Talks are ongoing between the city council and housing developers over the old store at St George’s.
Sainsbury’s relocated from the site to St Mark’s three years ago.
A year later, the local authority purchased it for £13.1 million.
Why have homes been earmarked for the site?
Tim Johnson, the council’s strategic director, said: “The future use of the site will probably be different than most people expect.
"There is no longer demand from a major retailer for use of the building. It is much more likely it will be a residentially-led development.
“We are taking to a number of developers about potential schemes for it. What is important is we do not rush it and we get it right.
“The site sits close to the Royal Hospital and Canalside Quarter, both areas for housing, which could be linked up to this.”
The council own the freehold of the site. Sainsbury’s is still tied into a 35-year lease, with seven years still to go.
It means the authority receives £1.2m a year in rent.
Money, Mr Johnson said, which pays for the cost of borrowing for the purchase.
But there is an option to negotiate a surrender of the lease with the supermarket if work was to begin.
What other plans are in the pipeline to transform the city?
The development could form part of a plan by the council to bring more homes and offices to the city centre.
A £55m Westside Leisure Quarter with a cinema and restaurants will begin to open in 2020.
There are also plans for a new railway station with office space and 600 homes along the Canalside Quarter.
A report to be discussed by a scrutiny board tonight says the landscape of city centres is changing.
Mr Johnson said: “We have to compensate the decline in the retail sector, providing leisure and homes. People, today, want an experience when they visit.”
Plans to turn the Royal Hospital into homes were submitted by the The Homes and Communities Agency last year.
But a decision by the council has been delayed with heritage groups arguing a 1910-built Nurses Home at the site should not be demolished. The council has a target to build 30,000 new homes.