Life in IKEA Land: Do Plans for Hamburg City District Stand a Chance?

By Stefan Kaiser in Hamburg

Although best known for its flat-pack furniture, IKEA is a tangled web of businesses with tentacles in numerous areas. Now the Swedish company is building entire city districts from scratch, starting with London and then Hamburg. But success in Germany is far from certain.

Photo Gallery: IKEA's 'Strand East' City District in London Photos
DPA

The computer animation shows a bearded hipster carrying a guitar case while walking down the street under the umbrellas of Dane's Yard Kitchen. Businesspeople are mingling with local residents. At the harbor, a tourist couple waits for a water taxi to bring them back into the city.

That's how planners envision IKEA's new district being built in East London, just a stone's throw from the Olympic Stadium. At the actual building site, however, there's still no sign of the lively scene depicted in the animation. For the most part, the 10.5-hectare (26-acre) peninsula is still an industrial wasteland, around which LandProp Holding, an IKEA subsidiary, has put up a green fence.

Nevertheless, its iconic trademark is already standing: an illuminated tower standing 40 meters (130 feet) high in the northeastern corner of the area. Directly next to it, the project's first restaurant also opened just a few days ago.

The London neighborhood dubbed "Strand East" is something of a flagship project for IKEA's property division. While there are similar projects in Poland, Latvia and Romania, the Swedish company now wants to buy up vacant lots in several western European cities and build entire districts from scratch -- including the one in the northern Germany city-state of Hamburg.

The Hamburger Abendblatt reports that LandProp is looking for a plot of at least five hectares -- or the size of eight soccer fields -- in the city center or near the airport. Harald Müller, a business development manager at IKEA, told the local paper that the company wants to build an entirely new city district. Given the size of the envisioned area, however, the claim sounds a bit exaggerated. Hamburg's recently built Hafencity district, by way of comparison, takes up about 157 hectares.

Targeted to the Middle Class

Though the plans in Germany are not yet concrete, the project in London provides a hint of what could happen in Hamburg. In the coming years, Strand East will have 1,200 rental homes, 40 percent of which will be for families, with at least three bedrooms. In addition it will include offices for the creative firms, cafes, restaurants, a 350-bedroom hotel and other businesses.

The streets are designed to provide space for pedestrians and bicyclists, with cars hidden away in underground parking lots. LandProp manager Müller promises not to build an insular, elite district. "We don't want to produce for the rich or the super-rich," he told the Globe and Mail in April. "We want to produce for the families, for the people." Its target group are those who can no longer afford homes in the City of London.

IKEA's main business also targets the middle class. For more than 50 years, the company has been selling inexpensively produced furniture with sleek designs. The idea has been a colossal success. Company founder Ingvar Kamprad, 86, is now considered to be the richest man in Europe, with an estimated fortune of €30 billion ($38 billion). IKEA sends out 30 million catalogs each year in Germany alone.

But Kamprad's empire encompasses far more than IKEA's nearly 300 furniture stores in 27 countries. In addition to the financial division named Ikano, which also has its own bank, there is Inter IKEA Holding. IKEA recently sold its trademark to Inter IKEA Holding for €9 billion, and it also collects royalties from furniture stores, which totaled €800 million in 2011, according to the Frankfurter Allgemeine Sonntagzeitung.

Since the company wants to re-invest those sums, it is buying up real estate. Inter IKEA also has a real estate division whose stated goal is to secure and grow company assets over the long term. That's why the company is building large shopping centers in addition to other businesses next to IKEA branches.

Planned projects include a new hotel chain that IKEA is developing with a partner to compete with established budget chains, such as Ibis or Motel One. The first hotel in Germany is scheduled to open in 2014.

IKEA's German Exception

Some experts doubt that IKEA will be able to populate Germany with entire city sections, like the one London. Andreas Schulten, CEO of real-estate analytics firm BulwienGesa, admits that there are large unused sites in Germany, such as abandoned railway yards, airports, barracks and breweries. But he adds that it's much more difficult for investors to get their hands on such properties in Germany than it is in the UK.

"German urban development is very clearly regulated," Schulten says. When large areas do become available, he continues, their purpose has already been designated years in advance. Indeed, Schulten believes that IKEA won't be able to achieve real-estate dominance in Germany "because other investors have already been waiting in the wings for a long time."

Incidentally, this wouldn't be the first IKEA project that failed in Germany after succeeding in other countries. Two years ago, the Swedish company tried to sell a pre-fabricated house model called BoKlok starting at a price of €180,000, including the plot of land.

Expectations were enormous. The project had already been successful in Sweden, Denmark and the UK, and the Germans are considered to be the most IKEA-crazed people ever. But they didn't want anything to do with BoKlok. By April 2012, the company had only sold eight homes in Germany and, since then, it's temporarily suspended sales.

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