£1.4bn construction client changes policy on mixed-use development in bid to save cash

Supermarket giant Tesco has cut a swath through its property division as part of a plan to dramatically scale back its mixed-use development work.

It is believed that the client, which carries out about £1.4bn of building work in the UK each year, is axing about 30 jobs in its property division as it scales back on work.

Patrick Stones, the property development director who led mixed-use development in London and the South-east, is among those leaving. The team of five he headed has been disbanded, with three made redundant.

Stones said: “Tesco was reluctant to use its limited capital on non-Tesco investment.”

About half of Tesco’s land acquisition team – some 12 people – have also been laid off.

Mark Salvi, its development director, and Clive Hazelhurst, the development manager who worked with the mixed-use team, will also leave.

Tesco was reluctant to use its limited capital on non-Tesco investment

Patrick Stones

The mixed-use model was adopted by Tesco in the past 10 years in response to government pressure on retailers to fund infrastructure and homes where stores were were built in areas earmarked for regeneration. It has so far been used on about 40 major projects.

The fate of schemes such as the £400m Woolwich project in south-east London is now unclear. This was a joint venture with St James Investment that was to build 1,000 homes. Phase one is under way, with phase two due to start in October 2010.

Stones said the first phases of many schemes in London would require more than £75m of further investment to complete.

Another source close to Tesco said: “Some of these sites can require up to 3,000 homes. It was always going to be ambitious.”

Although work on Tesco’s existing sites will go ahead in areas outside the South-east, it is understood that it will look to rephase or mothball some in the region and sell others. Stones, who says he left Tesco on good terms, is intending to set up his own development company and hopes to continue to work on some sites, either in partnership with Tesco or through acquisitions.

A Tesco spokesperson said: “We are still committed to mixed-use schemes, but in the current market it is not appropriate to promote so many of them. We won’t be building so many homes in the short term. Our target of 2 million ft2 remains.”