Retailer John Lewis, known for its upmarket department stores and Waitrose supermarkets, dropped something of a bombshell onto the property market last year when it announced plans to become a residential landlord. Now more details are emerging let’s take a closer look not just at what John Lewis are planning but at what it might mean for the property market.
First some background. John Lewis’s proposed move into residential property rental was announced following a strategic review of the business which involved consultation with customers, suppliers, communities and staff.
The Partnership Plan announced other possible developments of the John Lewis and Waitrose businesses including what the company called introducing ‘inspirational new services and partnerships to rebalance business beyond retail.’ As well as housing, these plans cover financial services, outdoor living and rental/resale/recycle schemes.
John Lewis says that it is aiming to generate 40% of profits from these new areas, including rental property, by 2030.
It seems that the new John Lewis homes will essentially be build to rent or BTR properties. In other words, they will be new builds built specifically to be rented out by the developer.
On actual property numbers John Lewis says it is planning to develop around 10,000 properties over the next decade. It suggests it has already identified space for around 7,000 on 20 sites it already owns including above or around its own stores and distribution centres and that the properties could include everything from flats to large detached houses. It adds that it will also consider developing new sites.
Why might John Lewis be moving into the property rental market?
John Lewis is pitching this as a socially-orientated move, to help with the nation’s housing supply and help local communities. The company is after all an employee owned business and partnership. It has even suggested it may offer some of the new properties to its employees (or partners as they are known) at advantageous rents. Current trends are for businesses to clearly demonstrate their social responsibility in any case.
Behind the scenes, however, there is probably more to it than that. John Lewis has expanded fast in recent decades, becoming something of an icon of retail success. But its fortunes have changed more recently as High Street retail has declined, the company made its first ever full year loss this year and several stores have been closed for good.
Quite simply, John Lewis seems to be showing it won’t risk becoming another Debenhams. It needs new directions in which to grow the business that aren’t High Street retail – and new uses for land and floor space it might not need anymore. It says that its strategic review is aimed at building a stable long term income for the business.
So what exactly could all this mean for the residential property letting market?
Will it fly? Quite possibly. John Lewis and Waitrose are respected and trusted brands. (Although it’s not clear which if any brand the new homes will be rented out under.)
John Lewis has suggested that the new rental homes might be packaged up with furniture rental from its stores, together with a concierge service and grocery deliveries with Waitrose. That will give the properties a unique marketing angle. It’s easy to see how it would be popular with those renters who are fans of these strong brands.
It’s also worth bearing in mind, however, that John Lewis and Waitrose are fairly high end brands. So there might be an issue with image. Will people who shop at Tesco, Morrisons, Aldi and Lidl be attracted to the idea of renting a home from John Lewis?
Quite significantly however the new homes will basically be build to rent developments. Although build to rent is a growing trend it is to some extent new and unproven in the UK. That said, there are already some quite large players already in the BTR market.
According to Savills the UK’s BTR stock now includes 53,750 completed homes with a further 37,000 homes under construction. They say that the future pipeline stands at 89,000 homes.
Currently John Lewis’s plans to go into property letting are fairly modest at just 10,000 homes, so the impact on the market is likely to be quite limited at least for the foreseeable future. The company has suggested that the concept could operate nationwide but is likely to commence only in the south east initially. Planning applications for two sites in Greater London are anticipated this year.
Lastly, John Lewis is of course famous for its slogan .... Never Knowingly Undersold. John Lewis’s Property Director Chris Harris has already confirmed in the recent Sunday Times report: “We are aiming to charge a fair rent and to stay in this for the long haul.”
That may well be the key to how the retailer fares as a residential landlord. There is a huge demand for rented accommodation at a fair rent of course. But just how will John Lewis balance the quality and service for which it is renowned with fair rents? Many people in the property business will be waiting eagerly to see what kind of product these new ‘Lewis Lets’ are, and what kind of rents they command.
