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Autumn / Winter 2022
Issue #3
FOREWORD BY:
BY:

Katy Warrick

Head of London Residential

Research, Savills

Do supermarket sites make good residential sites?

London has seen an increase in supermarket repurposing to residential. Is this a model that would work elsewhere?

The world of retail has changed, and we’re not just talking post-Covid. As retail and consumerism continues to evolve, retailers are using less space, leading them to reassess their sites and maximise the development land value.

At the same time, London is falling far short of delivering the homes it needs. Currently levels of new supply are c.40,000, while the Mayor’s draft London plan identifies a need to be building 66,000 homes every year to meet demand. Could supermarket repurposing, or intensifying the existing retail use, help fill this gap?

How many homes could supermarket redevelopments provide?

Many supermarkets in London have large stores and extensive ground floor car parking which can be consolidated and intensified to optimise the site, in areas where the residential value supports this.

Over the past ten years some of the major supermarkets have reviewed their options for their supermarket sites. We have analysed the delivery and pipeline of supermarket sites in London, and whilst there have been just 8 sites (20+ homes) completed over the past 10 years, delivering a total of 1,519 new homes, there are significantly more in the pipeline. We have narrowed our search to include only sites with capacity of more than 250 homes, and those that are on existing supermarket sites, and identified a potential pipeline of nearly 24,000 new homes.

Supermarkets have led the way in terms of re-evaluating their land development value, and now other owners of significant retail real estate portfolios are exploring their options – some as a matter of urgency.

Why are they doing this? In London there is plenty of demand for supermarkets, but that space may be in need of modernising or right-sizing with several operators looking to enhance or relocate existing stores. A planning permission may be easier to achieve with homes on top of a supermarket as local authorities generally like mixed use sites, and there is a chronic undersupply of new homes in London. The additional receipts from the homes will help the overall viability.

Several partnerships have been formed between supermarkets and residential developers. Barratt and L&Q, and Berkeley Homes are particularly active. Barratt have two significant schemes; Fulham Riverside and Nine Elms Point where the previous supermarket site has been developed to provide a high density mixed-use site, including the re-provision of the supermarket in both cases, 1,200 new homes across the two sites, as well as other commercial uses, landscaped gardens and public realm.

Berkeley Homes recently started on site on a Tesco site in Oval, and are re-providing the supermarket as well as other commercial and retail space, and 571 homes. They have big-scale plans in West London, where they have acquired two nearby sites and submitted planning in September 2020 for 2,250 homes on a Tesco and Homebase in Osterley, TW7, where they are able to provide the Tesco on the adjacent Homebase site to avoid losing continuity of trade throughout the construction of the new supermarket, alongside residential and flexible commercial uses.

Developers clearly recognise the value of having a supermarket as part of a mixed use development, as a complementary use. We know that when people choose where to live, good retail and leisure are key elements. Our analysis shows that the combination of good retail/leisure and short travel time to employment centres correlates to higher residential value.

Sainsbury’s, Silk Park, Hendon

Developer perspective

Greg Tillotson, Divisional Land and Planning Director at St George finds that working with supermarkets to repurpose their land can be the perfect solution to meet the needs of both parties. St George want to deliver sustainable communities, and repurposing supermarkets allows them to retain existing employment opportunities and create new ones. Often the supermarket can act as a catalyst for additional commercial uses that complement one another (such as shops, restaurants, gyms and leisure facilities).

“Our experience working with Morrisons (Camden Goods Yard) and Sainsbury’s (Silk Park, Hendon), has taught us a great deal about how to ensure these schemes are successful. It is crucial to understand the functional needs of the operator at the outset, and to work together with them in order to secure a planning permission that is deliverable on all levels.

Details such as servicing and access routes are particularly important. Often operator requirements such as car parking, do not align with planning policy and so this can be challenging. Further, operational requirements can change throughout the planning timeframe – just look at how Covid-19 has impacted requirements for sales floorspace versus storage floorspace. It is therefore crucial that we are both flexible and proactive in these circumstances”.

But it can be complicated.

It doesn’t work everywhere. If the existing store is producing strong revenue, it is likely that continuity of sales and minimal disruption from construction will be important factors. Not all sites can allow for this.

A good example of a slow burner is the Sainsbury’s site in Ladbroke Grove, where Molior estimates capacity for c.600 new homes, yet there has been no activity to date. It is a sizeable part of an opportunity area, with canal frontage, and close to public transport. However it faces challenges around land ownership, and the developer needs to come to agreement with adjacent land owners in order to maximise the value effectively. It could be many years more before we see this site redeveloped.

There are other sites which initially look like they could be good opportunities, but yet have struggled to make any progress. One example is Sainsbury’s in Ilford, where planning has been obtained, but the land value doesn’t provide enough to deliver high rise residential on a podium, therefore this is likely to stay as a supermarket for now. This could change in the future when more people shop online and footfall decreases further.

The opportunity to reimagine retail isn’t limited to supermarkets. Other types of retail, such as retail parks and shopping centres, face the same pressure of reduced footfall from more online shopping and could make excellent mixed-use sites. Argent Related, British Land, Ballymore and Landsec are also all active in this space.

This is primarily an urban proposition and outside of London there has been an increase in this sort of development activity in recent years, but they are challenging. In the regions, the locations that have tended to favour supermarkets have rarely been those that favour high density residential. However, many supermarkets are now outdated stock, and a marriage with residential has the potential for them to update and improve the offer and cater for ecommerce, while residential footfall provides surety of trade and amenity for residents.

Figure 8: Existing supermarket sites, and planning status, where redevelopment into mixed use (including re-provision of a supermarket) is possible