June 24, 2007
Financial Express

Nearly 250 acres around the Delhi airport might see high-density commercial development by 2010

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 $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 5%, or 250 acres can be used for commercial purposes. This will see high-density development of hotels, business centers, 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 km outwards.

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, 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%”.

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 allow 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% of an airport revenue is generated through non-aeronautical sources, while in India it is still a lowly 30%.

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 airport 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 $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 Limited, 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.

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% more frequently than others. Such firms are increasingly looking at setting up their offices near airports.

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.