Swede success An evident desire among other retailers to locate beside Ikea outlets first inspired the firm to form a development arm, which has since built 26 centres across Europe. Noella Pio Kivlehan reports
The company is adamant: there will be no Ikea developed – and anchored – shopping malls in the UK. At least not for the foreseeable future, says John Tegnér, managing director of the Inter Ikea Centre Group. “The UK market is very mature, with many good shopping centres already operating, and it is very difficult to get permits,” he says.
With the UK ruled out, much to the relief of homegrown developers and shopping centre owners, IICG’s activity focuses on mainland Europe and China (see panel, p31). Set up in 2001, it has 26 malls in seven European countries, with a total gross lettable area of more than 1m m2 (10.8m sq ft).
With a cash pot of ¤800m for China over the coming five years, and ¤300m for Europe, Tegnér predicts an exciting and healthy future for IICG – despite the global economic downturn, which has hit most European countries.
“We are not slowing down. We look back five years and compare with five years ahead – we will be more aggressive. We will be accelerating our development,” he says. In fact, IICG intends to double the number of its centres by 2015, adding another GLA of 1m m2. As well as continuing to develop in countries where it already has a presence, the group is striding into new markets in Serbia, Croatia, France, Italy, Spain and China.
Set up in 2001, IICG is owned by Ikea Group and Inter Ikea Group. The company develops and manages shopping centres in which Ikea, the Swedish home furnishings group, is the main anchor. The move to establish IICG was prompted by the effect of Ikea’s successful stores on surrounding land values as other retailers were attracted to open beside them.
Tegnér explains: “Think back 15 years: wherever Ikea located its stores, there were always developments popping up, which meant the value of land went up.
“So, the idea to buy more land and develop it came around 15-20 years ago. Basically, our ideal is to follow Ikea and develop regional shopping centres around the Ikea store.”
Even with the recession, Tegnér says that IICG’s centres have not been badly affected. “Rent losses have not been dramatic, as we have good locations with strong centres.” But, he does admit to having some difficulties with tenants in other ways: “What we have seen is there is more concern among them. Retailers are more picky – they want a little more contribution from us in terms of contributing to fitouts.”
One upside of the world’s economic woes, says Tegnér, is that development costs and construction prices have gone down, benefiting developers such as IICG. Tegner adds: “Really, we are competing more with the classic out-of-town developer.”
As for location, Tegnér says that IICG is “getting a bit closer to the cities, but we are still out of town.” It has no desire to venture into city centres. “It’s very difficult to get the sites because we need at least 25ha of land, and to buy or get the possibilities is difficult. [There is the possibility of] brownfield in some cities and we will be on the ring roads, but downtown is not our cup of tea,” he explains.
No matter where IICG builds, it retains ownership of its shopping centres as an investment and boasts that after development it remains a hands-on manager of each centre. Tegnér does not see this changing: “We haven’t any plans to sell any of our developments.”
However, IICG will not be extending development activity outside the continents of Europe and Asia. Just as Tegnér rules out malls in the UK, he also excludes such a move in the US, South America or Africa.
And despite breaking successfully into China, where Ikea has three sites under development (see panel, above) it has yet to open any stores in India. Tegnér says: “Ikea has been trying to open up full subsidiaries for some time without any success.”
India may not yet have warmed to Swedish furniture design, but other countries are set for the Ikea revolution to continue in a mall format- recession or not.
CHINA SYNDROME
The Inter Ikea Centre Group is putting a lot of resources and faith into the Chinese market. While Ikea stores first arrived in the country 20 years ago, IICG has been developing there for only two years.
“China is an interesting market – a huge market with a GDP that we can see continuing to grow in the coming years, and Ikea has big expansion plans,” says IICG managing director John Tegnér.
IICG, which searches for sites with Ikea, has developments in progress in Beijing, Wuhan and Wuxi. The 18ha Beijing site, south of the capital, is due to open in 2014 and will have 450 shops. The 30ha Wuxi project, which is near Shanghai, will have 300 shops when it opens in 2013, while Wuhan, 400km west of Shanghai,is set to start trading in 2015 and will also have 300 shops.
Tegnér highlights a notable difference in China when choosing sites there: land is controlled by the state, through the municipalities. He says: “In Europe you usually either negotiate with municipals or private owners, but in China it is always with municipals and regional governments. Sites are not freehold; they are on 40-year land leases.”
So what happens after 40 years – could the Chinese government try to take back the centres? Says Tegnér: “Sometimes we say we will either be declared geniuses or idiots – no one knows, but there are some [sites] that we are getting close to worried about the possibility of the government taking such a step.
But, he adds: “I don’t really have any fear, because the Chinese are very interested in foreign investment.
“Yes, theoretically they could take back the shopping centre after 40 years. But going by the business logic that we see from the Chinese people, I wouldn’t see that happening, because it would be a disaster for investment.”
