Tapping Into Real Estate Potential | Aviation Special Report

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Tapping Into Real Estate Potential

Maximize the Land Use at Your Airport by Answering These Four Questions

BY Courtney Dunbar
From air cargo utilization to nonaeronautical projects, airport operators are turning to real estate to help increase revenue.

At many airports, idle real estate is a hidden revenue source just waiting to be utilized. Often sitting vacant is airport property — thousands of acres, in some cases — that will never be needed for airport operations. With Federal Aviation Administration (FAA) approval, some of this space can be developed to add new revenue streams that help improve airport economics.

Many airport operators have been reluctant to approach the FAA with development requests, concerned that regulators might see these projects as a distraction from the airport’s primary mission. But as operating budgets grow tighter, that is changing. By comparing current landholdings to future operational needs, spaces available for development can be more easily identified. Consider the following as you assess the situation:

Are There Restrictions on How the Land Can Be Used?

All airport property is not treated equally. Land used for aeronautical purposes faces different regulatory scrutiny than land that is not. For example, heights of buildings and smokestacks near runways are limited. So are large drainage areas that might attract migratory birds that could fly into and damage airplane engines. Because regulators require verification that any proposed project will not interfere with current or future airport operations, airports must file land use plans with the FAA demonstrating that the development considers the airport’s operational needs first.

In addition, development options for property purchased for noise mitigation or expansion efforts may be limited by stipulations in the purchase agreement or type of bonds used to finance its purchase. If federal money is involved, a long-term land lease — 30 years or more — may be required for private development.

What Kind of Development Is the Real Estate Suited For?

The most efficient and highest use of airport property may differ from that of other comparable real estate. Creating a dining and shopping destination for nontravelers, for example, typically presents a bigger challenge than developing automated warehouses, cold storage or industrial space for airline-affiliated companies or businesses that seek to be located near intermodal transit. To make a strong business case, an airport development opportunity must be compatible with regional needs, demographics and traffic patterns.

Should We Partner With a Private Developer?

Airport operators often partner with developers on nonaeronautical projects. The challenge is finding development opportunities that deliver acceptable returns to both the developer and the airport. Airport operators that issue requests for proposals (RFPs) to prospective developers can better position themselves to maintain control over the property. When negotiating directly with prospective end users that have shovel-ready projects, airports may reap greater returns, but also lose the ability to influence the development itself.

Can a Development Be Competitive?

To be economically viable, a project must also be competitive with other sites in the region. In some cases, tenants may be willing to pay a premium for a location on airport property. But they will also be comparing lot size and capacity, environmental concerns, utilities, road infrastructure, tax rates and other site selection factors — any of which could impact their final choice.

The good news: Advanced engineering technologies now make it possible to optimize space use, and design-build approaches allow projects to be completed faster and at a fixed cost. Now is the time to discover untapped potential.

Considering Air Cargo for Unused Real Estate

By Chris Hotop, Aviation Design-Build Projects Director

Today’s e-commerce boom can be good news for airports seeking to turn unused real estate into a new revenue source. Online sales are a major driver of the global air cargo market, which forecasters expect to grow 4% every year between 2020 and 2039, according to Boeing. And that was before the COVID-19 pandemic sent online sales soaring even higher. Increased demand is creating opportunities for airport operators to redevelop or expand existing air cargo facilities.

With a rising demand for modern cargo space, some U.S. airports are considering an approach popular in Europe and Asia, where large, highly automated air cargo facilities are built and shared by multiple tenants under a common operator. This can be especially true for land-constrained airports with limited real estate available for development where multistory solutions can be constructed on smaller footprints.

This new generation of air cargo projects, however, poses special challenges. Automated storage and retrieval systems and multistory complexes command much greater investment than that needed for traditional warehouse and distribution facilities. With limited capital budgets being directed to passenger experience and other infrastructure needs, many airports partner with private developers to design, build, finance, operate and maintain these projects. Larger volumes of cargo movement also require upgrades to landside infrastructure to accommodate the additional truck traffic.

Air cargo megafacilities also command substantially higher rents than those charged at existing complexes. To control the market, developers would likely want to own or be the main leaseholder of an airport’s entire air cargo operation as part of any new development agreement.

Before issuing an RFP, airport operators should consider how much control they are willing to relinquish to a private developer or operator. They might also explore new revenue models. In exchange for handing control of air cargo operations to a developer, for example, they might seek minimal annual guarantees based on throughput volume, aircraft landing fees and other revenue sources. A good way to explore alternative revenue sources and test the market is through a request for information process prior to issuing an RFP to developers or operators.

Airport future-proofing should also be considered. An outlook that includes vertical takeoff and landing (VTOL) aircraft as well as autonomous vehicles could dictate height limitations on a multistory air cargo facility. RFPs should reflect the airport’s position on these and other considerations. Air cargo's future looks bright, and airports that embrace the newest technologies and development strategies will become the much-needed advanced air cargo hubs the industry demands.

For more on air cargo trends, read our blog here.