Beyond the Aerotropolis: How Airports are Turning into Cities

Land-rich airport owners are becoming developers to capture the value of diversified revenue streams and landside projects. But it is “an evolution, not a revolution,” according to Mercurius founder Ivo Favotto. The pandemic was a “lightning bolt moment” for airports as they faced border restrictions and passenger business shutdowns that white-anted revenue by up to 90 per cent, Favotto says. “But some of them, the ones that survived the best, were the ones that had diversified property portfolios,” he says. “So a lot of airports are now thinking, ‘we’ve got this surplus land, how do we develop it? How do we diversify our income stream?’.” Favotto has spent his working life in the airport industry in Australia and Europe, focused on the commercial side of the sector. Ten years ago he founded Mercurius, a development advisory firm that tracks trends across the airport industry and now works with privatised airport groups to expand their horizons beyond airside operations. “We advise airports on how to make money from what we call non-aeronautical activities. And now that airports are privatised, most of the bigger ones are generating 40 to 50 per cent of their revenues from non-aviation activities,” Favotto says. ▲ Melbourne airport accounts for 11 per cent of Australia’s total parking revenue. But there is no one-size-fits-all solution to airport landside development. Sydney has one of the smallest landholdings, but its retail and duty-free shopping generates close to $500 million per annum. It has about 900ha of land and is the busiest airport in Australia with 45 million passengers a year, while Melbourne and Brisbane have vast swathes of land of about 2600ha. Melbourne’s airport produces 11 per cent of Australia’s total parking revenue, Favotto says, and has focused much of its development on a leisure precinct, which includes Australia’s first operational surf park. Brisbane’s airport precinct features industrial and logistics assets, retail and hotels, while Canberra’s airport has evolved into an office park. But for smaller airports, car parking and car rental are far more important as revenue generators. Favotto says in the past 10 to 15 years, airport hotels have become more prevalent. And while they were often done on a ground lease basis at the time, Favotto says “now no airport worth its salt would ever do a hotel on a ground lease again”. The opportunity to capture the upside of the risk is significant for airport corporation-turned-developers. Mercurius and Cox Architecture recently released a white paper discussing the four key steps in masterplanning a landside airport precinct, which could unlock significant value and diversify revenue streams for non-aeronautical activities. ▲ The Gold Coast Airport is planning for hotels, commercial office space, health and wellness facilities, and a Southern Cross University expansion. Gold Coast Airport this year won Federal Government approval for its 2024 masterplan, which was a 20-year vision that Queensland Airports Limited chief executive Amelia Evans described as a “vision [that] extends beyond being just an airport—we aim to be a destination in our own right”. It is a concept that is gaining momentum. The airport, which is expected to attract 13 million passengers annually by 2044, is planning for hotels, commercial office space, health and wellness facilities, and a Southern Cross University expansion. Sunshine Coast airport has now put forward a masterplan for its 148ha site, which comprises its 30ha Gateway precinct, one of five precincts within the airport’s land holdings. The proposal is for a mixed-use hub that would comprise commercial, retail and short-term accommodation. Airports are required to undertake a regulatory aviation masterplan every five years, but the corporations that own and operate the airports are now undertaking masterplanning for commercial property development in non-aviation precincts. It takes more than land And the bigger they get, the more development airport precincts attract. But it requires more than just surplus land. Favotto says successful masterplanned airport precinct development requires infrastructure connectivity, strategic placemaking and amenities, and assets that complement development in the surrounding areas or “over the fence”. “This white paper is signaling to airports that ... you need to add value to that land through design elements,” Favotto says. “So whether those design elements are hard infrastructure, roads, power, water, or whether it’s master planning and placemaking, and providing that amenity into spaces ... you need to do it, it’s not enough just to have surplus land as an airport. “Every airport in Australia has got surplus land. It’s how you add value to that land to make your piece of land more appealing for development than the stuff across the fence.” ▲ Sydney airport: All airports have surplus land, says Favotto. Co-located assets both on and off airport land are creating economic drivers for these under-developed precincts. According to the white paper the four key steps to masterplanning non-aeronautical landside precincts are to identify what development is possible, what is the right kind of development model as a developer or JV partner, consider design enablers such as infrastructure and connectivity, and find catalytic developments to encourage commercial activity. But Favotto says the conversation is moving beyond the aerotropolis concept to airports becoming city-like destinations, with places like Singapore fleshing out that idea into a shopping destination for travellers and locals. “The aerotropolis concept is about the land off the airport being developed,” he says. “We’ve now sort of moved into this sort of scenario where the land on the airport is now being developed to complement the developments that are around it.” Airports take on development And airports are increasingly becoming the developers of these projects, deriving a greater return. But context is crucial in getting the development mix right, Cox Architecture director John Ferendinos says. “You have to understand who your travellers are and what they are doing,” Ferendinos says. “What you develop within the airport precinct needs to complement what is over the fence and how people use the broader airport precinct.” ▲ The Auckland aiport redesign focussed on its entertainment appeal. Ferendinos says internationally, Auckland’s airport is leaning into the entertainment space while Singapore is a shopping destination for travellers and residents alike. Indeed even at home, retail is a big driver. He says the Starbucks and McDonald’s at Sydney’s T2 terminal are the best-performing franchises in the country. Ferendinos says “there’s almost no limit to what you can offer” in an airport precinct and they can attract significant investment potential. Creating and developing landside commercial masterplans enable airports to lead on-campus commercial activity and actively participate in value creation. But it is a matter of balancing yield potential against the demand for terminal proximity, Ferendinos says. “Airports are broadening their precinct strategies to include a wider range of assets, such as cold storage, simulation and training centres, leisure facilities, and wellness or event spaces,” the white paper says. “Far from peripheral, these uses form part of a purposeful clustering approach that enhances the overall value and functionality of precincts.” Precinct planning can unlock scalable development outcomes. It also provides a framework to stage investment, target specific sectors, and enhance the airport’s positioning as a high-performance commercial hub, beyond the aerotropolis.

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