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CoStar Exclusive: Inter IKEA launches major UK development drive

By Paul Norman - Tuesday, October 04, 2011 15:00

Inter Ikea, the European investor, is preparing to invest hundreds of millions of pounds in housing and commercial property development across the UK, including a first major scheme in cooperation with retail giant IKEA.

Speaking exclusively to CoStar News, Harald Muller, business development manager, Inter IKEA Holdings, said the business had decided that the time was now right to expand its development business in the UK and bring an approach that would be “fresh and very competitive”.

As revealed by CoStar News in July, the business’s LandProp development arm will shortly complete the acquisition of further land for its first major UK mixed-use development, a circa 2m sq ft housing led scheme in east London called Strand East.

LandProp will acquire the land, principally from the City Hall and government-owned Olympic Park Legacy Company, in a move that would double the size of its proposed development to create a 30 acre project to the south of the Three Mills film studios site.

Inter IKEA, advised by GL Hearn and architect ARC-ML, is working up plans for up to 1.3m sq ft of houses, 480,000 sq ft of offices, 200,000 sq ft of hotels, shops, a health centre, community centre and nursery school, a gym and associated car parking. It does not include an IKEA store.

Muller said that the group is also in advanced talks to buy a number of other sites across the UK for commercial developments, with east London a particular focus.

Among these it is in talks to buy a site in an undisclosed location for a first mixed-use development built around an IKEA store in the UK.

Inter IKEA develops and acts as a completely separate entity to Swedish furniture giant Inter IKEA but the parties have worked in cooperation on many schemes in Europe.

The Swedish retail and investment giant has however previously considered the UK shopping centre market too mature for mixed-use development around IKEA stores.

Muller said the Inter IKEA business had agreed to pursue an aggressive drive into UK mixed-use development adding that its investment would run into the “several hundreds of millions of pounds”.

“We have taken a strategic view that now is the right time to move into the UK. There has been a natural cleaning of the market because of the lack of cash and bank lending.

"We are equity players with substantial cash reserves and a long-term investor and we feel now is the perfect time to pick up sites and bring in our approach to providing quality, affordable developments.”

Muller said the company had pulled back from initial steps to enter the market in the 1990s because housing development became “overheated” and “too complicated”.

Another factor has been IKEA’s difficulty in acquiring the type of sites it requires for its stores. IKEA, which typically acts independently to Inter IKEA, traditionally seeks circa 10 acre sites with easy access from motorways for its stores.

However, Muller said such sites have been hard to locate in the UK and the retailer is often offered sites closer to 50 acres in size, offering opportunities for significant mixed-use development.

Muller said Inter IKEA feels its long-term experiences developing in Continental Europe and Scandinavia mean it has developed a range of innovative and fresh models for constructing highly competitive, high quality schemes in the UK.

“As with our furniture, we are very conscious about sustainable and ecological solutions. Firstly we look to leave cars out of schemes and reduce individual traffic.

“We are from the Northern countries too where it is very cold and we have a model for constructing very good insulated houses that improves on what is seen in the UK.

“We have a range of technical solutions too that are in accordance with the company’s philosophy of reducing costs while maintaining high quality.”

A key thrust of Inter IKEA’s developments is to manage “real communities” rather than create “enforced communities” which Muller says happens too often in the UK.

Muller said the company was particularly “shocked” by the fact that key workers such as nurses and teachers were in the affordable housing range in London. “This does not happen in the rest of Europe. We want to deliver houses that are affordable for families.”

The company’s preference is, Muller said, to deliver private rented accommodation but it will not be prescriptive and will follow market conditions.

“We are a long-term investor that is not forced to create short-term profits.”

Inter IKEA is set to update on its plans for its first major mixed-use community in the UK, Strand East, on 20 October.

“We have named the scheme Strand East because we want to point out that east London is an important place in its own right and we believe fully we are creating something new here. We see east London as our playground. For all Londoners the Strand is the geographical centre point.

"We want to be the centre point for east London.”

pnorman@costar.co.uk