Some call it the Waitrose Effect. In the UK, the presence of the upmarket grocery chain plumps up prices of nearby homes. Perhaps Waitrose owner John Lewis Partnership hopes the same halo will hover over 1,000 rental homes it plans to build in a £500mn project with fund manager Abrdn.
John Lewis hopes to build 10,000 homes over the next decade. The aim is to help reduce a shortage of affordable housing in the UK. That chimes with the communitarian spirit of the employee-owned business. It also reflects John Lewis’s need to find new income sources while repurposing redundant property.
Insurer Legal & General already has a £264mn portfolio of affordable housing. Alternative asset managers such as Blackstone have been charging into rental housing too, though with less of an explicit social mission.
The timing is good. Rents have soared, up nearly 12 per cent year on year in August. Buy-to-let landlords, squeezed by higher costs, are quitting the market. In the year to August, 76,000 buy-to-let mortgages were redeemed, says Savills. Rental listings on online site Rightmove dropped 29 per cent.
For Abrdn, which manages £52bn of real estate in its portfolios, this joint venture makes sense. It already has about 30,000 rental properties on its books in Europe. These are primarily in Germany, with relatively few in Britain. UK property only makes up about 3 per cent of Abrdn’s sum-of-the-parts group valuation, says Numis.
Abrdn is wrestling with the problem that it is a medium-sized fund manager in a world of giants. It believes institutional clients will clamour for dependable single-digit yields on offer from rentals. Presumably, those will climb over time. Association with the trusted John Lewis brand should help.
John Lewis needs some help of its own. Poor footfall at Waitrose brought a first-half pre-tax loss of £99mn, a reversal from a profit the year before.
The partners talk about doing good things. They are also seeking a medium-term business opportunity. John Lewis should remember that renting out UK dwellings is an entirely different business to selling saucepans.
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