Cap on superstores' size rattles industry

The Duke of Westminster is reputedly one of Britain's richest men, and no doubt achieved that distinction by making canny investment decisions. The duke, through his Grosvenor Estates, has a half-share of the 125acre site at Quarryvale. It is targeted for a near-doubling of the Liffey Valley shopping centre, if the current 250,000 sq ft cap on the development is lifted by South Dublin County Council.

Cork's Mr Owen O'Callaghan has the other half-share of the site, a portion of which was sold a couple of months ago to Tesco for an astonishing £25 million or more than £2 million an acre. That record price was achieved ahead of a tender, and meant that Tesco was able to prevent serious competitors like Dunnes, Safeway and Sainsbury's establishing a presence in what is seen as a key development.

Now, the duke and Mr O'Callaghan must be popping the champagne corks, after the Minister for the Environment, Mr Dempsey, slapped a cap of 3,000 sq mtrs (32,000 sq ft) on new superstore developments; a cap that makes the £25 million paid by Tesco for the Quarryvale site even more astonishing.

Tesco bought that site with a 80,000 sq ft superstore in mind. It is difficult to see how the £25 million paid for the 11-acre site can now be justified or how a return on it can be generated, if Tesco is limited to 32,000 sq ft of selling space. Subsequent to the Tesco deal at Quarryvale, Safeway grumbled about the shortage of superstore development sites and the "done deal" that Tesco concluded with the duke and Mr O'Callaghan.

Safeway, Sainsbury's and Dunnes must now be mightily relieved that they didn't get the chance to bid for the Quarryvale site, given the restrictions imposed on the size of superstore developments by the Minister this week. That decision has also left Tesco with an almighty quandary about what it is going to do with superstore sites in Quarryvale and Malahide which have cost the British retailing group a tidy £36 million before a single brick has been laid and which are severely limited in terms of selling space.

The decision by Mr Dempsey has, of course, enormous ramifications for the retailing industry in Ireland, especially if the temporary 3,000 sq mtr cap on developments is eventually made permanent. In that case, it is difficult to see how Safeway and Sainsbury's could justify an entry into the Irish market, if they can't build anything bigger than 32,000 sq ft.

Mr Feargal Quinn also had plans for large superstores in Bray and Waterford, but Superquinn's plans are probably more adaptable to the new regime than Tesco's. The big winners out of this, of course, are smaller retailers, the symbol groups and the biggest domestic player in the industry, Dunnes Stores.