Tesco back in development

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Supermarket subsidiary will build retail parks and mixed-use schemes on its land

Britain's biggest supermarket group tesco is going back into non-food property development in a move to cash in on its huge estate.

Five years after its previous development business was wound down, the supermarket chain, which operates 1,982 stores, has set up a subsidiary to carry out the development of its land bank.

The aim of the new subsidiary will be to generate profits for the group by developing retail parks and mixed-use schemes on land it owns but which is not being used to build supermarkets, and selling them on to third parties.

The move represents a change of direction for Britain's biggest supermarket group, which in recent years has been selling non-store land to third-party developers.

It also comes in direct contrast to the strategy at rival Sainsbury's, whose board decided earlier this year to sell off J Sainsbury Developments, the group's standalone property development arm.

The new development business will be called Spen Hill Developments and will operate with its own budget and accounts.

It has taken its name from Spen Hill Properties, Tesco's previous development arm set up in 1989.

Many of the properties were sold into two joint ventures with British Land in 1996 and 1998. The company has not carried out any developments since the late 1990s.

A spokesman for Tesco played down suggestions that Spen Hill Developments was a 'resurrection'. He said: 'It is a brand new entity. Rather than invent a new name, Spen Hill means something to the outside world and to Tesco.

'This is a very important move for us. We are principally a retailer, but being a big landowner it makes sense to make more use of the land we own.'

Tesco operates stores varying in size from 3,000 to 100,000 sq ft (278-9,290 sq m), including its smaller Express format.

However, it also has a vast amount of land associated with its supermarkets, much of which is capable of housing lucrative developments.

Spen Hill will focus on three differing types of landholdings:

  • land occupied by a supermarket that Tesco no longer wants
  • land Tesco owns near an existing store that it wants to keep and develop
  • land previously earmarked for a store that Tesco no longer requires.

One of the earliest examples will be in Llantrisant, Wales, where a 100,000 sq ft (9,290 sq m) retail park will be developed on land occupied by a supermarket that is no longer required because a newer one has been developed nearby. Morgan Williams and EJ Hales are advising.

Spen Hill Developments will be headed by William Marsh, who joined Tesco in February 2002 from Asda Property Holdings. Marsh will ultimately report to head of property Tony Eggs, whose focus is on developing the core supermarket portfolio.

Marsh said the company would be complementary to the estates department and that he planned to improve contact with retailers such as Next and Homebase in much the same way as Carrefour works with retailers in Europe. A budget and development programme is being worked out.

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