Indian Airports can become new nodes of Real Estate Development

Airports in India are no more just key hubs of trade, travel, and tourism but can be equally instrumental in driving a slew of real estate development activities. Most of the airports in India have huge land parcels at their disposal, which can be systematically leveraged for real estate development such as aviation cities, smart warehousing, hospitality & retail, logistic parks, office & co-working spaces, and business clusters.

Traditionally, airports have relied on numerous complementary commercial activities apart from travel and ground handling services. The former are called non-aero activities while the latter is termed aero-activities. Airports make commendable revenue from selling ad spaces, offering parking services, leasing retail outlets, and developing hotels for the passengers.

However, there is a larger untapped potential, which has so far not been taken advantage of systematically. Already major international airports in the world make up to 50% of their annual revenue through real estate. In India, the real estate component in the overall revenue structure is still underutilized.

Privatization of the Airports is the Game Changer

Airports are built across large land parcels, which makes them a potential ground for realty developments.  Moreover, increased commercial and logistic activities in the vicinity further act as a growth multiplier for real estate demand. Yet, the potential of real estate investments in airports has been overlooked in the past, mostly because managing and operating an airport was a state affair. The Airport Authority of India (AAI) has been managing the airports in the country.

However, by the end of the last decade, airports have been systematically opened for private sector participation. Over the years, private players have extended their footprint in the construction, management, and operationalization of airports. Most of the major airports in India- New Delhi, Mumbai, Bangalore, Hyderabad are majorly run by private entities such as Adani, GMR, and Zurich Airport, while AAI holds a minority share. In the upcoming rounds- six more airports have been opened for privatization- Guwahati, Varanasi, Jaipur, Trivandrum, Mangalore, and Lucknow.

The foray of private players has given a big push to non-aero activities such as real estate developments. For instance, the IGI airport in New Delhi has earmarked 230 acres of land in the vicinity for real estate developments. Out of this an aero city spread across sprawling 55 acres has already been developed. In other airports as well, developing and selling real estate is part of the overall package that has been chalked out.

The Way Forward

There is a natural demand for real estate in proximity to the airport, which drives increased investment in developing and selling complementary infrastructure. Most of the major airports have cargo services, which naturally translates into demand for modern warehouses and logistic parks. Similarly, passengers need quality hotels in the vicinity, especially tourists, business travellers and the ones who are in transit. In fact, around a quarter of hotels in Delhi are located in Aero City. The high volume of passenger commute also makes airports a fertile ground for retail business, F&B, health, and sports, etc.

The region around the airport also enjoys a higher concentration of business and economic activities resulting in a faster uptake of commercial set-ups such as offices, co-working spaces, and business parks. Airport consortiums are also developing convention centres and exhibition halls to tap into the lucrative MICE segment.

In the coming years, there will be further thrust to real estate activities in and around the airport, as the pandemic has softened an otherwise robust aviation sector. Aero revenues will continue to be muted in Indian airports till 2023, despite the uptick in business travellers in recent weeks. GOI has earlier outlined a roadmap to reach an annual air traveller volume of 1 billion by 2030. However, looking at the current fatigue, it will take a few more years to realize this goal.

Meanwhile, the focus will be on ramping the non-aero revenues such as real estate that can build the ground for a faster rebound. Moreover, to lure increased private sector participation in the face of subdued numbers, seamlessly integrating real estate in the overall package will be needed. A diligently structured deal giving ample focus on the non-aero revenue channels as well would not just draw the attention of private players, but also create new revenue streams that can be channelized into further development of the airport.