Tesco the UK’s largest supermarket chain, is hoarding land and buildings covering an area big enough to build 15,000 homes – a Guardian analysis has revealed.
The size of the embattled retailer’s land bank, theoretically large enough to replicate the government’s proposed new garden city at Ebbsfleet, is far greater than previously estimated and remains on the grocer’s books despite much of it being bought to build the out-of-town Extra superstores which are no longer financially attractive as shoppers turn their back on the big weekly grocery shop.
The scale of Tesco’s landholdings are revealed as the grocer’s under-pressure boss Philip Clarke steels himself for a barracking from disgruntled shareholders at Friday’s today’s AGM. Clarke has said it could take three years to turn the struggling UK chain around. Its most recent sales figures were the worst in a generation.
The study of Land Registry records by the Guardian and aerial photography company, Getmapping, reveals Tesco’s British property portfolio covers 4.6m sq m spanning around 310 separate sites that do not currently house a Tesco store in England, Scotland and Wales. The data is a snapshot of Tesco’s land ownership, taken from Land Registry records in March, which was then matched against the grocer’s own database to remove existing stores. Some of the portfolio is residential property or rented to other retailers, but the majority is undeveloped.
The analysis comes at a time when the Labour party is floating a “use-it-or-lose-it” policy for big businesses sitting on large amounts of undeveloped land, as well as various calls to develop the greenbelt and to “retrofit old cities to modern demands“.
Supermarket land banks came under the spotlight of the Competition Commission seven years ago, when the major chains faced allegations they were buying up land to prevent rivals from developing in certain towns. At the time, Tesco was reported to have 185 sites – said to equate to 410,000 sq m of new store space – that it could develop without getting permission from government regulators. Last year, the retailer cut the valuation of about 460,000 sq m of its land by £800m – as it admitted it would never build on many of the sites it had accumulated over the years. The grocer last year said its UK property empire was worth £20bn.
The new details on the land bank follows news that Tesco is “urgently investigating” its property division – and faces potential fines – after the Guardian revealed the supermarket chain has been failing to comply with a Competition Commission (now the Competition and Markets Authority or CMA) order for the past four years. The 2010 directive related to Tesco’s use of restrictive covenants, which allow former land and property owners to control how plots are developed after they have been sold, and which the supermarket had repeatedly insisted it had removed as ordered.
The Guardian’s analysis has also discovered that the supermarket chain:
• has accumulated large amounts of unused land in close proximity to existing superstores;
• has bought up successful local pubs, turning them into convenience stores. One became a squat;
• has acquired a substantial portfolio of established residential property;
• has turned down offers for at least one site from rivals, despite having no plans to develop the land.
A spokesman for Tesco said: “We only buy land with the intention of delivering developments. Like other supermarkets, we own a pipeline of sites where we intend to develop new stores for our customers over the coming years.
“As we have previously announced, in response to changing customer shopping habits we have decided to reduce the amount of new space we build each year, building fewer large stores. Where we no longer intend to develop sites, we sell them, lease them or develop them for housing. We are very willing to sell or lease sites to other retailers where they make the best commercial offer, and have done so many times.”
He declined to comment on the size of Tesco’s land bank, or to comment on City speculation that the retailer would likely be forced into further write downs of its unused sites.
The Competition Commission’s 2007 inquiry found no evidence that the land holdings of the major supermarkets impacted on competition, although the theory continues to be debated within the property sector to this day. While the Competition Commission’s report ordered supermarkets to remove selected restrictive covenants, its overall conclusions said it had no evidence to prove allegations that the industry owned land in order to thwart competition. “We do not find that grocery retailers are engaging in the holding of undeveloped land (or land banking) as a strategy to impede the entry by rival grocery retailers into local markets,” it said.
The arguments are being revived as Aldi and Lidl, which are having a dramatic effect on Tesco’s trading and whose influence was shown in the latest inflation figure which fell to its lowest level in almost five years in May partly because of supermarket discount wars, look for new store sites.
The practice of holding a large land bank is not exclusive to Tesco, but as the market leader it is widely believed to own by far the largest one within the UK supermarket sector. Last month, Sainsbury’s said a review of its “property pipeline” identified a number of sites that it no longer wants to develop, resulting in a £92m write down in its books.
The hoarding of development land for long periods has also drawn criticism in the house building sector – which owns far larger plots of land than the supermarkets – and in December Ed Miliband promised the next Labour government would legislate to prevent profiteering property developers stockpiling land, in order to more than double the number of homes being built each year in England.
However, even that policy – considered radical by many and hated by the house builders – is not seen as far-reaching enough for some.
Prof Karel Williams of the Manchester Business School, added: “With Ed [Miliband] it stops at the headline. Use-it-or-lose-it should surely apply to local councils, superstores and straight property companies.”
While the aggregate size of Tesco’s land bank could theoretically be used to build many homes, it is distributed over the length and breadth of Britain, with areas of some plots likely to be unsuitable for housing.
Fred Harrison, an economist who has called for land to be taxed as if the sites were in use, added: “Companies own all this land and choose not to use it. You can’t force them to sell it, but given there is a market demand for it and we know the value, you can charge the owners for the public services that make the land valuable. Then they lose money if they just sit on it with no revenue”.