John Lewis Partnership has scrapped its house building arm and pulled the plug on plans to deliver around 1,000 rental homes across three sites, blaming a “fundamental shift in economic conditions” for the big U-turn on build to rent.

The employee-owned retailer confirmed it is withdrawing from the build-to-rent sector after concluding the numbers no longer stack up in today’s higher-rate environment.

The group had secured planning to build above existing Waitrose stores in Bromley and West Ealing and on a former industrial site in Reading.

Consented West Ealing plan of four high-rise blocks

In West Ealing, plans involved 428 flats in four high-rise blocks above the Waitrose store. Bromley would have seen 353 rental flats in a 24-storey block above the supermarket, while a further 170 flats were planned in Reading as part of a £70m scheme.

John Lews will complete final negotiations with local authorities before considering options for the sites’ future, which could include their sale to property developers.

The retailer said rising borrowing costs, higher build costs and weaker investor appetite had undermined the model originally conceived in 2020. Investment manager abrdn had been working with the retailer on the venture.

Reading scheme planned for brownfield site that will now be sold

A spokesperson said: “Our rental property ambition was based on a very different financial environment: one with more stable investment returns, lower borrowing costs and more affordable costs to build homes.

“Unfortunately, the current climate – higher interest rates, inflationary pressures and a more cautious property market – has meant the model no longer meets the partnership’s investment criteria.

“Since we embarked on the rental property plans in 2020, we have made significant progress with our core retail strategy. This has seen us invest heavily in our customer offer for our unique brands, John Lewis and Waitrose, simplifying our business and strengthening our balance sheet.”

The retailer also confirmed it is exiting property management and will close that business once contracts covering four residential buildings come to an end.

The move marks a sharp retreat from what had been billed as a long-term diversification strategy, designed to generate steady rental income from surplus land and airspace above stores.

But with housing development activity in London sharply down and funding costs elevated, John Lewis has opted to refocus on its core retail operations and shore up its balance sheet rather than ride out the downturn.