The Co-op in West Street, Portchester, will close by February next year over concerns about its viability.
The building which contains the Co-op, along with a pet shop, betting shop, and a funeral directors, has been put up for sale for £2m.
But the announcement has caused concern that its closure will ‘really hurt the elderly’.
An advertisement for 6-14 West Street said there is a proposal for the site to become 28 apartments and retail units.
Councillor Nick Walker, ward member for Portchester West at Fareham Borough Council, said: 'We have noticed a considerable decline in footfall over the years.
‘I’m sure my words will be remembered from the last meeting about the precinct – either use it or lose it.
'This could be the final nail in the coffin.'
Cllr Roger Price, representing Portchester East, said the closure will put the shopping area in ‘a very serious situation’.He said: ‘It will affect all the shops and traders in the precinct.’
Cheryl Coleman, manager of the Portchester Community Association, said: ‘Flats would be the worst thing to go in there.
‘I really like the idea of a bingo hall going in the space.
‘The Co-op closing is going to really hurt the elderly in the community.
'There are many elderly who cannot walk up to Aldi and Lidl, and there's the social aspect to them coming down here to do their shopping.
'And I'm very worried it's going to reduce footfall in the precinct dramatically.'
The store is a member of the Co-operative Group, with a spokesman from the organisation saying the decision was made after concerns about the store’s ‘viability.’
The spokesman said: ‘Although the Co-op is growing and opening new stores, we also have to take difficult decisions.
'The decision to close any store is not taken lightly, however after careful consideration, the lease of our West Street store is to be surrendered.
‘Our priority is to fully support colleagues, who have been informed, and every effort will be made to retain and find alternative positions in our other stores in the area.’
The other firms in the building are continuing to operate. Co-op has not yet shut.