John Lewis Unveils Big Ambitions In BTR — But Who Is Going To Fund It?

Department store and supermarket chain John Lewis Partnership has unveiled plans to build 10,000 rental homes, as it looks to use BTR to boost the value of the company. And a bit of maths indicates it will need funding partners to fulfil its ambitions. 

The company said it identified the potential to build 7,000 BTR homes on its existing portfolio, including on parts of its department stores, on its car parks, on top of Waitrose supermarkets or next to distribution centres. It could build another 3,000 rental homes on brownfield sites it owns, the retailer said.

A bit of back of the envelope calculation indicates that John Lewis is unlikely to undertake this development drive alone. 

Building consultancy Arcadis produced a build-to-rent construction cost index in the third quarter of 2020. It pooled data on schemes comprising 14,000 units, which will cost a combined £2.5B to build.

That works out at about £178K per unit. Apply that to John Lewis’ portfolio of 10,000 units, and that works out at a development pipeline cost of £1.8B, a number that is probably a bit low, because John Lewis is likely to concentrate its development activity on London and the south east, where costs are higher.

John Lewis said in its 2020 annual results it had £1.5B of cash on its balance sheet plus £500M of unused debt facilities. That could fund a big slug of its BTR constructions costs, but it said the funds were also earmarked to help it ride out the volatility besetting the retail sector and department stores in particular. The company made a £517M loss in 2020. 

The company said in a statement on its BTR ambitions that it would build units ranging from studio flats to four-bedroom houses. Renters would be able to lease the units fully kitted out with John Lewis furniture or unfurnished. 

"As a business driven by social purpose, we have big ambitions for moving into property rental," John Lewis Partnership Executive Director of Strategy and Commercial Development Nina Bhatia said. “The move plays to our strength as a trusted brand known for strong service.”