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Thursday, October 18, 2007

Aerotropolis: A city by itself

The first phase of the modernisation of Delhi International Airport by the GMR-led consortium, which will be completed by 2010 will see an investment of US$ 1.5 billion in commercial real estate development transforming Delhi airport into an airport city - an aerotropolis

According to the land concession agreement for the Delhi airport, of the 5,000-acres of land belonging to the airport only five per cent, or 250 acres can be used for commercial purposes. This will see high-density development of hotels, business centres, retail spaces, convention and exhibition centres, golf courses and entertainment centres. Says Mridul Upreti, head, Capital Markets, Jones Lang LaSalle Meghraj, "An aerotropolis, because of its high density and high quality development, strategic location and good connectivity would soon outdo even Connaught Place in economic activity and commercial rentals."

Ever since Dr John D Kasarda, director of the Kenan Institute of Private Enterprise, USA, first introduced the concept of an aerotropolis, the span of an airport has gone up exponentially. In the new model, airports, besides their core infrastructure and services, have created significant non-aeronautical commercial facilities, services and revenue streams. Consequently, they are extending their formal reach and impact with development along airport arteries up to 20 kms outwards.

In fact, Hong Kong International Airport already has a mini-city on a nearby island for its 45,000 workers, and soon the SkyCity, a complex of office towers, convention centres, and hotels is also being developed. China is spending US$ 12 billion for the Beijing Capital Airport City that will accommodate four lakh people. Dubai is also looking at developing the largest aerotropolis, Dubai World Central, a US$ 33 billion airport city capable of supporting a permanent population of 7.5 lakh.

But can such a development take place in India? According to Sanjay Dutt, deputy MD, Cushman and Wakefield, whenever there is large scale economic activity, the area around it becomes vibrant. Airports are the hub of very enormous economic activity including cargo, car rentals, hotels, retail, etc. Says Dutt, "Prices shoot up because people start calculating returns on property near the airport. In a developing economy like India, the value is expected to go up significantly. It can even go up by 100 per cent".

However, DTZ director Vivek Dahiya feels that as the cantonment area on three sides and Palam Village on the fourth surround Delhi airport, no major development can take place outside the airport area. "Moreover, the DDA master plan does not allow for commercial centres like hotels to come up near the airport. Only if DDA revisits the policy and allows commercial development can the real estate prices around the airport also go up."

Interestingly, many airports are now getting a bigger of their revenues from non-aeronautical sources than from aeronautical sources (landing fees, gate leases, passenger service charges). Globally, 70 per cent of an airport revenue is generated through non-aeronautical sources, while in India it is still a lowly 30 per cent.

Due to the significantly higher incomes of airline passengers (typically three to five times higher than national averages) and the huge volumes of passengers flowing through the terminals , it should not be surprising that terminal retail sales per square metre average three to four times greater than shopping malls and downtown shops. As a result, terminal commercial lease rates tend to be the highest in the metropolitan area.

Commenting on the high commercial rentals of airports in India, Dutt says, "The passenger is bound to shop, eat, etc, and has certain needs. Therefore, outlets at the airports design and put retail items accordingly. Moreover, the quality of experience is assured. Secondly, in India, the quality of retail space is very limited and so is organised retail. With lots of airports getting privatised and developed, we will witness a rush to occupy retail space."

The new US$ 4 billion Suvarnabhumi airport in Thailand, will see more than 100 million passengers a year passing through the airport, about as many as JFK, LaGuardia, and Newark airports combined. Within 30 years, a city of 3.3 million citizens - larger than Chicago now - will have emerged around Suvarnabhumi.

Delhi International Airport, has already invited expression of interest from Indian and international real estate investors to develop a complete range of hospitality services to build various categories of hotels and related facilities at the Delhi airport. But no other airport in India is looking at developing similar facilities. According to analysts, commercial development near the Mumbai airport would affect real estate prices. "Mumbai airport is in the heart of the city, unlike Delhi. If the slums get cleared, the real estate value of the area surrounding the airport will substantially increase," Dahiya said.

Amsterdam Schiphol, through its Schiphol Real Estate Group, has been working for over a decade on the cityside commercial development. Nearly 58,000 people are employed at Schiphol, which integrates multi-modal transportation, regional corporate headquarters, retail shopping, logistics and exhibition space to form a major economic growth pole for the Dutch economy. Others, though not quite on the scale of Amsterdam Schiphol or Seoul's Incheon, have given commercial development a high priority in their master planning (Brisbane, Vienna, Calgary, Zurich and Stockholm-Arlanda). Many of these have implemented the airport city concept in their strategic development.

There are different requirements that can stipulate the developing of an aerotropolis. For companies engaged in IT services it is very important to have good air connectivity. According to a report, high-tech professionals travel by air at least 60 per cent more frequently than others. Such firms are increasingly looking at setting up their offices near airports. The Washington-Dulles Airport access corridor in Northern Virginia and the expressways leading to Chicago's O'Hare International Airport are good examples.

When commercial centres start coming up around an airport, it also leads to a high rate of employment generation faster than other suburbs situated at similar distances from other city centres, which further leads to development of an aerotropolis.

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