Inter Ikea Boosts China Spending With $626 Million Shanghai Shopping Mall
Inter Ikea Centre Group, the developer of the world’s largest home-furnishings retailer, is boosting the size of three malls it’s building in China and plans a fourth in Shanghai on “huge demand” for shop leases.
Ikea Group’s mall developer plans to spend as much as 4 billion yuan ($626 million) on the Shanghai shopping center, which may open as early as 2016, managing director John Tegner said in an interview yesterday.
The investment in the Shanghai mall adds to the 10 billion yuan Inter Ikea said in 2009 would be invested over five years in China, where retail sales have grown an average of 17 percent in the seven months through July. Adidas AG, Swatch Group AG’s local partner Hengdeli Holdings Ltd. (3389) and Gome Electrical Appliances Holdings Ltd. are among those that are adding stores in the world’s most-populous nation.
“China is the single most important market in the world,” Tegner, 56, said in the eastern Chinese city of Wuxi, where he attended a ceremony to mark the start of construction of a 140,000 square-meter (1.5 million square-foot) mall scheduled to open in 2013. “A lot of retailers want to come to our sites, and we decided to make them a little bigger.”
Inter Ikea aims to open another shopping center in the city of Wuhan in 2014 and a third in Beijing the year after. The three malls, which will have stores by Sweden’s Ikea, will have a total area of 510,000 square meters.
“Leasing from Inter Ikea has less risk because the company and Ikea together are very sophisticated in choosing locations,” Sherman Yeung, Beijing-based director of retail services at Colliers International North China, said today. “The number of people who can consume brands, such as Ikea, is increasing.”
The Wuxi project will cost 2.3 billion yuan and is about 12 percent to 13 percent bigger than initially planned, Tegner said. Retailers including Suning Appliance Co., China’s biggest electronics retailer, and French hypermarket operator Groupe Auchan SA have already signed for half of its 140,000 square meters gross leasable area, Tegner said.
The projects were “a bit smaller” when Inter Ikea started planning them, he said. “When we went through leasing, we saw there is huge demand for our shopping centers.”
Ikea, the world’s biggest home-furnishings retailer, last year said it planned to more than double the number of stores in China to 18 by 2015, as more people move to cities.
About 170 million Chinese moved to cities in the last 10 years, the biggest urbanization in history, according to the Chinese Academy of Social Sciences. China aims to increase the proportion of those living in cities from 47.5 percent to 51.5 percent by 2015, it said in its latest five-year plan.
Inter Ikea is considering four to five sites in Shanghai for its fourth mall in China, Tegner said.
The mall developer’s push comes as foreign retailers buy properties, abandoning a decade-long strategy of leasing. Rents in China soared after a 4 trillion yuan stimulus package in 2008 helped revive economic growth.
Investment in Chinese real estate rose 33.6 percent to 3.2 trillion yuan in the first seven months from a year earlier, data from China’s statistics bureau show. Home sales volume rose 12.9 percent in the first seven months from a year earlier to 465.6 million square meters.
Owning more of the property its stores operate in is part of Ikea’s “global approach,” Gillian Drakeford, the company’s China retail president, has said. Ikea and its local partner own eight of its nine stores in China and lease the location in the southern city of Guangzhou.
China’s economy expanded a faster-than-estimated 9.5 percent in the second quarter, the government said in July, as growth in industrial output and retail sales accelerated and copper and aluminum production reached records.
Inter Ikea, 49 percent owned by Ikea Group with the rest held by Inter Ikea Group, has 35 properties in 14 countries, Tegner said. At least 15 more are being built, according to the company’s website.
About 5 billion yuan will be invested in Inter Ikea’s Beijing mall, making it the biggest joint investment by Ikea and Inter Ikea in the world, Ding Hui, China managing director for Inter Ikea, said last year.
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