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Open for Business: Airports as Real Estate Developer and Strategic Partner

Locating near an airport presents a business with many opportunities for growth, but be sure to know what risks airports face and how they are planning to address them before aligning your company’s fate to theirs.

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The times have changed, and so, particularly, have airports, but you might not have noticed that. Airport capital projects typically have 10- to 15-year planning horizons; therefore, unlike most businesses, airports have to plan 20 years ahead. The result is that they have to live with the legacies of decisions taken decades before, often by other management teams.

An airport and the lands around it might appear unchanged from 10 years ago, but it is likely to now be managed by a team of astute businesspeople, rather than red-tape-ridden officials. Airports control large swathes of prime real estate, and they are looking for opportunities. In fact, most of them now have active marketing campaigns to attract non-aeronautical businesses to the lands and properties they control.
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Air traffic is growing at between 2 percent and 8 percent per annum in various parts of the world. It is not uncommon for air traffic at an airport to double in a decade. Airports are economic drivers, gateways to regions, they own lots of land, and they are under pressure to generate revenue from sources other than aviation.

Did you know that many modern airports now generate most of their revenues from sources other than aviation (by as much as 2:1), and that some are even working toward a dispensation where their operations would be funded from non-aeronautical sources to the extent that airlines would be accommodated for free? The business community should be aware of a quiet revolution that has been taking place: Airport authorities are no longer stale bureaucracies. They have quietly been morphing into what can best be called entrepreneurial landlords. You should talk to them.
Airports are economic drivers, gateways to regions, they own lots of land, and they are under pressure to generate revenue from sources other than aviation.
Where Does This Come From?
Historically, the world’s major airports were developed by national or regional government agencies (the same used to be true for the major air carriers). But in most parts of the world, ownership and management models have been changing radically, spurred on by increasing deregulation and new open-skies agreements.

In many countries (including Canada, Mexico, Europe, and Australia), airports have been privatized to varying degrees, ranging from not-for-profit companies in Canada to for-profit companies in the UK. Aggressively entrepreneurial governments in the Middle East are building many new airports. And while most U.S. airports are still state- or city-owned, airport authorities are trying to wean themselves from dependence on airline-backed funding arrangements, thereby freeing them up to engage in business ventures other than just those related to processing passengers and cargo.

The objective is generally the same: generate enough revenue from non-aeronautical business ventures to fund the continued growth and maintenance of the airport, while keeping landing and terminal fees as low as possible, to make the airport an attractive port for airlines and passengers alike. And instead of career professionals, airports are increasingly employing people from other industries and are turning themselves into real estate developers, landlords, and astute local authorities.
Airports have started to understand the value generated by the vast numbers of people, vehicles, and goods that pass through their lands and buildings, and the revenue potential of developing this real estate for its highest and best use.
Airports have woken up to the fact that they are located at the nexus of regional transportation networks and have seen cities grow up around them in a way that makes them not only centrally placed within metropolitan areas, but also (by definition) central to the world. They are gateways to regions and portals to the world.

They have also started to understand the value generated by the vast numbers of people, vehicles, and goods that pass through their lands and buildings, and the revenue potential of developing this real estate for its highest and best use. Airports are major employers and they have a keen understanding of their roles as drivers and facilitators of regional economies. Airports have realized that, by maximizing their non-aeronautical revenues, they can generate income streams with which to turn their airports into world-class facilities. Having a world-class facility with low landing fees will, in turn, attract more flights and passengers to the airport, thus creating a virtuous revenue cycle.

A change has also taken place in the way airports plan. Instead of single-state “master” plans, airports are turning to dynamic strategic planning, in which a range of future states are studied and appropriate provisions put in place to be able to deal with them all. Instead of the historic clash between an airport’s plans and the surrounding city’s plans, the two worlds can now be brought together, and cities’ plans can be centered around the airport as a central driving force. This creates unique opportunities for those businesses that realize the benefits of locating in or near and airport.

Why Locate Near or In an Airport?
Ask yourself these questions about your business or venture:
  • Do we operate globally?
  • Is it important for us to be connected optimally to the metropolitan region?
  • Are we dependent on or responsible for just-in-time deliveries of goods or components?
  • Can we benefit from a large concentration of people and vehicles near us?
  • Are we dependent on or responsible for “e-tail” (Internet shopping)?
  • Do we have a lot of staff flying to and from our offices?
  • Are we in a leading edge or high-tech industry?
  • Are we involved in or dependent on imports or exports?
  • Are we involved in or dependent on logistics?
If you are answering “yes” to some of these questions, this is what airports have to offer you:
  • An active interest in developing their lands in ways compatible with aviation
  • An economic engine integrated in regional strategic plans
  • Connections to international markets
  • A location within the geographical center of the greater metropolitan region
  • Highway access from all directions
  • Growing public transit connections, especially to downtown cores
  • Concentrations of businesses with similar interests
  • Highway frontage
The change in ownership and outlook of many airports has created opportunities that were not previously appreciated:
  • Airports are typically located on state-owned lands and therefore not under the jurisdiction of local authorities. They plan their own lands and can, therefore, be approached with new ideas. You will find responsive and business-minded development partners in them.
  • Due to their regional significance and the stringent environmental constraints under which airports operate, airports are increasingly forced to reach out to all their surrounding communities, and they are taking the lead in integrating their planning with that of the surrounding regions. They are well-connected and highly influential players in their regions.
  • Airports are desperately countering the negative effects of the security growth cycle and are once again turning their facilities into local destinations in an effort to regain the “magic of flying.”
  • Airports often have natural features like streams, beaches, and other conservation areas on their vast lands. These offer opportunities for local residents and visitors alike.
  • Airports are often surrounded by industrial enterprises, and opportunities for an industrial ecology with the airport as catalyst are still largely unrealized but certainly possible.
What Are Airports Doing?
Depending on local circumstances (and apart from the normal required airport facilities like parking, etc.), airports have seen the following types of developments, among others, either on their lands or directly adjacent to their lands (many of these are in high demand and, therefore, currently at a premium):
  • Hotel developments (an airport can be surrounded by 10 or 20 hotels)
  • Conference/convention centers
  • High-end outlet malls
  • Destination shopping centers
  • Corporate head offices
  • Mixed-use developments (shop, work, play, stay)
  • Post-secondary education facilities, specifically aerospace-related
  • Office buildings
  • High-tech business parks
  • Industrial developments (manufacturing, warehousing, etc.)
  • Cargo facilities
  • Casinos
  • Entertainment destinations
  • Recreational facilities
  • Botanical gardens
  • Butterfly gardens
  • Residential developments
  • Libraries
  • International sports facilities
  • Local amenities
What Are The Challenges?
There are several examples of legacy airports that grew in tandem with their host cities, and eventually were throttled by those cities, to the extent that they had to close down. Examples that come to mind are Hong Kong (Kai Tak), Denver (Stapleton), and Edmonton (City-Centre Airport). While these airports had a rich history bound to the growth of their cities, their own growth eventually made them incompatible with the city that had come of age around them. They had to be “relocated” far outside the downtown cores of these cities and endowed with vast tracts of land to provide for their continued growth. Their dependent businesses had to relocate also.

Other airports were originally planned with more foresight. But as times have changed, airports have come to understand the limitations their operations will place on surrounding lands, as well as the opportunities those lands offer to them. There is a natural tension between the limitations an airport imposes on the lands surrounding it and the opportunities it creates for those lands. These tensions are caused by things like noise, environmental issues, height restrictions, and traffic congestion. The opportunities that an airport creates are challenged by the limitations it imposes, but airports have now learned to deal with this effectively, and also now have a motive to do so. In short, if the limitations of being near an airport are clearly understood, the huge potential of compatible development becomes apparent.
Airports are often surrounded by industrial enterprises, and opportunities for an industrial ecology with the airport as catalyst are still largely unrealized but certainly possible.
It is important to carefully consider the particular airport you are interested in. Not all airports were created equal and they can be dramatically influenced by changes in the airline industry and general economy. A good example is Shannon airport in Ireland. This airport was strategically located as a stop on the transatlantic flight corridors from Europe. It realized its strategic place and built on that by offering the world’s first duty-free stores, as well as the first U.S. pre-clearance facility in Europe. By being entrepreneurial, it facilitated the growth of a whole new high-tech industry around it. Over time, aircraft became capable of flying longer and longer distances (eliminating the need for intermediate stops), and the world economy crashed. The airport, which had enjoyed traffic growth of 64 percent over the previous decade, saw its traffic halved to pre-1997 levels, as the high-tech industries that drove its growth scaled back, and a major carrier retreated.

If you plan to throw your lot in with an airport, be sure to first get a good understanding of its strategic plans, so that you can appreciate the risks the airport is having to plan for also. Airports typically publish their master plans and strategic plans on their websites, and it is probably a good idea to consultant an aviation planning consultant to get an unbiased view of the long-term risks faced by a particular airport.

Opportunity vs. Risk
Airports are opening up to the communities surrounding them. They are staffed by business-minded people from a wide range of industries and are hungry for opportunities. They own vast tracts of land that they have to control to ensure their continued growth, and they have a very exact understanding of what can or cannot be done with those lands.

Airports are unfettered by local planning restrictions, and are looking for opportunities to develop their lands. They are well respected and have great influence in their respective regions. Internally, they are turning their facilities into destinations, introducing a staggering array of creative facilities in various parts of the world. They are in a high-growth industry.

Airports are open for business, and you should talk to them, but be sure to get a clear understanding of the risks they must plan for and how they are doing so before connecting your fate to theirs.
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