Punching beyond their reach

MXD’s Chris LeTourneur explores how mid-sized regional airports are driving revenue growth through commercial and logistics development.

Mid-sized regional airports have always been critical economic engines for their adjacent regions, by facilitating passenger connectivity with larger gateway airports and business markets.

They have also had the benefit of an abundance of land beyond what is needed to serve the growth of airside operations.

The COVID-19 pandemic has further amplified the importance of revenue diversification for airports and their adjacent regions. Mid-sized regional airports are embracing this opportunity not only to be recognised as ‘passenger airports’, but also as ‘industrial-commercial airports’.

Even before the onset of COVID-19, mid-sized airports were developing some of the most entrepreneurial initiatives in commercial, industrial, logistics and innovation projects, recognising their role in stimulating economic development.

This activity is not purely dependent on air transportation, but also relies on ground connectivity, supporting the design, manufacturing and distribution of goods, as well as aviation.

Logistics, particularly for e-commerce and perishables including food and bio-products, have been driving growth trends, even before the current pandemic. This growth has accelerated in the wake of the coronavirus pandemic, recognising that regions served by mid-sized airports are completely dependent on the supply chain for delivering retail, health care and daily goods such as groceries, food and medications.

One of the prime examples of mid-sized airport economic positioning is Memphis International Airport (MEM). The merger of Delta Airlines with Northwest Airlines in 2008 and consequent dehubbing of MEM saw air passenger traffic drop dramatically.

As a result, MEM, the City of Memphis and Shelby County recognised that with the FedEx World Hub anchor and adjacent UPS facilities, MEM’s role as a facilitator of logistics and related economic development was as equally important as serving passenger traffic.

The result has been the clustering of one of North America’s strongest multi-modal logistics hubs, as well as a concentration of time-sensitive bio-life science and medical device manufacturing and distribution businesses including Medtronic, McKesson and Smith & Nephew, who rely on this logistics network.

Factors driving mid-sized regional airport development include:

• Mid-sized airports have residual lands and labour to facilitate development and industry.
• Progressive mid-sized airports have established partnerships with private sector developers and multiple levels of government to facilitate development.
• Even before the COVID-19 pandemic, mid-sized airports were embracing logistics, innovation and advanced manufacturing as key components of their airport master plans.
• COVID-19 has accelerated the demand for logistics facilities particularly for accommodating e-commerce, perishables and health care/bio-life sciences items.
• Mid-sized airports have the ability to be agile in responding to disruptions and opportunities. The following profiles illustrate how mid-sized regional airports and their partners are embracing these trends.

Regina International Airport (YQR): Implementing strategic development

Regina International Airport (YQR), operated by the Regina Airport Authority (RAA) and situated in the Canadian province of Saskatchewan, established an Airport Commercial Development Strategy long before the onset of the coronavirus pandemic.

This strategy started with investments to create an Airside Business Park to facilitate next generation typologies for airside businesses, including the new 32,000 square foot Kreos FBO facility on a four acre plot of land.

Sitting at the western edge of the city, halfway between downtown Regina and the Global Transportation Hub (GTH) to the west, YQR has embraced market opportunities for commercial, light industrial and logistics development.

Initiatives include the creation of the 90-acre YQR Airport Business Park to flexibly accommodate aviation, as well as cargo, distribution and manufacturing end-users, with many lots serviced and shovel-ready. It has attracted Canada Post as an anchor, occupying 50,000 square foot on seven acres in a state-of-the-art distribution complex to facilitate the rapid growth of e-commerce fulfilment.

John Aston, YQR’s vice president of commercial, projects and planning, reports that despite the challenges presented by the COVID-19 pandemic, YQR’s Development Strategy has attracted interest and offers to lease for development.

He notes that “YQR requires purpose-built cargo infrastructure on both the airside and landside, which is a challenge for mid-sized airports and requires innovative partnership approaches with all levels of government, as well as private sector investors and developers”.

Aston adds that as part of overall improvements to the terminal access roads and facilities, YQR has identified a 35-acre Gateway Commercial Development opportunity that will serve adjacent communities and passengers, while providing amenity for airport and YQR Airport Business Park employees.

These roads and capital works are scheduled for 2022. The gateway has already attracted interest from a fuelling and convenience store tenant and electric vehicle (EV) charging tenant.

Plans are also underway to attract private sector partners to develop a food and beverage cluster in conjunction with an airport hotel.

Aston says: “YQR is actively seeking collaborative partnerships with developers interested in land leases and capital investment required for infrastructure to develop airport land.”

In addition, RAA is working together with the City’s Economic Development Regina (EDR) office and the Provincial Trade & Export Development office to improve the flow of exports, facilitate connectivity and enhance value added activities, with an eye on capturing air cargo shipments at YQR.

As part of this collaboration, RAA is evolving a Servicing Agreement with the City of Regina to accelerate enabling infrastructure that will unlock development opportunities, attract businesses and enhance the airport’s connectivity.

Aston warns that “encroaching residential development” could limit YQR’s growth and believes that as a result, “policies to protect airport economic activity such as an ‘Airport Employment Growth District’ should be explored”.

Rice Group: Developing airport logistics projects

Michael Rice, president and CEO of the Toronto-based Rice Group believes that “business partnerships are the key to success for logistics projects at mid-size regional airports”.

The Rice Group is an A to Z Design-Build-Operate firm involved in developing commercial and industrial projects, including cargo, logistics and MRO facilities at airports across Canada. These airports include Toronto Pearson, Hamilton, Halifax Stanfield, Abbotsford, Red Deer and Winnipeg Richardson.

Rice reports that his company works with the TD Asset Greystone Infrastructure Fund providing the opportunity to partner with airports to make strategic investments in airside and landside infrastructure that unlocks development opportunities.

Using its vertically integrated approach, Rice Group has developed projects on airport leased lands, as well as adjacent privately-owned lands. It has assisted its airport partners with consolidation of leases and redevelopment of obsolete cargo facilities to develop state-of-the-art logistics complexes that address end user requirements.

Rice notes that the Rice Group first became involved with airports at Toronto Pearson (YYZ), where they partnered with the Greater Toronto Airports Authority (GTAA) in the operation of the International Centre, a multi-purpose convention and event facility in Mississauga adjacent to YYZ.

To facilitate airport growth and generate long-term rental income for Rice Group, this property was added into the airport whereby the Rice Group became the land lease holder. His company also used this approach to develop the Skyservice Hangar facility at YYZ.

Rice explains: “After our experience at Pearson with the GTAA, we realised there are many development opportunities at airports, and this opportunity lies in delivering the types of buildings that logistics and aviation businesses are looking for today rather than those from 30 plus years ago.”

Rice Group recently used this approach to partner with Winnipeg Airports Authority (WAA) to acquire leases for some of the aging cargo facilities at Winnipeg Richardson International Airport (YWG). The intensions are to redevelop selective footprints that will help unlock the region’s potential.

Rice Group worked with WAA to establish a strategic partnership whereby it invested capital to be used for the rationalisation of new cargo facilities that will enable necessary improvements towards facilitating the more efficient transfer of goods.

Notable cargo integrators that occupy space within these selective footprints include Purolator, FedEx, UPS, Calm Air, Air Canada and Cargojet Airlines.

The resulting 350,000 square feet of improved infrastructure is spread over 37 acres of land and will be built using the capital means and collective experience of the partnership.

“Rice Group has been a welcome partner as we unlock the potential of Winnipeg Richardson International Airport,” says Barry Rempel, president and CEO of WAA.

“Its expertise and insights are contributing to the development of airport real estate which delivers on our commitment to lead transportation innovation and growth for the community.”

AFCO and Richmond International Airport (RIC): Facilitating logistics

Aviation Facilities Company (AFCO) is a Real Estate Investment Trust (REIT) that invests in airport real estate and infrastructure. Its facilities at airports in North America and across the globe create value for airports and end-users through the development of vacant lands and investing in existing facilities.

AFCO activities are undertaken through long-term land leases and high levels of collaboration with all stakeholders. Executive vice president and chief investment officer, Steve Forrer, explains: “Our business of delivering facilities that efficiently meet end-user needs and requirements, allow airports to attract new business and generate additional revenue, which we don’t see changing in the post-pandemic marketplace.”

Its portfolio includes Richmond International Airport (RIC) in the US, which actively seeks to generate revenues from vacant lands and increase cargo activity to complement passenger-based revenues.

AFCO’s conversations with Amazon Air in late 2019 identified the need for a 41,000 square foot facility at this Virginia gateway with a timeframe that could not be accommodated by new development.

In response, AFCO created space in its existing 51,000 square foot RIC facility by relocating tenants to other facilities that included available airport properties which AFCO leased from RIC. Importantly, RIC also undertook related capital projects and made aircraft parking available to support Amazon Air.

“With e-commerce demand hitting new peaks, Richmond International Airport was pleased to fast track several facility enhancements working closely with Amazon Air and AFCO to initiate operations on schedule,” enthused Perry Miller, president and CEO of the Capital Region Airport Commission.

Urban Land Institute Airport Development Council

Symbolic of the increasing role of strategic development at airports, in January 2021, the Urban Land Institute (ULI) based in Washington DC approved the creation of the Airport Development Council (ADC) as part of its Product Council Program, which advocates best practices in real estate planning and development.

The ADC comprises members from airports of all sizes, the public sector, economic development agencies, consulting professionals, investors, developers and industries including aviation and logistics.

The ADC, which is chaired by Steve Forrer of AFCO and myself, has the mission of bridging the gap between the airport operating world and commercial-industrial real estate sectors to facilitate best practices in airport development.

Outlook

Mid-sized regional airports are clearly on the rise with much of their growth attributed to the strategic planning and development of their properties, unlocking their roles as economic engines.

Working together with their partners, progressive mid-sized airports have diversified and grown non-aeronautical revenues while becoming resilient to passenger traffic disruptions.

They are agile in responding to end-user business needs, particularly for developing next generation logistics facilities. The rapid growth of e-commerce fulfilment has been a phenomenal catalyst to advance the role of mid-sized airports in the movement of goods by air and ground.

Indeed, mid-sized regional airports are well-positioned to grow their revenues by embracing strategic land development.