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IKEA is Developing its Own London Neighborhood

IKEA is going into the business of selling walls, floors and roofs, in addition to furniture, housewares and rugs.

Inter IKEA Holding Services, the intellectual property owners of the home-goods retail monolith, recently announced plans to build an entire neighborhood in Stratford, East London, just south of the Olympic Park, where the 2012 Olympics will take place.

The new district, Strand East, will include 1,200 homes, of which about 40 percent will have three or more bedrooms. Strand East will also have a 350-room Courtyard by Marriott hotel, 480,000 square feet of offices, shops, cafes, restaurants, a school, a nursery, and a health-care facility, allowing residents to accomplish daily errands and needs without having to drive.

Strand East
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Strand East

The 26-acre neighborhood-in-progress is being designed to include car-free pedestrian zones, courtyards and landscaped grounds, while the planned underground parking means vehicles will be stowed tidily out of sight. The parcel is bordered on two of three sides by waterways, so the community might take on a Venice-like feel, with a water taxi service, a floating cocktail bar, and moorings that will be available for residents’ use.

Strand East will be constructed by Landprop, a unit of Inter IKEA. Harald Müller, the managing director for LandProp and the business development manager for Inter IKEA, emphasizes that while IKEA values such as family safety and smart design will be represented, this project is completely separate from the retail branch — so don't expect the apartments to come fully furnished with IKEA catalog items.

Strand East
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Strand East

Müller isn't saying exactly how much the land cost, but the amount was higher than the speculated £25 million (about $39 million)cited in The Daily Mail. It was obtained at "a very interesting low price, but not this price," he said.

Of the total land buy, Müller says that two big parcels were foreclosures. One foreclosure was bought from a bank, and the other was from the Olympic Legacy Company. Inter IKEA had the advantage of making an equity-financed purchase, which has allowed it to create similar developments in Poland, the Baltics and Romania.

Demolition has begun in what was once an abandoned industrial area of Stratford, dating from the 15th or 16th century.

Gin was distilled in the area during the last century until the war, but in the intervening time it became "completely empty and rubbish and ugly," says Müller.

Although some planning approvals are pending, construction is planned to begin in 2013 — after the Olympics — and is expected to take about five years. However, one section, Dane’s Yard (pictured at top) has been approved. It will feature a 40-meter-high (131-foot) illuminated sculpture in its public square, and a Grayson’s restaurant that will focus on ethically and locally sourced foods. It will also retain renovated versions of some of the historic buildings.

"We will turn it around for sure," says Müller. "Not being arrogant, but for sure it will be a new hotspot in London."

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.