From retail to rental: John Lewis to enter the property rental market
Authored by my colleague Megan Forbes.
Online shopping and Covid-19 have created a huge blow to the retail industry and have already directly caused the administration of a number of department stores. Changing consumer habits have resulted in the need for retailers to adapt quickly in order to succeed, and the John Lewis Partnership (incorporating John Lewis and Waitrose stores) appear to be doing just that with their new strategic plan to move into the property rental market.
Currently, 60% of John Lewis Partnership sales are online, and the Partnership has forecast that this will rise to 70% by 2025. With their retails stores therefore generating only 40% of its sales, the Partnership has underutilised real estate at its disposal and has quickly made plans to adapt to the changing retail climate through renting out surplus floor space.
In August, the Partnership submitted a planning application to Westminster City Council to convert three floors of its flagship Oxford Street store into office space for rent (use class B1). The flagship store already has a surplus of non-trading floor space, with the majority of the planned conversion floors currently occupied for their own office and storage space and with only 50% of the entire store being used for trading. The Partnership views the flexibility of a dual/alternative use of their retail space as key to overcoming the issues of the viability of retailing on Oxford Street. The application is made in compliance with Policy S21 of the London Plan, which provides a blanket protection for existing A1 retail floor space in London, except where the Council consider that the retail unit is not viable. In addition, whilst the retail A1 use of the basement, ground and first floor at the site is protected by Policy SS3 of the Westminster Unitary Development Plan, change of use from the third floor and above is considered acceptable.
And it’s not just the Oxford Street store that is proposed to provide rental income; the Partnership has identified 20 of their sites that could be utilised for social and rental housing. Rather than downsize to smaller sites, the Partnership has announced plans to submit planning applications in 2021 for housing at two stores in greater London. They are also in talks with developers and investors to plan for the other sites. These plans are part of the brand strategy to provide local communities with quality, value and sustainability. The Partnership plans to carve out underutilised retail space at their sites to convert into rental homes, which would provide a stable income to the Partnership and allow them to keep as many retail stores as possible. The aim is also to furnish the rental properties with John Lewis goods, and for the renters to become customers at the adjoining store. With estimates showing that the UK has built 1.2 million fewer homes than we need, the Partnership’s plans to unlock underused real estate and provide much needed homes to the local community should be welcomed.
The Partnership’s new strategic plan aims to generate 40% of future profits from non-retail services such as financial services, private and affordable housing by 2030. The fact that one of the country’s largest and most successful retailers plans to start generating 40% of its profits from non-retail services within the next 10 years illustrates the enormity of the difficulties facing retailers. Online shopping, decreased footfall and rising rent/ business rates have already made multi-storey retail stores unviable, and rather than carrying on and struggling to stay afloat, adapting to market conditions and changing tactics is clearly the way forward.
Decision-makers are well aware of the difficulties facing retailers, and the past few months has seen the biggest shake up to the planning system in years. Changes made to planning regulation aim to provide flexibility to retailers to allow them to thrive in the current conditions. The newly introduced Class E encompasses shops, financial & professional services, restaurants & cafes, business, indoor fitness, medical or health services and day nurseries. Moving from one use to another within Class E will no longer constitute development (meaning that planning permission is not required) although planning permission would be required for changes to the outside of the building which are needed to effect the change of use (the Partnership’s plans for their Oxford Street site are therefore unlikely to be able to be made without planning permission). The changes are significant for our struggling high streets and will afford retailers the flexibility to diversify their offering without needing to seek approval.
So whilst we may well see a number of retailers converting space into office rental or other uses within Class E, the Partnership’s move into rental property is bold and one to watch. Our high streets and retail areas are likely to change significantly over the next few years and there will no doubt be a number of retail casualties. It is clear that retailers need to adapt, be flexible and seek new opportunities; the John Lewis Partnership are paving the way for the future of retail, and it will be exciting to watch their strategy come to life over the next few years.
“We’ve seen five years of change in the past five months... We’re adapting successfully to how customers want to shop today, while showing the partnership is improving lives and building a more sustainable future. We’ll share our success with our customers, partners – who own the business – and our communities.”
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