Airport cities – all set for take-off?

The plan at Gdańsk Airport is to develop another seven buildings, each also named after the aviation alphabet and with a combined leasable area of around 110,000 sqm. Building permits are already in place for the next two buildings. But the novel thing about the whole scheme – at least in our part of the world – is that the developer is the airport itself.

“It was about ten years ago that we first considered developing this project,” recalls Michał Dargacz, the director of Airport City Gdańsk. “We have always been dedicated to sustainability at Gdańsk Lech Wałęsa Airport – even with our aviation business, the idea was to maintain a balance between traditional and budget airlines. The former attract mostly business passengers, which on the one hand provides us with relatively low seasonal fluctuations compared to airports that focus exclusively on holiday flights, and on the other hand, has confirmed the significant business potential of the region. And it’s no secret that a growing number of airports across the world generate their revenues not only from the aviation business – i.e. take-off/landing charges – but also from non-aviation activities, such as duty-free zones and parking fees. So, at a certain stage of our development several years ago, we came to the conclusion that the perfect ‘second leg’ of our business would be an airport city, developed on airport land,” explains Michał Dargacz.

While such projects adjacent to airports are nothing new in Western Europe – with one example being Amsterdam Airport Schipol, whose operator, Royal Schipol Group, has already developed more than 30,000 sqm of office space around the airport – they are a novelty in the CEE region. And so, Airport City Gdańsk is very much blazing the trail for them in our part of Europe. According to Michał Dargacz: “If we are successful, others will follow. This is not the first time that we will be a model for others; therefore, we are ready to face a certain risk.”

Turning to the experts

One of these risks lies in the fact that developing commercial real estate is rather different from constructing airport buildings. How did Gdańsk Airport go about minimising this? “We are investing as the airport and did not set up any separate companies for this project. Naturally, in addition to the enterprise’s own capital, we raised funds in cooperation with a bank, Pekao SA, through a bond issue. Developing such buildings was not a problem for us, since we had already built many airport facilities. The real issue was understanding the market. For this we turned to JLL, with whom we had already cooperated over the sale of a number of properties, because we now needed commercial and technical advice. We also carried out on our own extensive analysis of our sites and what could be built on them,” reveals Michał Dargacz.

Eventually, the PIG Architekci studio was chosen to do the design work for the first two buildings and JLL to be the exclusive commercialisation agent, while Hochtief was selected as the general contractor in a tender, the result of which was that it was awarded a PLN 66 mln contract. “The contractor deserves great credit because, despite the pandemic, which occurred in the course of executing the project, all the work was carried out in a timely manner and in line with highest quality requirements,” emphasises Michał Dargacz. Indeed, for the airport terminal building itself a different contractor was employed and there were construction delays (although it should be added that this was a much bigger project).

The first tenants are currently moving into Alpha, which include an IT company, for whom the Tétris interior design studio has been fitting out three floors of the building. Construction work on Bravo, the 16,500 sqm second building of Airport City Gdańsk, is set to get underway once the leasing process for Alpha has reached a certain level. Which brings us to the next issue, whether in the (fingers crossed) post-pandemic reality we now find ourselves in, there is still the demand for such office space – and whether such a project, planned before and constructed during the Covid emergency, can now fulfil its initial expectations. In fact, according to Michał Dargacz, the pandemic actually added to the reasons for such an investment, by making the need to diversify the airport’s operations more acute: “The plans were hatched a long time before the pandemic, but during Covid the airport business suffered more than other sectors – and so we could see that it was a very good idea to have this second leg for our business. Covid was a problem for the office sector, but it was much worse for airports. Unlike offices, we couldn’t just renegotiate contracts – everything just stopped: no passengers, no money. Many airports had to fire employees, which is now causing problems due to staffing shortages. But offices are now actually doing well again.” The need for such diversification has also been brought into sharper focus by the recent spate of airport strikes, at places like Amsterdam and Berlin, which may also be related to the continuing staff shortages post-Covid.

From Alpha to… Omega?

But if the demand is still there – and Michał Dargacz and JLL are confident that it is – then not just Bravo, but Charlie, Delta, Echo, Foxtrot, Golf and Hotel (aptly enough, potentially a hotel building), will eventually follow as Lech Wałęsa Airport carries out its ambition to create a city-forming project – a new district centred around it. The idea is that this district would stretch between the two stations either side of the Port Lotniczy Gdańsk train station on the Pomeranian Metropolitan Railway: Rębiechowo and Matarnia. The railway, which has been running since 2015 and is in the process of being electrified, only adds to the excellent transport links that the site enjoys, given that the S6 and S7 expressways pass nearby. The idea is for the development of Airport City Gdańsk to serve as a catalyst for further development by private companies. Intel Technology Poland already has its headquarters in the area, having bought the Allcon Park office complex back in 2016, where it was previously a tenant. “The whole area will develop for at least the next dozen years or more. For us it is important to start a district, that is, a place not only for business that shuts down at 6pm each day, but also where people – tenants, airport passengers, locals – will want to spend their free time, thanks to the number of restaurants, the retail, playgrounds and sports facilities,” adds Michał Dargacz.

Elsewhere in the CEE region, while there might not be any other airport-developed projects of this type so far, commercial real estate developers and investors have nevertheless seen the value in owning office properties in such locations. One is Austrian company Immofinanz, which has developed Băneasa Airport Tower across the road from Bucharest’s Băneasa – Aurel Vlaicu International Airport. Fulga Dinu, the operations country manager of Immofinanz Romania, while admitting that “proximity to airports is not a goal in itself for the company”, does stress that it has several projects in Romania, Austria and Germany close to airports. “The presence of well-developed infrastructure with easy access to public transport plays a very important role in the location of every office building,” she says. And, of course, airports with decent local transport infrastructure can provide all this. According to her, the tenants of Băneasa Airport Tower generally include companies that are “active in furniture and household, consumer goods and services, and corporate services.” The 14,542 sqm building was recently refurbished and in March was the subject of a major long-term lease: “We have signed an important contract, for ten years, with food retailer Profi. The contract covers the rental of over 4,000 sqm of office space, equivalent to four floors of the building,” adds Fulga Dinu.

Jet lands at Prague Airport

Early this year, it was announced that Immofinanz had sold Airport Business Centre, next to Prague’s Václav Havel Airport, to local fund manager Jet Investment. The company, which has been active for 25 years, had mainly been investing in private equity companies and industrial real estate (through its Jet Industrial Fund) across the Czech Republic, Poland and Germany. The acquisition of the 14,542 sqm Airport Business Centre, therefore, represents something of a departure from this. “We are always looking for investment opportunities on the market and now are looking to have 30 pct of our real estate portfolio in different asset classes from industrial, so the purchase was also an opportunity to diversity our portfolio,” explains Pavel Drabina, the real estate managing director of Jet Investment, who also points to the transport links of such properties as being a factor in the acquisition: “We decided to acquire Airport Business Centre because it would be a great opportunity to have a local monopoly in terms of such space. The building is directly next to the entrance to Terminal 2 of Prague Airport, while there is also a rail connection. So it was considered as a good opportunity with upside potential.” He goes on to elaborate on the attractiveness of the location, both for tenants and investors like Jet Investment: “There are conference centres and hotels now planned in the immediate vicinity, so again, the purchase of Airport Business Centre represented an excellent opportunity to exploit the potential of the location. At the moment there are about 30 tenants in the building, mostly logistics, services and IT companies. They need to be near the airport, so the location is important to them.”

The building was completed in 1997 and has since been renovated four times; but while its new owner has no worries about a lack of demand post-Covid, it is planning further changes to adapt it to the new normal: “Even though it is not a brand new building, it is actually a very modern one. The changes we are going to make are to adapt it so that it has a more diversified range of space, with smaller areas available than before Covid. The average should be around 200 sqm per tenant. Tenants are now more cautious about leasing large areas under long-term contracts. Prior to Covid, they would generally sign for more five years or more; now it’s more like 3 to 5 years. And tenants now want more shared meeting rooms, fitness areas, cafeterias and other amenities,” reveals Pavel Drabina.

As to the question of whether Jet Investment would consider airport office project acquisitions in the future: “We are not aware of similar projects near airports being available to buy on the market. We’re not specifically looking for them – what we are looking for are projects with a good financial/economic ratio. If they are near airports, there are also a lot of other factors to consider: how well the local area is developed – including the transport system – and whether there is the potential for the further development of the area in the future, whether the area is owned by the airport, and so on. But if the demand exists for such space, then it certainly makes sense to invest in these properties,” believes Pavel Drabina of Jet Investment.

Clearly, the demand for the space in such projects as Airport City Gdańsk will, as with any commercial real estate development, be the key to their success and whether the idea takes off elsewhere in the CEE region, and much also depends on the local transport infrastructure and the ownership status of the land around airports. Airport City Gdańsk, therefore, very much represents a trial run for the concept in our neck of the woods. As Michał Dargacz sums this up: “The creation of an airport city at a regional airport is a new idea in Poland, and other airports in this part of Europe are certainly monitoring the success of our project.”