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Apartment Developers, Come Fly with Me

Aerotropolis development
October 2017

Apartment developers are leveraging areas near airports to provide housing for the many workers who live nearby.

The impact of city airports as a key area for moving people and products has led to the creation of a new term: Aerotropolis. Aerotropolis, as coined by John D. Kasarda, is “a new urban form where cities are built around airports speedily connecting time-sensitive suppliers, manufacturers, distributors and business people to distant customers, clients and marketplaces.”

Kasarda has identified various aerotropolis markets around the world that he believes will shape the future of global economies and the real estate needed to support them. This phenomenon is driving real estate companies’ investment decisions.

Aerotropolis Success: Disney World
The concept of aerotropolis has been tested for decades. Disney World in Florida is one example. While there are several versions of what prompted Walt Disney to choose an isolated section of “swampland” in the middle of Florida for his theme park mecca, it ultimately came down to putting aerotropolis into action: Finding a location that was affordable and had great accessibility via land and air.

At the time of his search for an East Coast location in 1963, Florida was just starting to develop I-4 and the Florida Turnpike. Both roadways intersected in central Florida and would connect to Interstate 95, I-75 and I-10. Additionally, the existing railroad lines connecting Florida to transcontinental lines, as well as to seaports in Tampa Bay and Jacksonville, converged in the same general area. And, most important, the nearby city of Orlando had made a recent agreement with the U.S. Air Force to utilize McCoy Air Force Base because it had greater opportunity for future growth than the city’s existing airport. This potential capacity of a burgeoning airport to facilitate the dynamic growth of visitors and cargo that Disney planned fulfilled the final requirement for his site selection. So what has long been regarded as a visionary site selection by Disney was, in actuality, rooted in the same mechanics of today’s real estate development — accessibility to people and materials and affordability.

Present-Day Aerotropolis at Work
Today, there has been a development resurgence in urban cores, where attractive land prices and a changing renter demographic have driven developers to pursue new projects in walkable locations. Yet, downtown development sites are diminishing in both opportunity and affordability, while the renter population grows and continues to place high value on convenience and lifestyle.

While industrialization forced airports to move to less- populated areas so that flight paths were safer (away from telephone lines, etc.), the expansive land needed to facilitate such large developments also required affordable rates. Therefore, many city airports have been positioned on the outskirts of MSAs. One of the more recent large metro airports, developed in Denver in 1995, is located 24 miles from the city center.

Within the past 15 years, domestic air passenger counts have increased 30 percent to more than 719 million travelers per year, while international air passenger counts have grown by a whopping 76 percent to 208 million annually. Coupling this with the proliferation of both global trade and online shopping, air cargo activity is also reaching new levels. According to a recent study by the Federal Aviation Administration, domestic air cargo is forecasted to increase 3 percent per year for the next 20 years. This growth toward and around the nation’s airports is already underway. In Denver, an eight-stop rail line is under construction to connect downtown to the airport, with initial development plans to include live-work-play elements, such as hotels, housing, office towers and a brewery. And in Tampa, as part of a $2.3 billion renovation already in progress, Phase II includes plans for two hotels, an eight-story office building, a 20,000-square-foot retail center and convenience store.

Phoenix’s Mesa Gateway Soaring
The best city to watch for development of an aerotropolis is Phoenix. Surprisingly, it’s the MSA’s second-largest airport readying for growth. In 2008, Mesa Gateway Airport conducted a comprehensive review with input from local stakeholders, the airport commission and the city of Mesa to determine an economic development plan. It was clear there was opportunity to create more than just runways with the over 3,000 available and developable acres. In fact, Mesa Gateway actually pinpointed the “aerotropolis” model to serve as the blueprint for its plan — with a goal to create an entirely sustainable community to live, work, play and learn.

The planners recognized the unique opportunity to benefit from the airport’s proximity to Arizona State University’s Polytechnic Campus in addition to the expansion of traditional commercial and industrial centers oriented at the airport. Located within a half-mile of the airport, the campus can act as an anchor to launch development of other higher education institutions and technology centers. This focus on developing a system of varied economic inputs is projected to create 132,000 jobs in the Mesa Gateway aerotropolis by 2030.

And where there are jobs, there will be demand for housing. More than 46,000 housing units are planned to accommodate the growing workforce at Mesa. Based on the lifestyle choices of today’s renter, with preferences toward smaller housing and greater walkability and proximity to work, high-density mixed-use developments are the priority for the Mesa plan. A portion of housing is forecasted to be single-family, but in an effort to meet a goal of sustainability, the use of land, transportation and water resources is projected to be better managed through higher-density residential assets.

In early April, Mesa Gateway Airport received approval to begin developing nearly 700 acres. Although there are no reports detailing which projects will be developed first, it is clear that the airport is becoming an aerotropolis to move people and products easily throughout its to-be-created urban core.

This type of comprehensive community evaluation of an airport’s economic value and opportunity is complemented by airports themselves adapting to provide over-the-top experiences for travelers. Recently, Conde Nast Traveler’s passenger-ranked “The 10 Best Airports in the U.S.” report cited dining, high-end shopping, cultural exhibits, architecture and entertainment as key factors for passenger satisfaction. Already consistently voted the top airport in the world, Singapore’s Jewel Chiang Airport is amidst renovations to include jaw-dropping amenities such as a garden space with nature trails and a 131-foot waterfall called the “Rain Vortex.” And, back in Orlando, recent airport renovations will include “The Boulevard” that will offer club and lounge-style retail options among other customary concessions.

Transitioning from city gateways to tailored final destinations, today’s airports provide the perfect backdrop for the next big wave of real estate development, including healthy opportunities for multifamily. Companies with integrated business lines dedicated to the full realm of real estate development can be a major resource for not only large government-funded projects including rail, road and energy development, but also to private projects of retail, single-family and multifamily housing development or repositioning centered around these burgeoning economies.

And maybe, when seeking accessibility and affordability like Walt Disney, developers might just create another Magical Experience.

Lisa Dailey, Vice President of Business Development at Balfour Beatty Communities.