Developing airport real estate: The four drivers of success
Dr. Max Hirsh discusses the key drivers that distinguish successful airport real estate projects from their less successful peers.
Landside real estate is a crucial source of non-aeronautical revenue (NAR) and an essential part of the airport business model. A recent study by ACI revealed that property development accounts for nearly one fifth of global NAR – and that figure is projected to grow.
In recent decades, airports have launched hundreds of commercial real estate projects, often branded as an ‘airport city’ or an ‘aerotropolis’. Leading hubs like Amsterdam, Singapore and Denver have transformed their landside areas through a variety of profitable commercial developments, including hotels, office parks, shopping centres, tourist attractions, research campuses, solar farms and aggrotech facilities. At the same time, however, many airport real estate projects fail to deliver a substantial return on investment. Still others struggle to move from the concept stage to implementation. What are the key drivers that distinguish successful airport real estate projects from their less successful peers?
To answer that question, I launched the largest ever study of airport property development. I visited more than 50 landside real estate projects around the world, interviewed hundreds of airport planners and commercial developers, and conducted an online survey of 2,000 professionals involved in the planning, construction and management of airport real estate. I used that data to do two things.
First, I identified the key drivers that fundamentally determine the success of any airport real estate project. Secondly, I then developed a new, customer-focused approach to airport real estate development called airport urbanism, or AU for short.
What are the key drivers of success? We can call them the ‘four Ps’:
People and Place
First and foremost, successful airports focus on people. Specifically, the people who live, work and run businesses at the airport and in the airport area.
Successful airports begin the development process by identifying the types of customers that the project can potentially attract. That includes passengers and airport employees, along with local residents and decision makers in the local business community. Next, they investigate the unique needs and desires of each of those customers, and identify which of those needs are currently not being met. Allowing customer desires to drive the concept development stage empowers airports to pinpoint services, facilities and land uses that respond to those unmet demands. Moreover, by focusing on place – the second P – successful airports develop site-specific strategies that leverage the unique geographic advantages of their airport and engage with market gaps in the airport’s immediate vicinity.
Less successful airports, on the other hand, depend on a product-driven approach to property development. They begin the process with a predetermined set of building types – for example, an office park or a logistics hub – and then look for potential customers to fill those buildings. In so doing, they ignore the actual needs of the local business community and overlook innovative opportunities to capture new sources of revenue. Not surprisingly, these generic business districts often duplicate existing facilities in the surrounding area, leading to high vacancy rates and a poor return on investment.
That pitfall points to the third P: Partnerships. Successful airports coordinate what is being built on the airside, landside and beyond the perimeter fence in order to advance development strategies that complement, rather than compete with, each other. To do so, they create strategic partnerships with key stakeholders in the airport area, including both private developers and public-sector planning and economic development agencies. My research shows that the most successful partnerships have three things in common: A clear division of labour based on each partner’s area of expertise, a shared financial interest in the success of the project, and regular face-to-face meetings.
How much effort an airport needs to invest in partnerships depends a lot on the scale of the project. Let’s say you’re building a hotel on land that’s owned by the airport, with a fairly straight-forward permitting process. In that case, the number of stakeholders will be relatively manageable. But many larger projects involve multiple landowners and developers, and cut across countless administrative boundaries. In those cases, successful airports establish a governing body that brings all stakeholders to the table where binding decisions can be made. On the other hand, airports that attempt to develop real estate single-handledly – without the cooperation of external partners – are more likely to come up with unrealistic development plans, and are more likely to experience protracted disputes that can delay or even derail the entire project.
The final P addresses one of the biggest challenges that every airport real estate project faces: How to build momentum and the support that you need to drive a project forward.
Successful airports position their project to build both internal support, within the airport authority, as well as external support among customers, investors and government officials. Finding the right positioning is crucial for explaining how your project aligns with the long-term strategic goals of the airport, the city and the local community. Positioning also helps you to explain why this particular project needs to be built right now – and what the negative consequences will be if it doesn’t get built. Successful airports can answer both of those questions confidently and persuasively. Less successful ones can’t.
Airport urbanism: Planning for success
When it comes to developing landside real estate, airports need to be both creative and realistic. To do so, successful airports take an airport urbanism approach, allowing the needs and desires of prospective customers to drive the concept stage. They draw on those customer insights to come up with site-specific development strategies that leverage partnerships – and that position the project to showcase its value, relevance and timeliness.
By taking a customer-focused approach, airport urbanism opens up a wide range of development options that respond to the needs and desires of each airport’s unique mix of customers. By emphasising the power of partnerships and positioning, AU addresses critical issues that fundamentally determine the success or failure of any property development project. Focusing on the four Ps empowers airports to see more clearly how they can maximise the value of their landside real estate.
Max Hirsh is a Professor at the University of Hong Kong and the Founding Director of the Airport City Academy. A leading expert on airports and urban development, his research and consultancy services focus on landside real estate, airport area development, passenger behaviour and customer-technology interaction. Hirsh is the developer of Airport Urbanism, a new, people-focused approach to airport design.