Land of opportunity
Real estate development could act as the catalyst for the successful future development of many African airports, writes NACO’s aviation director for Africa, Marcel Langeslag.
As airports continue to recover from the impact of the COVID-19 pandemic, many are looking for ways to build a more resilient business that is less dependent on revenue generated by passengers and aviation activity.
After all, if nothing else, the global pandemic has shown us just how quickly aviation related income can dwindle rapidly when air traffic diminishes.
The situation has renewed the interest in non-passenger income streams, including cargo and commercial real estate.
While airport revenues decreased by an average of 43% from 2019 to 2020, income from real estate remained relatively robust and dropped by ‘only’ 12% according to the ACI Airport Economics 2022 Report.
This illustrates the cushioning effect of real estate as described in our White Paper: How Real Estate Can Help Airports Build Resilient Business (July 2020). In Africa this effect was even more pronounced, with real estate revenues down 4% year-on-year, compared to a drop in total revenues of 42%.
Airports are catalysts for economic growth. Recognising this, governments, airport operators and investors can drive real estate developments that benefit both airports and regional economies.
The concepts of airport real estate, the airport city or aerotropolis have been successfully applied around the world, in major cities such as Dallas, Amsterdam or Incheon. They are increasingly implemented in emerging markets as well, with the Aerotropolis Institute of China reporting that over 50 cities are introducing such developments.
In India, initiatives are underway in cities such as Delhi and Durgapur. In Africa, notable examples include the Durban Aerotropolis in South Africa and the Accra Airport City in Ghana, with more planned.
The airport city and aerotropolis concepts are often associated with large, metropolitan areas and major airports. However, smaller cities, towns and airports can also benefit from real estate developments.
Airport towns or even villages equally enable airports to diversify their revenues and local economies to grow.
Airport city – ideal hub for diverse real estate opportunities in Africa
Home to some of the world’s fastest growing economies, airport real estate in Africa offers a wealth of opportunities. Initiatives such as the Single African Air Transport Market (SAATM), the African Continental Free Trade Area (AfCFTA) and the Protocol on the Free Movement of People (or Visa Openness) are expected to pave the way for aviation to thrive.
However, with only 23 airports reaching the one million passenger mark in 2021, the African aviation industry is relatively small compared to other regions of the globe. Indeed, beyond the main gateways, infrastructure and international connectivity at secondary airports is often limited.
There are many factors driving urbanisation and industrialisation on the continent, which presents airports with unique opportunities to pioneer developments in their regions:
1. Office spaces
The pandemic has pushed for more flexible working, but the office is not dead. In Africa, where internet and electricity can be unreliable, working from home is less attractive.
Furthermore, developments in oil and gas and renewable energy in several African countries are expected to drive foreign direct investment (FDI) and increase demand for A-grade office space.
2. Sustainable buildings
Multi-national companies are increasingly focused on decarbonisation and look for properties that meet green building standards. Developers are steering the momentum of office real estate towards sustainability in an effort to meet tenant preferences and access finance.
Airports, as inter-modal transport hubs, offer great opportunities for sustainable developments. They can benefit both green buildings and the transition to sustainable aviation by integrating low-carbon modes of transport, generation of renewable energy and microgrid solutions.
Retail spaces are also in demand as the retail industry in Africa is on a long-term upward trajectory, thanks to growing disposable incomes. Airports offer a unique proposition for retailers, with high footfall of both passengers and employees, good visibility and local connectivity.
Airports are ideal locations for modern retail spaces, as well as hospitality services, as part of wider airport real estate developments.
4. Industrial areas
Finally, industrial real estate is the best performing sector in many African cities, with manufacturing, assembly, storage, and distribution facilities in locations with good access delivering high yields.
Airports are ideally positioned to capitalise on this opportunity as they often have good transport infrastructure and provide a direct link to air cargo. The air cargo sector has performed well throughout the pandemic and is poised for further growth as the implementation of the AfCFTA gains traction.
This growth will drive demand for cargo, logistics and other industrial real estate at or nearby airports. In many African countries, the agro-processing sector in particular needs a boost in infrastructure to exploit its production and export potential.
Building blocks for airport real estate
Regardless of size or ownership, landside real estate development can provide an interesting income stream for all airports. Airport real estate can benefit both the airport and be a focal point for local urban development and economic growth.
Its close link with air transport positions it as a unique gateway to the country and an ideal location for international business, attracting global talent and foreign direct investment.
Tailor-made plans for airport real estate development are crucial for success as every airport and city is unique. Clustering industries is key to creating competitive advantages, innovation, and cross-fertilization. African exports via air freight consist largely of perishables, which points to opportunities to leverage regional potential and make airports engines of the economy.
Choosing the right business model based on land ownership, capital requirements and available expertise, positions airports for success. Managing real estate developments is different from airport operations and requires specific commercial skills, bringing together knowledge of finance, property law, marketing and logistics.
Public-private partnerships are often crucial in securing land, capital, and knowledge in the commercial real estate market.
Effective spatial planning is needed to integrate with on- and off-airport infrastructure and facilities, while preserving land for future aeronautical growth. Local authorities should connect infrastructure and public transport to the airport and planned real estate developments for efficient inter-modal connectivity and sustainability.
Unique propositions such as renewable energy, microgrids, and sustainable aviation technologies differentiate airport real estate from other developments.
A common vision for success
In successful airport real estate developments, the airport operator, local municipality, regional or national government, and the private sector work together towards a common vision.
For example, the Durban Aerotropolis is driven by Dube Tradeport – the company operating the local special economic zone – and the provincial Department of Economic Development, in collaboration with King Shaka International Airport and local landowners.
Airport real estate development offers a chance for airports, large and small, to diversify revenue and enhance their profile, through good connectivity and sustainability.
Successful developments can boost the local economy and attract international business, as well as potential tourism activities.
Realising the ambition of developing landside real estate and building a resilient airport business, requires collaboration with both public and private sector stakeholders. A common vision, sustainable business model and thoughtful spatial planning are the building blocks of success.
In Africa, notable initiatives include the Durban Aerotropolis in South Africa and the Accra Airport City in Ghana, with more planned, for example in Lusaka.