcon’ up for £480m – a 21% premium to its latest net asset value.

JLP’s fundamental faux pas was more to do with forgetting retail fundamentals than not understanding property, says a practitioner who had served on both sides of the ‘aisle’. Ealing’s store was going to be reduced: “Maximising the shop floor is the most important thing in operating a retailer. If they thought retail was complex, this was much more complex.” There would have been a quicker and more profitable route to diversification: “If they’d sold the sites to Barratt, they’d have made some money. John Lewis is known for its knitting; they should’ve stuck to it.”

Alastair Stewart is an equities analyst and consultant