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A Site Selection Web Exclusive, July 2014
WEB Exclusive story

The Aerotropolis EMEA Conference Report, Part 3:

Africa, Edge City Developments and Keys to Aerotropolis Success

by DAVID BENTLEY, Chief Airports Analyst, CAPA - Centre for Aviation

The Aerotropolis EMEA Conference took place July 8-10 at the Mercure Manchester Picadilly Hotel, seen in the background here, in central Manchester, UK.
Photo by Mark Arend

s Africa being overlooked by airport investors?

The importance of ports to the aerotropolis concept was emphasised by Saxen Van Coller, CEO of the Dube Tradeport, which is based around the King Shaka Airport in Durban, South Africa, and which also lies between two of the country's biggest ports at Durban and Richards Bay. The Phase 2 development there under a 60-year master plan will take it to 70 hectares (173 acres), and it is heavily influenced by agriculture and the growing and storage of farm produce in an integrated perishable cold storage supply chain on a 16-hectare (40-acre) site, under glass. Other industries represented include automotive.

The Tradeport investment was made by local companies to the tune of US$68 million over a two-year period. The Special Economic Zone around the airport will grow in time to 700 hectares (1,730 acres), supported by a reduced tax obligation for tenants, VAT benefits, government incentives and a one-stop-shop in which to do business.

The net effect is that 16,500 jobs have been created already. In terms of international agreements, an MoU has been signed with an Indian company to take on a 140-hectare (346-acre) site.

Looking at Africa from a wider viewpoint, Ms. Van Coller said that Africa had been lagging behind in this field except for Ghana, Mauritius and Kenya, but agreements had been signed recently that will lead to other aerotropolises in South Africa. She insisted that Europe is "overlooking opportunities in Africa generally." She was not certain to what extent the failure of so many African governments to ratify the Yamoussoukro Agreement on open skies (which must adversely affect connectivity) will impact airport city development there, but she acknowledged that better international and intercontinental connectivity is essential to the prospects for this development and for others.

The 'Edge City'

A session on the second day program sessions dealt with the impact of a new development node and airport "edge city" developments. The edge city introduces yet another concept to complicate the existing airport city-aerotropolis relationship. It is defined as a region connected by fast, efficient transportation links that cut the travel time to the terminal or cargo facility to less than 20 minutes. Some of the panellists did not quite focus on the 'edge city' in their individual contributions.

One of the better examples is the Aviapolis at Vantaa, close to Helsinki Airport in Finland, which features a circular rail link to the city. The Aviapolis is a PPP that involves the city, local landowners and the wider real estate community. The guiding principle appears to be that "more inhabitants means better services means even more inhabitants."

One of the more illuminating contributions came from Sarah Procter, director of real estate sales for Copenhagen Airports, who referred to the foresight that led to the building of the Öresund Bridge, the 7.5-mile (12-km.) combined bridge/tunnel that connects Copenhagen in Denmark with Malmö, Sweden's third city, across the Öresund Strait.

The construction indirectly led to the creation of edge city developments in Malmö, with the bridge itself the catalyst for shorter travel times, by private vehicle or train (the Danish landside entry/exit point is only 1 km. from Kastrup Airport). The success achieved so far has convinced the authorities that the next high-speed rail service at Copenhagen should connect Stockholm and Hamburg to Copenhagen Airport to see if similar effects can be generated even at those greater distances.

While the edge city is acknowledged as reality, here Ms. Procter revealed that the concept of the aerotropolis per se is not. The Danes do not think of the immediate economic region in those terms. She also pointed out how the metropolitan tram service at the airport is being used for reasons other than the airport itself, even as an interchange hub for people traveling to and from work without any reference to the airport.

In an aside, Conference Chairman Professor Kasarda mentioned his experience of how the bank ABN Amro had insisted on the location of their new headquarters having quick transport access to Schiphol Airport or they would quit the Netherlands altogether. Ultimately, it did, as they ended up going to Amsterdam Zuidas, which is only six minutes from Schiphol's passenger terminal.

He also mentioned how Incheon Airport's airport city was built as an 'edge city' with an inbuilt liveability function (now the New Songdo City) while Munich Airport's Andreas Sander stressed the propensity of airports and the commercial developments around them to be the location of high earners, who generate extra taxes for local municipalities who should, ergo, support them. He pointed to average net earnings in Germany being €31,000 while they are €42,000 at the airport. (That does smack of the 'elitism' mentioned earlier, but the dichotomy was not debated).

The most important development in the world

Earlier, Professor Kasarda had referred to China's Zhengzhou Airport, which he described as spawning many examples of an airport edge city, Zhengzhou being a north-south and east-west crossroads, with a main station on a high-speed rail network, and with many related industrial and commercial infrastructures. He described it as possibly the most important development in the world today.

The subjects of ownership, investment, investor demand and attracting investor interest were considered over several sessions involving representatives from Denver Airport (a public facility), MAG (part public/part private), and GIP (the fund that owns Edinburgh airport and partially owns London City and London Gatwick airports) amongst others.

From Canada, where most of the main airports are owned and operated by non-profit public/private stakeholder assemblies, Myron Keehn, vice president, commercial development at Edmonton Airport, pointed out that it is only the continuation and extension of its operating lease there until 2072 under such arrangements that enabled it to convince the stakeholders that a C$300-million real estate investment there should go ahead.

Sarah Procter of Copenhagen Airports (part state-owned, part trade-owned, part stock market floated) felt that ownership does not matter as far as the attraction of investors is concerned, while Prof. Kasarda commented that the central issue is that business hates uncertainty (perhaps with reference to the secure long term position at Edmonton).

The representative from Denver Airport, CFO Dan Poremba, gave the US perspective on attracting investors to airport city developments at what is the country's fifth-busiest airport, with six runways (one more than there are collectively at London's five main airports), the second-largest land mass of any airport, having the third largest US domestic air market and being a major hub for United Airlines.

The first airport city development there - a hotel that will open in 2015 - is financed by the airport via revenue bonds. Transport connections are of paramount importance to the extent that a transit centre is, along with the hotel, the first construction project. Various new financing techniques for the total airport city development are under consideration, and capital markets have been invited to put forward their ideas. This market inspired long development funding programme is still at an early stage and open to consideration. Essentially, this is a PPP for both the commercial and transit facilities and still very much "open to offers."

Environmental impacts of airport and airport city developments are of the greatest concern at Gatwick Airport.

Michael McGhee, partner at Global Infrastructure Partners, spoke about airport investment generally as well as the specific case of Gatwick Airport and the contest between Gatwick and Heathrow airports for another runway. He mentioned how the environmental impacts of development are severe at both airports and will be even more so if an additional runway leads to increased economic activity around either airport.

The infrastructural development of Gatwick (i.e. whether or not it gets a second runway) will influence investment risk and how the existing investors (GIP and several other funds) regard it. But they are extremely well cashed up, possibly more so than in the case of any other airport. There are also the long lead-in times to consider. A second runway at Gatwick might not be operational until 2028. Lead-in times of this order for construction are part of the natural order of things in the UK.

Gatwick's plus points are terminal capacity and its broad traffic mix, both attractive to investors, and a recent minimisation of capital investment, much of the necessary work following its acquisition in 2009 having been completed.

The main factors the respective airports face in attracting investor interest for their existing or embryonic airport city developments were identified as political (Denver); geographical (Manchester) and local impact (Gatwick).

Summarising the Aerotropolis EMEA Conference, Professor Kasarda identified four themes that are critical for success for an aerotropolis:

  • Stakeholder alignment and community buy-in to the project;
  • Appropriate business model needed;
  • Connectivity in the air and on the ground and;
  • The Aerotropolis is a process/strategy, not a project.

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