The city at the airport
Airports have long offered far more than transport and have become focal points for real estate development. But success requires satisfying several conditions.
A real achievement by Turkey: the new mega-airport in Istanbul is up and running after only five years of construction. It is projected to handle up to 200 million passengers a year. But the new airport is more than just a remarkable piece of transport infrastructure; it’s also a gigantic real estate project slated to fill the 690 hectares of Airport City Istanbul with a wide range of uses. All of this is based on the master plan by the international architecture firm Perkins+Will, approved in 2015, which calls for a university, office and retail space, healthcare facilities and a conference centre.
Airport cities of this kind are a hot topic all over the world, due primarily to the American author and academic John D. Kasarda. He coined the term “aerotropolis”, which in his words means a “metropolitan subregion where the layout, infrastructure and economy are centred on an airport.” However, it would be impossible to create a typical aerotropolis in Central Europe with its historic city centres, says Thomas Beyerle, Head of Group Research at the real estate firm Catella.
The Circle in Zurich
That’s not to say that major urban districts aren’t being developed near airports on the old continent. The Circle in Zurich is a good example. Flughafen Zürich AG is building a mixed-use complex with 160,000 square metres of lettable space on 37,000 square metres of land in the shape of a crescent. At 70,000 square metres, offices account for the lion’s share, followed by hotels, convention facilities, a health centre, and dining and retail spaces. “Airports are increasingly becoming meeting places,” says Raffaela Stelzer, media spokesperson for Flughafen Zürich AG. That’s why it makes sense “to build new uses where people already spend time,” she adds.
The greatest advantage offered by airports is transport links – and not just by plane. “Airport cities usually offer excellent public transport connections to city centres,” observes Martin Schellein, Head of Investment Management Europe at Union Investment. “Then you have the characteristic connection to motorways, contributing to the quality of the location.” Other advantages of being near an airport, according to Schellein, are the variety and quality offered by the many restaurants and service and retail spaces.
For all of these reasons, Union Investment has included hotels close to airports in its funds’ portfolios, such as the Radisson Blu in Manchester, the Radisson Blu at London Stansted and the Hyatt Place in Frankfurt am Main. In the office segment, the Aeroplaza near the airport in the Dutch city of Eindhoven perfectly illustrates the benefits offered by a location of this kind: the property enjoys top-notch connections to the airport, as well as to the A2 motorway and the centre of Eindhoven.
Office users love locations of this kind. For example, Union Investment was able to attract the Dutch technology company ASML to Aeroplaza in late 2018. And consultants also value proximity to an airport. KPMG is based at The Squaire at Frankfurt Airport, while EY opted for the SkyLoop at Stuttgart Airport. And one of the largest office tenants at The Circle in Zurich is Microsoft Switzerland.
Opportunities for investors
“The Circle is the perfect addition to existing airport infrastructure,” says Renato Piffaretti, Head Real Estate Switzerland at Swiss Life AG, an insurance group that acquired a 49 percent stake in the joint ownership company of The Circle in 2013. The other 51 percent is held by Flughafen Zürich AG. There were many reasons to make the commitment, according to Piffaretti: “The innovative architecture, the novel mixture of uses and efficient, flexible spaces, being directly adjacent to the park and the nearby recreation area, and top notch links to the best-connected point in Switzerland – Zurich Airport – make this project unique.”
Investors interested in participating in the project, estimated at CHF 1.2 billion (about €1 billion), will have to look outside of Zurich. No changes to the joint ownership company are planned in the near future, says the airport spokesperson.
Frankfurt and Munich
Things are different at Gateway Gardens, one of the most remarkable airport cities in Germany. Some 700,000 square metres of gross floor space, about half of which has already been sold, is planned for a former American air base, 35 hectares in size, near Frankfurt Airport. The project is being developed by Gateway Gardens Projektentwicklungs-GmbH, in which the city of Frankfurt am Main and a group of three private companies, including the airport operator Fraport AG, each hold a 50 percent stake. The company is selling the individual spaces to investors, which is how Union Investment acquired the Hyatt Place Hotel, which opened in Gateway Gardens in 2018. A mixed-use development is also planned and has been partially completed. That’s important for the success of a project of this kind, emphasises Catella researcher Thomas Beyerle, who advises against limiting developments near airports to office complexes.
The scenario is also different in Munich, where Flughafen München GmbH is responsible for development of the area surrounding the airport. The company itself does not always appear as the principal, and it doesn’t sell parcels, either. Instead, “ground leases (Erbbaurechte) are included in many different contractual scenarios,” says Beatrice Vaupel, Acting Manager of Real Estate Development at Flughafen München GmbH.
Current construction projects at Munich Airport include an Accor Group budget hotel, slated to welcome its first guests in 2021. The LabCampus innovation centre, which will ultimately occupy 50 hectares, is particularly visionary. It is an “interdisciplinary idea and innovation centre on the airport campus” that will “foster cooperation between companies and industries,” according to Flughafen München GmbH. It already has some well-known users, including Siemens, the flexible workspace provider Design Offices and various research institutions.
Why should an airport company even get involved in real estate development? “If the airport location becomes more attractive, operations will also profit from having partner companies and innovation drivers from airport- and aviation-related sectors nearby,” responds Beatrice Vaupel. “And real estate offers an important additional source of income for corporate financing.”
Successful development of this kind requires “being able to increase the value of a location by constant, systematic enhancements until it is perceived as a ‘location,’” says Vaupel. She adds that this includes development of a use concept in line with interests in the region.
One constant in all of this: it takes stamina to build a functional airport city. The Circle in Zurich (planned completion: 2020) got the green light ten years ago. Gateway Gardens Projektentwicklungs-GmbH in Frankfurt was founded back in 2004. And it will take longer to build the Airport City at the new flagship airport in Istanbul than the airport itself.
By Christian Hunziker