A popular British retailer is now facing a £57million blackhole due to its flagship housing scheme, advisers have warned.
John Lewis’ scheme to build more than 400 flats above a Waitrose in West Ealing risks costing significantly more to build than it is worth on paper.
Planning documents suggest the project threatens to deliver a negative return of £57million, The Telegraph has revealed.
Early analysis commissioned by John Lewis Partnership, which also owns Waitrose, went on to raise fresh questions about the retailer’s plan to expand into property.
John Lewis store in London's Oxford Street
PA
The move has been pursued by John Lewis chairman Dame Sharon White.
The analysis, which was undertaken by Quod, warned the “financial viability of the scheme is extremely challenging”.
The West Ealing development is one of the first major projects to feel the effects of fire safety requirements, increasing construction costs and higher interest rates.
Current estimates show the project would cost at around £240m to complete but be worth only £183m based on present-day values.
Shore Capital’s Clive Black said: “From a pure asset value perspective, this is the sort of development that would be very unlikely to get through a listed company’s appraisal process.”
The forecast bill for the West Ealing development includes the cost of building 428 flats, landscaping the area and refurbishing a Waitrose store at the base of the development.
However, executives previously stressed John Lewis will continue to own the building upon completion and rent out the flats to local tenants.
Any potential increase in earnings from the shop was not taken into account during Quod’s financial viability analysis.
John Lewis department store signage in Leicester
PA
The report instead assumes around 20 per cent of the properties will be classed as affordable.
John Lewis was previously aiming for 35 per cent of the flats to be considered affordable.
Katherine Russell, who heads up John Lewis’ build to rent project, said: “We are not in this to flip and generate more profit for developers. This is going to be a long-term investment.”
A spokesman for John Lewis Partnership added: “We want to make long term commitments to our communities through our stores and building much needed new homes.
“We can take a longer term view and want to create as many affordable homes as we can for key workers such as nurses, teachers, the police and care providers.”
