Airport land: the untapped potential of logistics
Land surrounding airports, and indeed within airport boundaries, has always been suitable for logistics.
It is likely to be well connected, close to major roads and, whilst also being accessible to urban centres, it will be less attractive to residential developers for obvious reasons. It naturally acts as a storage location for goods which have arrived by air, before transfer by lorry, and vice versa.
So, it is no surprise there has been a recent flurry of deals and planning permissions such as planning for Columbia Threadneedle to develop a new industrial estate (and warehouses) next to Stansted Airport, Hounslow Council's proposal in its Local Plan Review for a major new industrial estate on Hatton Fields next to Heathrow or the development of CGX Connect at Gloucestershire Airport. Indeed, logistics developer Pannatoni intends to develop an 80,000 square feet last-mile logistics site near Heathrow on brownfield land acquired from CBRE IM as well as 257,000 square feet of logistics warehousing within the boundary of Brighton City Airport. Of more significance perhaps is the East Midlands Freeport announced by the Government in 2021 made up of the East Midlands Gateway and Industrial Cluster Tax Site, which surrounds East Midlands Airport.
These names and projects clearly recognise the incredible opportunities available here, but are other developers and investors taking note, and can even more potential be unlocked? One stone that seems to be largely left unturned is that airport operators and property companies can learn a lot from each other, and working together can create significant value. Airport operators are, naturally, experts in running an airport. They also, usually, happen to own a lot of real estate, but management of that is ancillary to their main business. Airport operators may also be able to supply the tenants, who could already be lurking in unsuitable premises elsewhere on the airport. Property companies will of course know little about running an airport but can lend their expertise to the development, and management, of airside land. The combination of these two areas of expertise can add real significant value to logistics property. Take for example an area of undeveloped or brownfield land within the airport boundary. The airport owner may not have even considered developing it, or simply lack the expertise and resources to do so. A logistics developer can bring all the expertise surrounding designing, planning, building and letting a warehouse on this land. The airport operator can add to that integration into the airside of the airport, with the direct access to cargo planes that will bring, as well as advise on exactly how the building will be built and operated within the existing airport regulatory constraints.
Airport operators are now putting ESG at the forefront of everything. Airports cannot expand without confronting and dealing with it head on, and whilst there is only so much that airports can do about the carbon footprint of the planes that use them, the key lies in what they do with their real estate. The property industry is further advanced in respect of ESG in real estate than the airports industry and the latter therefore has an instant source of expertise to tap in to. Such expertise could not only enhance the value of the asset, but also add to the overall ESG credentials of the airport. Pannatoni's two developments will be excellent examples of this. The Brighton Airport development will be BREEAM excellent and include EV charging for vans and cars and the Heathrow development will be net zero carbon and include photovoltaic roof panels.
PV is another synergy between airports and nearby logistics warehousing. Both lend themselves well to PV development as examples at Glasgow, Newcastle and Stansted airports have and will show us. Solar PV from airports and logistics warehouses can feed power to a local network, or to the grid, enhancing income from the sites. Moreover, they can provide power to their vehicular users. Both are reliant on intensive vehicle use and a time where the majority of airport drop offs and hire car fleets, and goods vehicles servicing warehouses, switching to EV, is perhaps not that far off.
As humble lawyers, we have a role to play in unlocking all this. We can advise on a number of options for an airport operator and a warehouse developer to come together. This could be as straight forward as a simple lease where the airport operator simply enjoys a rental, or as involved as a joint venture, or forward funding agreement where each party takes on a number of obligations. Logistics developers and investors will be familiar with such arrangements, but Airport operators should not be put off by their potential complexity. Ultimately, such arrangements are the best way to unlock to most value.