The ‘Aerotropolis EMEA’ Conference report. Part 2: Strong political leadership needed

Part 1 of CAPA's report on the recent 'Aerotropolis EMEA' Conferencecan be found at:

The Aerotropolis - a strategy, not a project. 'Aerotropolis EMEA' Conference report: Part 1

Munich Airport's ambitions stymied by an ageing, green thinking population

In Munich's case (Germany's richest city with virtually zero unemployment) the airport is situated far from the city centre and there has historically been tension between the city and rural areas. Some suburbs want an additional runway at the airport while others don't and consider it to be a threat. The government is not supporting the venture because it means more schools, kindergartens, social services and so on. It is an ageing society that is not 'future minded' and is notably 'green'. As the speaker observed, nothing can be kept secret at a publicly-owned airport.

Gatwick Airport's representative: said the management there perceives a 'UK role' for the airport in general and thus has focused on connectivity, by air and rail. He mentioned the 'transportation corridor' from the English south coast via Gatwick Airport to South London, known as the 'Coast to Capital' region. This is effectively Gatwick's aerotropolis and is centred on a small development known as Manor Royal as the airport city; possibly the first one in the UK.

Gatwick's own land portfolio is only small at 750 hectares in total but local offsite developments such as Manor Royal have provided, in aggregate, a sizeable commercial community outside of that area.

Almost as he was speaking an announcement was being made about a GBP202 million growth deal for the Coast to Capital region, which will deliver the infrastructure and support that enables the region's businesses to compete internationally and capitalise on the airport's links to global markets, especially if Gatwick's case for a second runway is successful.

Elitists not welcome in Stockholm's airport city but ordinary folk are welcome to "hang out"

Stockholm's representative: in a typically Swedish way, said Stockholm (Arlanda's) airport city would encourage people and firms to "hang out'" there. The site is heavily environmentally-oriented with schools as well as hotels. 1000 new jobs have been created already. Professor Kasarda intervened to say that the development must benefit everyone, including the blue collar workers and a key task is how to communicate benefits to them.

Above all, the facility must not be seen as elitist, seeking merely to attract big corporations and attendant high earners, otherwise there is the potential for discord amongst other tenants, who may even be discouraged from taking units.

London Heathrow Airport: was of course well represented, in this case by Andrew McMillan, the strategy director. In the session 'going global through Aerotropolis collaboration' he also stressed the need for connectivity. Three centuries of having either the global leading port or international airport situated in the UK was at risk.

He admitted the 'unplanned' nature of the sprawling Heathrow Airport, its connectivity and its 'airport city' but was keen to point out the improved rail services in the area that should bring a large part of the UK's population within two hours of Heathrow, and those in Canary Wharf, close to London City Airport, within 40 minutes. On the other hand he stressed how airport cities can benefit when political decision making is 'co-ordinated' as it is in the UK.

A panellist in the same session as Mr McMillan, Sergio Alegre Calero, the deputy mayor of the City Council of El Prat (the location of Barcelona Airport) made the interesting observation that Dubai "would kill" to replicate the mix of business, media and leisure interests as are found in UK cities. He also mentioned that 60% of the airport's land is owned by the municipality but that it operates in a difficult area from the point of view of developing an aerotropolis in respect of social, political and economic concerns.

He described a 'chicken and egg' situation there. The expansion of the aerotropolis is based on future passenger forecasts but it is the aerotropolis itself that drives that forecast.

Reference was made on several occasions during the event to Amsterdam Schiphol Airport's airport city, which was described as "the first airport city proper in Europe" by panellist Eric van der Kooij of the City of Amsterdam.

He said it had been successful in attracting businesses but was running out of space now. It is also limited by proximity to the city (which rather contrasts with the comments made by MAG's John Atkins, in Part 1 of this report). Noise remains an issue for nearby residents, whether it is from aircraft or trucks. The operator is shifting from push to pull marketing strategies and in particular trying to attract smaller businesses to the site, in contrast to some other operators.

Schiphol's Airport City and its 'inhabitants' face some uncertainty while the future of Lelystad Airport is debated

Another significant (and technical) presentation concerning Schiphol was made in the very final session by Pieter van der Horst, the senior real estate developer for Schiphol Real Estate, who labelled the airport city there as the 'grand-daddy' of them all.

Schiphol Real Estate (SRE) is one of four units of the Schiphol Group with a brief to develop, manage and invest in real estate around airports (Schiphol Group has other airports, notably Lelystad, see later). It owns most of the land and buildings and leases them. There is a mix of aviation and non-aviation companies.

There is flexibility of planning for certain areas, originally within six design principles that have since been reduced to two.

The aerotropolis that grew out of the airport city is known as the airport corridor, with the central area known as the Schiphol CBD (Central Business District). It is also the site of Schiphol Cargoworld.

SRE has found that companies are most influenced by the number and range of destinations available from the airport (which again restricts the opportunities for smaller airports). Furthermore the connectivity is improving and there is little problem with governance.

Employees and tenants are referred to as inhabitants to make them feel they are actually working and living in a city. Bikes are made available for the free use of inhabitants, reducing foot journeys of 15 minutes down to two. There are fast dedicated bus lanes and a bus station that was built out of redundant buildings from Rotterdam Airport.

The 1992 office building known as 'The Base' has been redeveloped as rental business suites or to be used on an annual contract basis for business meetings. The latest additions to the site are an 18-hole golf course (2013) and a new 3-star hotel (2016). The General Aviation (GA) terminal is not really wanted any longer but as the airport is the only one in the northern Randstad region it still accepts GA although advertising by GA companies based there is not permitted.

Another reason for hanging on to it is that 'captains of industry' wish to land there in their private aircraft. However, they may be asked to shift their operations to Lelystad Airport, which Schiphol Group also owns.

Lelystad has recently been earmarked for sizeable investment, possibly up to EUR100 million, to enable it take some of the weight off Schiphol, by taking charter flights and probably some LCC services, up to 5 million passengers p/a. There are clearly political issues involved and neither the speaker nor other representatives from the airport or area were able to say for sure how the future development at Lelystad would mitigate against Schiphol's airport city.

In conclusion, a number of interesting and pertinent observations were made.

• The size of offices at the airport city is declining along with demand;
• Rental prices are reducing to attract more tenants but while thay have declined overall office demand at Schiphol CBD has remained relatively solid;
• More people than ever are working from home in the Netherlands, at least for part of the week. In contrast some days are so busy that car parking is inadequate. It is difficult to get the balance right;
• Prices are available for rentals from just a few square and they can be very short term, from a month down to a day if needs be. Rentals start from EUR160, the typical rate is EUR230.

Overall, the very frank and honest presentation suggested a facility that has real value, especially as a meeting place, but which is also finding the economic climate to be hard going especially in light of the excellent fast rail connection downtown, which can work both for and against it.

Is Africa being overlooked by airport investors?

The importance of ports to the aerotropolis concept was emphasised by Saxen Van Coller, CEO of the Dube Tradeport, which is based around the King Shaka Airport in Durban, South Africa, and which also lies between two of the country's biggest ports at Durban and Richards Bay. The Phase 2 development there under a 60-year master plan will take it to 70 hectares and it is heavily influenced by agriculture and the growing and storage of farm produce in an integrated perishable cold storage supply chain on a 16-hectare site, under glass. Other industries represented include automotive.

The Tradeport investment was made by local companies to the tune of USD68 million over a two year period. The Special Economic Zone around the airport will grow in time to 700 hectares, supported by a reduced tax obligation for tenants; VAT benefits; government incentives; and a one-stop-shop in which to do business.

The net effect is that 16,500 jobs have been created already. In terms of international agreements an MoU has been signed with an Indian company to take on a 140-hectare site.

Looking at Africa from a wider viewpoint Ms Van Coller said that Africa had been lagging behind in this field except for Ghana, Mauritius and Kenya but agreements had been signed recently that will lead to other aerotropoli in South Africa. She insisted that Europe is "overlooking opportunities in Africa generally." She was not certain to what extent the failure of so many African governments to ratify the Yamoussoukro Agreement on open skies (which must adversely affect connectivity) will impact on airport city development there but acknowledged that better international and intercontinental connectivity is essential to the prospects for this development and for others.

The 'Edge City' - another related concept to the airport city and aerotropolis

One session dealt with 'the impact of a new development node and airport edge city developments'.

The 'edge city' introduces yet another concept to complicate the existing airport city-aerotropolis relationship. It is defined as a region connected by fast efficient transportation links that cut the travel time to the terminal or cargo facility to less than 20 minutes. Unfortunately, some of the panellists did not quite focus on the 'edge city' in their individual contributions.

One of the better examples is the Aviapolis at Vantaa, close to Helsinki Airport in Finland, which was lauded by Professor Kasarda and which features a circular rail link to the city. The Aviapolis is a PPP that involves the city, local landowners and the wider real estate community. The guiding principle appears to be that 'more inhabitants means better services means even more inhabitants'.

One of the more illuminating contributions came from Sarah Procter, director of real estate sales for Copenhagen Airports, who referred to the foresight that led to the building of the Öresund Bridge, the 7.5 mile/12 kilometre combined bridge/tunnel that connects Copenhagen in Denmark with Malmö, Sweden's third city, across the Öresund Strait.

The construction indirectly led to the creation of edge city developments in Malmö, with the bridge itself the catalyst for shorter travel times, by private vehicle or train (the Danish landside entry/exit point is only one kilometre from Kastrup Airport). The success achieved so far has convinced the authorities that the next high speed rail service at Copenhagen should connect Stockholm and Hamburg to Copenhagen Airport to see if similar effects can be generated even at those greater distances.

While the 'edge city' is acknowledged as reality, here Ms Procter revealed that the concept of the aerotropolis per se is not. The Danes do not think of the immediate economic region in those terms. She also pointed out how the metropolitan tram service at the airport is being used for reasons other than the airport itself, even as an interchange hub for people travelling to and from work without any reference to the airport.

In an aside, Professor Kasarda mentioned his experience of how the bank ABN Amro had insisted on the location of their new headquarters having quick transport access to Schiphol Airport or they would quit the Netherlands altogether. Ultimately it did as they ended up going to Amsterdam Zuidas which is only six minutes from Schiphol's passenger terminal.

He also mentioned how Incheon Airport's airport city was built as an 'edge city' with an inbuilt 'liveability' function (now the New Songbo City) while Munich Airport's Andreas Sander stressed the propensity of airports and the commercial developments around them to be the location of high earners, who generate extra taxes for local municipalities who should, ergo, support them.

He pointed to average net earnings in Germany being EUR31,000 while they are EUR42,000 at the airport. (That does smack of the 'elitism' mentioned earlier but the dichotomy was not debated).

Zengzhou's airport city and associated edge cities "the most important development in the world"

Earlier, Professor Kasarda had referred to China's Zhengzhou Airport, which he described as spawning many examples of an airport edge city, being a north-south and east-west crossroads, with a main station on a high speed rail network, and with many related industrial and commercial infrastructures. He described it as possibly the most important development in the world today

The subjects of ownership, investment, investor demand and attracting investor interest were considered over several sessions involving representatives from Denver Airport (a public facility), MAG (part public/part private), and GIP (the fund that owns Edinburgh airport and part-owns London City and London Gatwick airports) amongst others.

From Canada, where most of the main airports are owned and operated by non-profit making public/private stakeholder assemblies, Myron Keehn of Edmonton Airport pointed out that it is only the continuation and extension of its operating lease there until 2072 under such arrangements that enabled it to convince the stakeholders that a CAD 300 million real estate investment there should go ahead.

Sarah Procter of Copenhagen Airports (part state-owned, part trade-owned, part stock market floated) felt that ownership does not matter as far as the attraction of investors is concerned while Prof Kasarda commented that the central issue is that business hates uncertainty (perhaps with reference to the secure long term position at Edmonton).

David Stroud of ASM floated the question of whether or not airlines should share in the development costs of airport cities.

The representative from Denver Airport, chief financial officer Dan Poremba, gave the US perspective on attracting investors to under-construction airport city developments at what is the country's fifth busiest airport, with six runways (one more than there are collectively at London's five main airports), the second largest land mass of any airport, having the third largest US domestic air market and being a major hub for United Airlines.

The first airport city development there - a hotel that will open in 2015 - is financed by the airport via revenue bonds. Transport connections are of paramount importance to the extent that a transit centre is, along with the hotel, the first construction project. On top of this the Fast Tracks projects to extend rail lines, funded by taxes and government grants, and designed to attract higher levels of connectivity.

Various new financing techniques for the total airport city development are under consideration and capital markets have been invited to put forward their ideas. This market inspired long development funding programme is still at an early stage and open to consideration. Essentially this is a PPP for both the commercial and transit facilities and still very much 'open to offers'.

The contribution from MAG was referred to in Part 1.

Environmental impacts of airport and airport city developments are of the greatest concern at Gatwick Airport

Michael McGhee spoke about airport investment generally as well as the specific case of Gatwick Airport and the contest between Gatwick and Heathrow airports for another runway. He mentioned how the environmental impacts of development are severe at both airports and will be even more so if an additional runway leads to increased economic activity around either airport.

The infrastructural development of Gatwick (i.e. whether or not it gets a second runway) will influence investment risk and how the existing investors (GIP and several other funds) regard it. But they are extremely well cashed up; possibly more so than in the case of any other airport. There are also the long lead-in times to consider. A second runway at Gatwick might not be operational until 2028. Lead-in times of this order for construction are part of the natural order of things in the UK.

Gatwick's plus points are terminal capacity and its broad traffic mix, both attractive to investors, and a recent minimisation of cap ex, much of the necessary work following its acquisition in 2009 having been completed.

In summary of this session the main factors the respective airports face in attracting investor interest for their existing or embryonic airport city developments were identified as political (Denver); geographical (Manchester) and local impact (Gatwick).

Summarising the entire event Professor Kasarda said there are four themes critical for success for an aerotropolis:

• Stakeholder alignment and community buy-in to the project;
• Appropriate business model needed;
• Connectivity in the air and on the ground and;
• The Aerotropolis is a process/strategy, not a project

To which Arup's Peter Budd added that in his opinion the USP for any successful venture is strong political leadership.