Those of us returning from more exotic holiday destinations this summer may have passed through a shiny new airport complex abroad and wondered why airports in the UK do not seem to offer the same environment and buzz as their foreign counterparts. In locations such as Hong Kong and Dubai state-of-the-art terminal facilities have been developed, accompanied by integrated transport networks, commercial property developments, and high-class retail and leisure facilities. In comparison, UK airports seem to offer plazas of generic retail and then nothing but business hotels and distribution parks beyond the terminal entrance. Part of the reason for the difference in experience is the relatively constrained property market around several major UK airports. Sites around Heathrow, Gatwick and Manchester are few in number and often expensive due to high occupier demand for sites with air transport links. Around other airports such as Stanstead environmental concerns limit developments. This means that much off-airport property product is a legacy of now largely gone industrial and manufacturing demand or the stand-alone business parks that emerged out of the rush of speculative building in the late 1980s. Although some of these, such as Stockley Park near Heathrow, are highly successful, many others are less so. Office rental levels for UK off-airport have fallen by a fifth since 2001 and vacancy levels are often at 20%. Within the industrial and distribution sectors vacancy rates are lower but most activity is focused on transforming old manufacturing premises into distribution depots. In such a climate, many developers are sitting on their planning permissions, waiting to see what the market will do. However, there are grounds for optimism. Firstly, the 2003 Aviation White Paper gave government backing to plans to a doubling or even tripling of air traffic to and from the UK by 2030, with expansion favoured at major airports including Heathrow, Stanstead, Manchester, Birmingham and Glasgow. All these airports have been asked to develop masterplans for their future development. This should in turn lead to increasing demand for off-airport sites, as occupiers take advantage of the improving access to international markets offered by air travel. Secondly, after the 2001 slump, economic growth forecasts have picked up and historic data shows a strong correlation between economic growth, air travel and commercial rental levels. Thirdly, there is growing recognition of the valuable role airports can play in regional economies. Regular air services bring employment and consumer expenditure to an area, whilst also making inward investment by firms requiring international transport links more likely. The two questions this article seeks to answer therefore are: how can activity within the commercial property sector take advantage of these developments? And what role can the public sector agencies play in promoting such developments? The recent poor performance of UK off-airport commercial markets shows that changes within the UK economy and in the ways in which people work are leading to pressures for new types of product within the off-airport commercial property market. We have identified four such drivers of change: • Globalisation – the globalisation of manufacturing operations has been a key driver of commercial property market expansion around airports, as final assembly and distribution operators have sought locations that provide a bridge between eastern producers and western consumers. However, we are now starting to see globalised operations within higher value manufactures such as computer chips and in certain service sectors. Mass global transportation of such goods and services is less bulky and therefore leads to less demand for warehousing space at airport locations. However, transporting such goods and services also requires greater provision of supporting facilities such as specialist logistics, security services and environmental controls (temperature, lighting, no risk of contamination etc.) • Government Policy – the 2003 Aviation White Paper gave strategic support to the continued growth of passenger volumes at UK airports, with Heathrow, Stanstead, Manchester, Birmingham, Glasgow, Edinburgh, Belfast and Cardiff airports for considerable expansion. However, the White Paper also included a greater focus on the environmental and social impacts of airport development than have been seen before from government. New development at existing sites is to be encouraged, developments should be served by sustainable transport links, local employment opportunities should be advanced and the kind of urban sprawl promoted by out-of-town retail parks should be avoided. Meeting these objectives requires developers to think more about redeveloping and repositioning existing stock and less about acquiring new sites. It also requires them to think in more detail about the types of employment opportunities that will be created once their scheme is completed and how likely it is that local people will be able to access these opportunities. • Technology – as communications technology has improved, the need for face-2-face business contact has declined, although it has not been removed entirely. Employees can now access documents and keep in touch with colleagues without having to be in the office and for employees of multi-national companies the airport has in effect become an extension of the office, with wireless communications, terminal lounges and hotels all becoming places of business. Taking this development a stage further to outside the airport boundary, leading companies can now choose to maintain a small office presence, with hot desking facilities reducing the time and expense associated with travelling to city centre office locations. • Culture – the return to vogue of UK city centres has been not just a residential market phenomenon but also a commercial and retail market one. New office developments are rising up throughout city centres such as Manchester, Birmingham and Leeds. These are accompanied by a revitalised retail and leisure offer, with stores, cafes, bars and restaurants providing workers with post-office entertainment and shopping facilities. As a result, employees are increasingly choosing to work for companies whose office location offers them the opportunity to be part of an exciting social and professional scene. Within this zeitgeist, suburban and out-of-town offices are seen as less desirable and firms based at such sites are finding it harder to attract and retain the best staff. Given these drivers of change, in future off-airport commercial property offers will need to offer greater innovation in the types of product being delivered. Within the office market, smaller, flexible office space that allows multinationals to maintain a small, cost effective presence near to major airport hubs will become more attractive. At regional airports, where such companies may not require a permanent base, facilities such as hot-desking units, meeting rooms and conference facilities can provide cost and time effective alternatives to travelling into urban centres. Within manufacturing the growing role of global supply chains within higher value manufactures means that it is unlikely to be economical to manufacture goods at sites close to UK airports, as such goods can be produced and exported at lower cost elsewhere. However, former manufacturing demand will be replaced by growing demand for space to accommodate higher value final/re-assembly processes and distribution services. Warehousing space that offers such occupiers high density, automated facilities will therefore be in demand. There will also be demand from the food and drink sector for warehousing space that can offer the temperature, hygiene and quality control systems needed by the sector. Alongside greater innovation in the property product, developers will also need to consider the supporting offer that accompanies the core property offer. Developments such as hotels, restaurants, retail and leisure facilities will all add to the draw of commercial property developments. They will also broaden revenue streams by being attractive to both business and holiday users of the airport. In developing commercial and associated sites, developers will need to avoid leaving developments open to the charge of promoting non-sustainable lifestyles. Developments that provide integrated transport links, job leisure opportunities for local people, and that stick to clearly defined boundaries are likely to be viewed more favourably by planning authorities. In this regard, developers can learn from the marketing strategies associated with business and science park developments. Using terminology such as business zones, office quarters and high technology corridors helps to place limits on the scale and scope of a development, gives the appearance of critical mass and links a development to a neighbouring urban economy and policy framework. Combining higher value business space, associated retail and leisure facilities and new marketing strategies requires a new model for off-airport property development, and developments such as Canary Wharf provide the blueprint. Off-airport development should strive to create a sense of place by combining high specification business space targeted at multinationals, with the retail and leisure offer to attract and retain office workers and airport user consumer spending, and a marketing campaign that stresses both separateness from and connectivity to neighbouring business centres. In short, developments should seek to develop locations rather than just individual or clusters of buildings. The public sector has a key role to play in aiding this transformation. In the UK, many regional airports such as Manchester, Nottingham East Midlands and Leeds Bradford are owned by associations of local authorities. If these authorities can enter into discussions and potentially Joint Venture partnerships with developers, as has been demonstrated by BAA and abroad, then they can bring about new commercial developments that deliver uplift in the value of their property holdings. Getting early stage public sector input will help to ensure that development plans are fully in accordance with related topics such as transport, employment and employment land strategies. Furthermore, given that airports are frequently cited as regional assets it may be that associations of local authorities and the regional development agency are well placed to work together with private developers to produce off-airport masterplans that provide opportunities for the region’s population. Another way of using growth in airport passenger numbers to deliver improvements in commercial property markets is to develop innovative management structures that embed airports within their local and regional economies. Such management structures can also play a part in developing sustainable transport strategies, with direct links between airports and neighbouring commercial sites and separation of passenger and freight transport routes. Finally, the expansion of regional airports offers RDAs and local authorities the chance to boost their reputation as investment locations. If an airline is to introduce business routes, say to the Middle East or the Indian sub-continent, then new opportunities can be developed by considering how companies and entrepreneurs from these countries can be attracted to invest locally. For more information please contact Stephen Lucas at stephen.lucas@dtz.com