Southampton City Council is looking to press ahead on plans to subdivide the current Wickes store at Shirley Retail Park on Winchester Road.
The council says it does not have the funds to contribute towards the cost of the scheme.
Prospective tenant Aldi would fund the build out work before moving into part of the building alongside existing occupant Wickes.
Under the proposed lease agreement, the German supermarket would then pay the local authority reduced rent for 10 years.
Overall, this discount would equate to a reimbursement of £1.7million.
The proposals, which also include a new lease with Wickes, will be presented to cabinet members on Tuesday, December 17, before councillors have the final say at a full council meeting in late February.
A report to cabinet said the local authority acquired the unit in 2016 for £12.09 million as part of its investment portfolio.
Wickes’s current lease is due to expire in September 2027.
A business case for splitting the unit was prepared in November 2021.
The report says: “By splitting the unit, the council would enhance the combined covenant supporting the asset, create more marketable space, and improve future growth and income stability.
“This strategy would boost both short and long-term rental income while increasing the asset’s secured income term and capital value.”
The council approved £1.837million in capital funding for the scheme in February 2022, however, in March of this year the capital programme was reviewed for potential savings and the allocation was removed.
“Cost had been incurred by external parties developing the proposal as well as with planning matters and both tenants were keen to continue,” the cabinet report says.
“The current deal involves Aldi funding the development of the site by way of a loan contribution in lieu of the council’s financial contribution, which would be as a capped discounted rent applied for a period of 10 years.”
An equality and safety impact assessment said Wickes wanted to subdivide the premises into two units to fit their requirements since 2021.
The home improvement retailer is seeking to enter into a new 15-year lease, while Aldi would enter into a 20-year lease.