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I N D I A R E P O RT
AIRPORT REALTY TAKING OFF
The new phase of airport development in India and its direct
implications on revenue, real estate and more
A RESEARCH PUBLICATION
CONTENTS
EXECUTIVE SUMMARY
India's emergence as a business destination as has been intended for completion by 2015, which
well as a tourist hub for international travellers includes at least 35 non-metropolitan airport
is increasingly reflected in the stupendous projects and various other Greenfield projects.
growth in air travel in the country, inbound as
Principal airport hubs become destinations in
well as outbound. This increase is supported by a
themselves leading to the growth of fresh
multitude of factors, including India's increased
business and convention centres, commercial
purchasing power, entry of budget airlines and an
space, hospitality and residential zones in ever-
open skies policy that has enabled domestic
widening concentric circles, with airport activity
airlines to fly international sectors, thereby
at the epicentre of a city's economic growth.
increasing competition and resulting in fare wars.
Globally airports derive a large portion of their
This exponential growth can further be
income from non-aeronautical revenue sources.
maintained or boosted by the Airports Authority
By harnessing this potential revenue-earning
of India (AAI), by increasing the number of
model, airports have achieved a higher level of
airports in the country, providing better
efficiency by essentially bringing down
connectivity to overall airport network and
aeronautical charges and being increasingly
feeding international network through hub/
profitable for airlines to operate from.
metro airports.
This special report takes a look at the current
Currently, India is home to a total of 126
rate of airport development in India, as well as
operational airports, including 11 international
the pace of privatisation. Profitable land
airports, 89 domestic and 26 civil enclaves at
development avenues are explored in order to
defence airfields. The increase in the travel and
project the increasing share of non-aeronautical
tourism industry has made considerable
revenues. According to Cushman & Wakefield
contributions to the overall GDP growth over
research, if the current privatisation trend
the past couple of years. This increase has been
continues and all airport projects under
complemented by a simultaneous rise in Indian
development are modernised by 2014-15 (as
air commerce and these developments have
planned), then non-aeronautical revenues would
caused much strain on the infrastructure
increase several fold from the current rates.
facilities therein, necessitating the need for
modernisation. According to the government's We hope to have been of substantial assistance
11th Plan, the modernisation of several airports to our readers through this special report.
A RESEARCH PUBLICATION
200
where airports are constrained by capacity,
adding to capacity (especially of hub airports) 150
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Jaipur
Agra
Gangtok
PRADESH handles 16.5 million passengers per annum,
UTTAR
RAJASTHAN
PRADESH SIKKIM Guwahati
Kohima
which is expected to grow to 20 million
Lucknow ASSAM
Udaipur
Varanasi BIHAR NAGALAND
Dimapur
passengers by next year. One of the factors
Patna
Ahmedabad
Khajuraho MEGHALAYA
MANIPUR contributing to this increased load is the absence
Bhopal Ranchi Imphal
Indore
GUJARAT
MADHYA PRADESH JHARKHAND
WEST
TRIPURA
Agartala MIZORAM
of airports at neighbouring cities which leaves no
Rajkot Vadodara BENGAL
CHHATTISGARH
Raipur
Kolkata option for a traveller but to take a route via
Aurangabad Nagpur ORISSA
Mumbai/ Panvel Bhubaneshwar New Delhi. Additionally, international flight
MAHARASHTRA
Pune
connectivity is the highest in the city which
Hyderabad further adds to the passenger traffic.
Visakhapatnam
Gulberga
Panaji ANDHRA
GOA
PRADESH Public Private Partnership (PPP) Variants for Airports
KARANATAKA
Mangalore Hassan
Bangalore
Kannur Chennai
Agatti,
Coimbatore
Design
Lakswadeep Islands Trichy
Kochi Port Blair, Andaman &
TAMIL NADU Nicobar Islands
KERALA Finance
Madurai
O&M
sector has been construction of various airports in India, the first Private Sector Public Sector
about 9% per being Cochin International Airport (CIAL). Source: CRISIL Ltd.
annum, India has Thereafter, the Indira Gandhi International When one looks at the current buzz around
seen an average Airport (IGIA), New Delhi and the Chhatrapati privatisation of infrastructure in India, it is
annual growth rate Shivaji International Airport (CSIA), Mumbai difficult to imagine that just about half a decade
of 35% over a followed the PPP success story. ago, privatisation was virtually unknown in the
period of six years. country. The story started with the roadways in
Privatisation of Indian Airports
the late 1990s, which were funded by the
At a time when the global growth rate of the government through a 1% cess on diesel.
airport sector has been about 9% per annum, Infrastructure bonds were floated too, where
India has seen an average annual growth rate of public sector corporations invested. But it was
35% over a period of six years. Despite such a only in recent years that privatisation was
performance by the sector, it is estimated that, adopted as a means to fasten the pace of
had the enormous infrastructure gap not been infrastructure development and allow the private
there, India's GDP growth would have been at sector to benefit from the same.
least 2% higher per annum almost at par with
the phenomenal growth rate that China has The concept of privatising Indian airports has been
achieved. much discussed since 1997, when the first proposal
was put forward by the Government of India.
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The need arose when the government found it involved. Private players are in a better position
increasingly difficult to extend the grant for civil than the government to raise funds, not
aviation in the budget. It was believed that once forgetting the fact that Foreign Direct
airports become profit centres post privatisation, Investments can also be considered for the
the allocated funds would be directed towards purpose.
other welfare activities.
Airports are built on gigantic land parcels,
Today, a decade later, the privatisation of providing for vast commercial spaces, both in and
airports has come as a step towards bridging around the airport complex. Private entities
the yawning gap in infrastructure as also in handling such projects could design the airport,
bringing in greater efficiency in the management facilitating substantial amount of real estate space
of airports. The move is believed to lead to development. The economic division of the
When one looks at greater efficacy, by changing the operations of an commercial spaces available would result in
the current buzz airport into a business enterprise, rather than a amplifying the revenue that a public airport earns.
around privatisation public service. The opportunity presents itself as
of infrastructure in With an airport's primary role as an entry and
a result of the increased sector connectivity
India, it is difficult to exit point for the world, these are virtually our
which has led to more aircrafts on the existing
imagine that just store fronts. A “destination” experience
runways and terminals; and this is where the
about half a decade coupled with “destination” merchandise and
concept of 'Greenfield Airports' is sought as a
ago, privatisation flawless infrastructure can achieve non-
solution to the overcapacity problem. Further,
was virtually aeronautical revenue from a captive
funding a Greenfield project through PPP helps
unknown in the international audience.
share the financial burden as well as the risk
country.
Case Study I: British Airports Authority (BAA)
The British Airports Authority (BAA) was established UK Airports Retail Revenue 2007
in 1965 and assumed ownership of Heathrow, Media
Other retail
Gatwick, Stansted and Prestwick airports in 1996 and Airside specialist 6%
(Advertising)
7% Catering
12%
later went on to acquire Edinburgh, Aberdeen and shops, 15%
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Currently, companies that have shown interest Developers Pvt. Ltd, Maytas Infra Ltd, Mukesh
in developing Greenfield airport projects in India Ambani-promoted Reliance Industries Ltd, Anil
include the UK-based Caparo Group Ltd, GMR Ambani-led Reliance Airport Developers Pvt. Ltd,
Infrastructure Ltd, Lanco Infratech Ltd, IVRCL Unitech Ltd and Hindustan Construction Co. Ltd.
Infrastructures and Projects Ltd, GVK Airport to name a few.
Globally, airports have been expanding their facilities develop planning parameters. The study revealed that
to accommodate real estate developments including Bangalore had the fastest growth rate in passenger's
retail outlets, office spaces, convention and traffic among all the Indian Metro Airports.
hospitality centres etc. Encompassing all these non-
BIAL, the owner and operator of the future
aviation facilities and more, the Bangalore
international airport at Bangalore, will have a
International Airport aims at setting a benchmark
concession of operating the airport for a period of
for the development of future airports in India.
60 years. The master design plan focussed on
Shareholding Pattern
equipping the new Bangalore International Airport to
handle large capacity airplanes and cargo as well as
13% to effectively manage a future passenger traffic
capacity of 40 million. Together with the airport,
13% 40%
BIAL also plans to develop an Airport City with
large-scale retail space, office parks and hotels. The
airport development master plan has been staggered
17%
across several phases, with the initial phase
17% scheduled to be operational by Quarter 2, 2008.
Siemens Project Ventures, Germany Unique Zürich Airport Phase 1 of the development includes a passenger
Larsen & Toubro Government of India terminal, a 4,000 meters-long runway that can take
Government of Karnataka
any commercial aircraft with taxiways and two rapid
Source: BIAL exits, an apron with 42 Code C aircraft stands and
eight passenger boarding bridges, a four-lane access
A study conducted in June 2005 estimated the road, an air traffic complex and auxiliary buildings, a
Bangalore International Airport's opening year fuel farm, a parking area with a capacity of 2,000
(2008) traffic flow to be 6.7 million passengers. With slots, two large cargo complexes with a capacity of
a capacity of 3.5 million, the passenger traffic at the 300,000 tonnes and two flight catering buildings. The
Hindustan Aeronautical Limited (HAL) airport overall investment of BIAL stands at INR 20 billion,
increased from 2.3 million in 2001 to approximately with additional investments of the selected partners
7.5 million in 2006; BIAL appointed Lufthansa standing at another INR 7 billion.
Consulting to update the traffic forecast and
Setting benchmark for future airports - Planned BIAL has already selected the Oberoi Group to
real estate in BIAL operate a first class international hotel under the
Trident Hilton brand. This truly will be the first
After the initial phase of the airport becomes
Airport hotel in India within walking distance
operational, approximately 31,500 sq. ft. of retail
from the terminal building. The hotel will
space and 9,000 sq. ft. of food and beverage
comprise of 321 rooms, large conference
space is planned for initial phase of the airport.
facilities, restaurants and a world class spa and is
Of this total retail space of 40,500 sq. ft.,
expected to be operational by November, 2008.
approximately 4,500 sq. ft. is planned for the
Arrival Duty Free at BIAL. Estimated overall Also, as part of real estate development, there
investment in retail and F&B fixtures would be are plans to develop premium office space,
approximately INR 30 million. technology centre and business centre over
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approximately 150 acres and a major urban Bangalore International Airport will set
entertainment centre on an area of benchmarks for airport real estate sector in the
approximately 50 acres, which will be tendered form of retail, office space, convention centre
out at a later stage. The opening of the new and hospitality.
Downtown Urban entertainment 39 Shopping area with various retail Development in phased manner
centre formats, entertainment facilities, through a tender process by
offices and hospitality facilities. single developer.
Business Unit Office/ hospitality 46 Business park for premium office Development in phased manner
space with support retail, as well through a tender process by
as a 3 star and 4 star hotel. single developer.
Technology Office/ research 90 Hub for global corporates for Land lease agreements with
Centre campuses/ health establishing research campuses, corporates who will then design
care/ retail/ house healthcare, support retail their facility with the preferred
hospitality and hospitality services. developers
Airport Hospitality Destination retail, serviced Land lease agreements with
Hotels apartments, office park, software corporates who will then design
campuses and a lot of free public their facility with the preferred
spaces, which will make it a truly developers
global enclave.
Source: BIAL
AIRPORT DEVELOPMENT PROJECTS & Shimoga (697 acres), Hassan (495 acres),
SECTOR-WISE ANALYSIS Halwara, Kohima and Gangtok (50 acres each).
Under various phases of development, it is
Keeping in mind the need for infrastructure and
estimated that this mega aviation infrastructure
the growth in air traffic, the government has
re-structuring exercise will stand completed by
initiated development of 47 airports covering a
2015.
total of approximately 40,000 acres of airport
area. This includes 40 Brownfield and seven Real Estate Space Projections
Greenfield projects across tier*-I, II and III
The real estate space for retail, hospitality and
locations of India. Of these, four projects are in
other commercial use generated by the 47
tier-I locations Delhi International Airport Ltd
projects underway is estimated by Cushman &
(DIAL), Mumbai International Airport Ltd
Wakefield Research at approximately 78 million
(MIAL), Bangalore International Airport Ltd
sq. ft. Majority of this space (nearly 50%) will be
(BIAL) and the 2,600 acre Greenfield airport
concentrated within the tier-I cities of Mumbai,
project at Panvel, Mumbai. The tier-I cities
Bangalore and New Delhi, with Mumbai alone
account for a total area of approximately 14,650 accounting for nearly 45% of real estate space in
acres, that represents 37% of the total area tier-1 cities for non-aeronautical utilisation. This
under airport development. supply, over the long term, is expected to be
Another five projects with a total airport matched by fundamentally strong demand drivers
area of about 10,229 acres (26% of the for commercial and retail segments in India,
total airport development area) are located owing to the opportunities that even a moderate
in the tier-II cities of Kolkata, Chennai, GDP growth rate will produce.
Hyderabad, Ahmedabad and Pune. The rest *Tier-I cities - Bangalore, Delhi and Mumbai
are all spread across 38 tier-III cities and towns, Tier-II cities - Kolkata, Chennai, Pune, Hyderabad and Ahmedabad
Tier-III cities - Bhopal, Chandigarh, Amristsar, Lucknow, Agra, Jammu,
including Greenfield projects at Gulbarga/ Varanasi, Patna, Indore, Jaipur, Udaipur, Bhubaneshwar, Coimbatore,
Panjim, Gulberga/ Shimoga, Vishakhapatnam, Mangalore, Hassan, Kochi,
Rajkot,Vadodara, Gantok, Guwahati, Kohima, Dimapur, Imphal, Agartala,
Raipur, Khajuraho, Ranchi, Trichy, Madurai, Agatti (Lakswadeep Islands),
Trivandrum, Port Blair, Halwara and Dehradun
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These airport developments in the country, aim According to Cushman & Wakefield research's
at being self-sufficient hubs with sector-wide estimate, space for retail accounts for 18% of
development simultaneously; aerotropolises, the total real estate space projections made for
which are regarded as powerful engines of airport projects. Most of this supply is
economic growth, are being created around concentrated at tier-III towns and cities (tourist
these new airports. The majority of new airports destinations) with tier-I locations accounting for
are located in the outskirts of cities, which is
likely to create new corridors for business and Commercial Development Space (Airport) - Retail
residential markets, a trend which was initiated
in Shamshabad (Hyderabad) as well as 34%
Devanahalli (Bangalore) that became investment 43%
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exponential growth can be maintained by the AAI With the privatisation of airports in the country,
through new or upgraded airports, providing non-aeronautical revenue has increased from 21%
better connectivity to overall airport network and in 2005-06 to 35% in 2006-07. This increase is
feeding international network through hub/ metro mainly attributable to the one time upfront fees
airports. from joint ventures as the privatisation at the
major Airports (Mumbai, New Delhi, Hyderabad,
As of 2005-06, AAI generated approximately 69%
Bangalore) was initiated during the year.
of its revenue from aeronautical sources. With
proper planning of new airport projects, the land According to Cushman & Wakefield, if the current
available for commercial use can now be exploited privatisation trend continues and all airport
to increase the non-aeronautical revenue projects under development, as specified in the
component, increasing efficiency and decreasing 11th Plan, are modernized on schedule, then non-
aeronautical charges, which in turn, is expected to aeronautical revenues might increase from the
increase the flow of air traffic. India's first PPP current 35% to 54% by 2015. Rent from retail,
airport venture, Cochin International Airport, for office and hospitality space will constitute
instance, expects to do away with landing charges approximately 45% of the total non aeronautical
by 2012 as its non-aeronautical revenue will cover revenue and the rest from other traditional forms.
all operational expenses by that period.
100% 27.0%
45.0%
80% 46%
65%
60% 79%
1.0%
40%
17.0%
1.0% 9.0%
20% 54%
35%
21%
0%
2006 2007 2015
Retail Hospitality Office
Non Aeronautical Aeronautical Trading Concessions Public Admission fees Miscellaneous Income
Replacement or co-existence
In many cases, the development of a second airport has services, function as flying schools, or even offer general
raised questions about the existing airport in a city. As aviation and other associated activities. There have been
planned airports at Hyderabad and Bangalore take their cases where old airports became the transit point for
maiden steps, the debate about the merits of closing domestic flights or LCC (Low Cost Carriers) for e.g.
the existing facility for aviation services continues Bangkok's old Don Muong Airport, which was re-
unabated. Questions are already being raised about opened in March 2007 for domestic flight services.
impending closure of downtown airports, as required
The closure of gateway airports is an issue that
by the 30-year concession agreements with the private-
governments have had to grapple with in other
led airport development consortia. The reason for this
countries as well. In some cases, pressures to re-open
is because new privately funded airport developments,
old airports have prevailed. Perhaps the best example
for the most part, include a lock-up of first-right of
would be that of Bangkok, which has a dual airport
refusal condition.
system; while still others could be Kuala Lumpur's
Meanwhile, the parliamentary standing committee on former airport at Subang, which is still under negotiation
transport, tourism and culture has recommended that for re-opening, since it is much closer to the city and
the old airports be retained; stressing on the need for arguably cheaper to operate.
renegotiation with the developers for allowing the
However, there are several examples where new
older facilities to continue functioning. But the future
airports have been successful and old airports have
still remains unpredictable.
adopted new business models. The future of gateway
Going by the experience of other Asia-Pacific nations airports is purely dependant on the performance of new
that have faced similar situations, old/ replaced airports airports and their impact on the overall economic
could offer MRO (Maintenance Repair Overhaul) health of the city.
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real estate services firm. Founded in 1917, it has 221 offices in 58 Cushman & Wakefield, please contact :
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Services, including business and real estate consulting. A recognised leader This report has been prepared solely for information
in global real estate research, the firm publishes a broad array of purposes. It does not purport to be a complete description of
proprietary reports available on its online Knowledge Center at the markets or developments contained in this material.
cushmanwakefield.com/knowledge The information on which this report is based has been
obtained from sources we believe to be reliable, but we have
Sanjay Verma not independently verified such information and we do not
Executive Managing Director - South Asia
guarantee that the information is accurate
E-mail: sanjay.verma@ap.cushwake.com
or complete.
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