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. Last Updated: 07/27/2016

IKEA's Next Project Is $400M Giga Mall

Just two months after IKEA opened the country's largest mall, Mega Khimki, the Swedish furniture giant is planning to surpass its own record with the construction of a $400 million, 240,000-square-meter shopping center near Moscow.

In order to do that, IKEA has formed a joint venture with agricultural producer Belaya Dacha, its first ever in the country, the two companies announced last week.

"This is the first time in the last 20 years that IKEA has formed a joint venture," IKEA Russia's general director, Lennart Dahlgren, told reporters.

"Initially we were attracted to Belaya Dacha because of the good land plot that it owns. But later this evolved into an excellent partnership, so it is both a marriage of convenience and a love match."

Belaya Dacha, a major agricultural producer in the Moscow region, has an estimated annual turnover of $50 million and is a supplier for most supermarket chains, as well as McDonald's and the Kremlin. It owns 25 percent plus one share in the joint venture with IKEA.

This is the second cooperation with an international company that Belaya Dacha, a large landowner in the Moscow region, has announced in less than a year. Last August, the firm teamed up with French construction giant Bouygues to build a $230 million, 320,000-square-meter Logopark warehousing complex on land that the agricultural producer owns near Moscow. The plan has recently been altered and now envisages only a 110,000-square-meter terminal.

IKEA owns two stores in Moscow, each anchoring Mega shopping malls, as well as stores in Kazan and St. Petersburg.

The company, which has invested up to $1 billion into its Russian projects so far, is planning to open 110,000-square-meter Mega malls, with IKEA furniture stores as anchor tenants, in all large regional cities in the next several years.

The first stage of the new project will see the opening of a 30,000-square-meter IKEA store on the Moscow Ring Road, or MKAD, in the southeastern suburb of Kotelniki next September.

In the summer before the store's opening, IKEA and Belaya Dacha will begin building the mall, which is slated to open in the fall of 2006.

The third stage of the project involves building an entertainment park, a motel and an office center in 2007. Out of the total area of 240,000 square meters, between 160,000 and 170,000 square meters will be devoted to shopping, according to IKEA spokeswoman Irina Vannenkova.

Total investment into the project will be $400 million, the companies said. By comparison, the 230,000-square-meter Mega Khimki cost an estimated $300 million to build.

"This figure seems appropriate to me, because every other IKEA project in Russia until now has been better than the previous one," said Sergei Riabokobylko, managing partner at Cushman & Wakefield Stiles & Riabokobylko.

Market watchers said the partnership will be beneficial for both sides and praised the future project's location.

IKEA was forced into a joint venture with Belaya Dacha because the latter was reluctant to sell its "lucrative location" right on the MKAD, said Maxim Gasiev, retail director at Colliers International.

On the other hand, this cooperation may help eliminate some of the potential bureaucratic problems because of Belaya Dacha's excellent connections, several market experts said. The company's founder, State Duma Deputy Viktor Semyonov, is a former agriculture minister.

Among other red-tape hurdles, the opening of Mega Khimki was delayed by local authorities in December, and IKEA was threatened with the closure of its St. Petersburg store over alleged environmental violations in late 2003.

"Kotelniki is a great location, right on the MKAD and far away from the two other Mega malls in Moscow. Now IKEA needs a fourth store to completely cover the city from all sides," Gasiev said.