Collaboration and Imagination will be needed to get returns from unwanted John Lewis stores

UNITED KINGDOM / AGILITYPR.NEWS / July 31, 2020 / John Lewis’s  plans to switch excess retail space to affordable housing is welcome news but their management team is going to have to use a lot more imagination if they are going to make returns from unwanted leased stores, say leading tax and advisory firm, Blick Rothenberg.

Heather Powell and partner at the firm and head of property said: “ The news that Chairwoman Dame Sharon White’s team are examining opportunities to put excess retail space to good social use, in particular to switch to mixed use affordable housing, will be welcome news to many councils in the South East who struggle to provide homes to key workers.”

She added: “ Embracing the needs of the local community will be key to a successful out-turn, and if implemented with understanding ,will deliver against Dame Sharon White’s aim of putting the group’s excess space to “good social use” – as well as delivering a return to John Lewis and their landlords.”

Heather said: “ It is hoped that the additional collaboration, and lack of control over outcomes for leased space, is the reason that ideas for these surplus units has not been included in the recent announcement.”

She added: “ The John Lewis partnership operates 50 department stores, of which 8 are already earmarked for closure, and a further 337 Waitrose stores. The portfolio ranges from “anchor” stores in shopping malls, large outlets “out of town” and traditional department stores and supermarkets in High Street. The group owns the freehold of over 100 of the Waitrose stores, and it is this portfolio that gives the retailer the opportunity to explore other uses.

“The majority of High Street stores are concentrated in prosperous towns in the South East, and whilst Councils will be unhappy about the loss of local jobs, the opportunity to gain affordable homes in these locations will sweeten the pill. Other local businesses should benefit as there will be an increased population on their doorstop to serve – at the right price point – something local nimby’s should remember before they start shouting too loud about affordable housing coming into their area. It should not be forgotten that John Lewis will also benefit – gaining a long-term rental income.”

Heather said: “ The opportunities for the JL real estate team to look at this option have been opened up by the recently announced changes to the planning rules.”

She added: “ However the management team are going to have to use a lot more imagination if they are going to make returns from unwanted leased stores, which includes stores such as the John Lewis Flagship store in Birmingham. Where John Lewis is the tenant the landlord has control over the use of the store, and in malls housing is unlikely to be an option. It is clearly in the interest of landlords to ensure their property is occupied, and paying rent, so the need for all parties to talk and agree a way forward that works for everyone is clear. An empty store, even if John Lewis is paying rent, does not maximise the return for an investor, especially if they own adjacent properties (or the mall), as it will taint the whole area.

“Collaboration will be needed, with landlords and the local community, to look at all opportunities.   There are lots of ideas that are being discussed in the market place, including the conversion of some space in large stores to offices offering traditional offices and co-working facilities, as embraced by Westfield at Earls Court. Other ideas include increasing the leisure and entertainment offering – ranging from more imaginative dining options to activities such as table tennis and bowling.”

Heather said: “It is hoped that the announcement about the redevelopment of surplus stores to deliver affordable and social housing is the start of the journey for the John Lewis estates team, and that the additional collaboration, and the lack of control over the outcome of discussions, that is required to resolve the question of excess leased stores is the reason that this issue has not been included in the recent announcement - not that John Lewis is handing the problem back to their landlords.”