A R E S E A R C H P U B L I C AT I O N | M AY 2 0 0 8

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

For more information, please contact:

Tanuja Rai Pradhan

Associate Director
Research Services, India
Cushman & Wakefield
Tel: +91 124 469 5555
tanuja.pradhan@ap.cushwake.com
INDIA AIRPORT REALTY TAKING OFF
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CONTENTS

1 Executive Summary 7 Airport Development Projects &

Sector - Wise Analysis
2 Airport Development
Real Estate Space Projections
Current Airport Development in India
Retail, Hospitality & Commercial Space
Privatisation of Indian Airports
10 Impact on Revenues
11 Conclusion

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.

INDIA REPORT | MAY 2008 1

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AIRPORT DEVELOPMENT
The aviation industry in India is in its nascent
stages; however, gone are the days when airports
only served the purpose of conveyance. Astute
operators and architects today are now focusing
on a whole new gamut of business strategies to
reform airports into exciting and energised
business and retail/entertainment centres as well
as transportation hubs; they now offer an
'experience' along with service. The world over,
international airports, such as Heathrow, San
Retail revenue has Francisco,Vancouver and Brisbane, bring in as
certainly become much as 50% of their revenues from retail and
critical for an other non-aeronautical resources.
airport's long-term
competitiveness The importance of infrastructure in general and
and is a driving that of airports in particular, is crucial to the
factor in passenger economic development of a region and hub
terminal planning airports, especially, are the principal mechanisms
and design. behind a city's economic growth. Classic
economic works have documented the
relationship between the development of
transport infrastructure and that of real estate in
and around such cities, proving that cities in a
better position to handle air connectivity
demand have enjoyed stronger economic
progress than those that are not.
Research studies on airport development have
proven that for every 10% gain in passenger
traffic in a metropolitan area, there is 1% gain in
service employment that ultimately adds to
economic growth (J Brueckner, “Airline Traffic
and Urban Economic Development”). Studies in
the field have also shown that passenger
boarding per capita and passenger originations
per capita in large metropolitan areas are
powerful predictors of growth; and in cases
where airports are constrained by capacity,
adding to capacity (especially of hub airports)
has almost always had a positive impact on the
region's economic development (Richard K
Green, “Airports and Economic Development”,
2007).
In a public funding scenario, retail revenue has
certainly become critical for an airport's long-
INDIA REPORT | MAY 2008
term competitiveness and is a driving factor in
passenger terminal planning and design. While
many airports simply turn towards renovating
store fronts, the astute have begun to take
advantage of contemporary lessons learnt in
entertainment and retail industries to maximise
profits and make the most of their market.
As airports have the advantage of 24-hour
activity with very high people traffic, they are
crucial locations for next - generation retail and
entertainment centres as well as business and
hospitality zones. The majority of the older
airports are located in the suburban zones as, at
the time of their planning, business activity was
limited to the CBDs; however, over the years the
suburban areas emerged with a permanent
population base triggered by significant
commercial activity. Of necessity, principal
airport hubs become destinations in themselves,
leading to the growth of fresh business and
convention centres, commercial space,
hospitality and residential zones in ever-widening
concentric circles, with airport activity at the
epicentre of a city's economic growth.
Needless to say, real estate zones (whether
hospitality, residential, retail or commercial
nature) in closer proximity to the terminals
boast of a location advantage and capitalise on it
to command a premium. This obviously goes for
land rates too. However, it does not necessarily
make these regions the most expensive.
Passenger Traffic
300 PAX Forecast 21.6%
Annual Growth projection
250
Millions
200
150
100
50
0
2003- 2004- 2005- 2006- 2007- F2008- F2009- F2010- F2011-
04 05 06 07 08 09 10 11 12
Source: Airports Authority of India
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Current Airport Development in India defence airfields. According to official sources,

Developed countries today are discovering Asia passenger traffic during 2006-07 increased in
not only as a business outsourcing centre or a excess of 18% over the previous year, with 87
market for operation expansions, but also as a million passengers, of which approximately 61
tourist destination leading to an increase in air million accounted for domestic travel, while the
travel to Asia Pacific for business as well as for remaining 26 million for international. In the
leisure. In line with that, air travel in India month of December 2007 alone, Mumbai,
whether business, medical, religious or pleasure, Bangalore, National Capital Region (NCR)*,
has increased phenomenally over the last couple Chennai and Kolkata together accounted for
of years. According to the Centre for Asia Pacific approximately 7 million passengers, whereas
Aviation (CAPA) and AAI, the annual growth other airports took load of approximately 3
rate projection for passenger traffic is estimated million passengers.
to reach 21.6% in 2011-12, from the 10%
currently. All India Passenger Numbers

The World Travel and Trade Council (WTTC), 12.0

indicates that the Indian tourism demand is
10.0 Bangalore
expected to grow at 7.9% per annum till 2017. Kolkata
8.0
Millions

There has been an overall increase in global air Mumbai

traffic, resulting in capacity constraints at a 6.0

Delhi

number of airports, necessitating demand for 4.0 Chennai

upgradation, with India being no exception. 2.0 Others

Heathrow, for instance, was originally designed 0.0
to handle approximately 45 million passengers
Jan-05
Mar-05
May-05
Jul-05
Sep-05
Nov-05
Jan-06
Mar-06
May-06
Jul-06
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
per annum, but is currently handling
approximately 70 million, post upgradation. A
number of other high growth countries have Source: Centre for Asia Pacific Aviation and Airports Authority of India

built Greenfield airports or modernised existing

airport infrastructure to curtail capacity The two busiest airports of the country,
constraints. Mumbai and New Delhi, account for nearly 49%
of all passenger boardings and originations in the
All India Passenger Number Growth domestic sector and almost 65% of international
travel in India. These two airports together,
12.0
account for approximately one-third of the total
10.0 revenue generated by the AAI. In terms of
8.0 International passenger movement across the world, the
Millions

Mumbai and New Delhi airports are ranked as

6.0
the 80th and 109th busiest airports, respectively,
4.0 Domestic
both having the potential of reincarnating
2.0 themselves from the current aeronautical-
0.0 revenue-driven model to a non-aeronautical-
Jan-05
Mar-05
May-05
Jul-05
Sep-05
Nov-05
Jan-06
Mar-06
May-06
Jul-06
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07

driven revenue model.

According to the AAI's and the government's
Source: Centre for Asia Pacific Aviation and Airports Authority of India
11th Year Plan, the modernisation of several
Currently, India is home to a total of 126 airports, including at least 35 non-metropolitan
operational airports, including 11 international airport projects and various other Greenfield
airports, 89 domestic and 26 civil enclaves at projects, is scheduled for completion by 2015.

* National Capital Region (NCR) includes New Delhi, Gurgaon &

Noida

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Airports in India Currently, the country's airport infrastructure is

underdeveloped and not utilised to its potential,
which is putting pressures on airports in major
cities. It is fairly common for flights to hover
JAMMU & KASHMIR around airports due to air traffic congestion,
Jammu Modernization of Airports
Greenfield Airports waiting for landing permission; or waiting on the
Amritsar
HIMACHAL
PRADESH
ground, in queue for take off. The New Delhi
Chandigarh
PUNJAB
Halwara
Dehradun airport, for example, has a capacity to handle 12
UTTARANCHAL
New Delhi/ G. Noida
HARYANA million passengers per annum, but it actually
NEW DELHI ARUNACHAL

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

Source: Airports mentioned in the 11th plan and by the

Trivandrum
AAI have been taken in to account. Construct

O&M

At a time when the Tapping the advantages of the Public-Private Ownership

global growth rate Partnerships (PPP) model, the government has

Management Lease Concession BOT/BOO Divest
of the airport proposed it for the upgradation and Contract

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
increasingly difficult to extend the grant for civil
aviation in the budget. It was believed that once
airports become profit centres post privatisation,
the allocated funds would be directed towards
other welfare activities.
Today, a decade later, the privatisation of
airports has come as a step towards bridging
the yawning gap in infrastructure as also in
bringing in greater efficiency in the management
of airports. The move is believed to lead to
When one looks at greater efficacy, by changing the operations of an
the current buzz airport into a business enterprise, rather than a
around privatisation public service. The opportunity presents itself as
of infrastructure in
a result of the increased sector connectivity
India, it is difficult to
which has led to more aircrafts on the existing
imagine that just
runways and terminals; and this is where the
about half a decade
concept of 'Greenfield Airports' is sought as a
ago, privatisation
solution to the overcapacity problem. Further,
was virtually
funding a Greenfield project through PPP helps
unknown in the
share the financial burden as well as the risk
country.
Case Study I: British Airports Authority (BAA)
The British Airports Authority (BAA) was established
in 1965 and assumed ownership of Heathrow,
Gatwick, Stansted and Prestwick airports in 1996 and
later went on to acquire Edinburgh, Aberdeen and
Glasgow airports during 1971 to 1975. The British
government undertook an initiative with the Airports
Act (1986) and created BAA Plc, an entity to raise
funds through public offering of equity. In 1990 South
Hampton airport was acquired and in 1992
Prestwick airport was sold while 1992 witnessed the
start of international operations. In 2006, a
consortium led by Group Ferrovial acquired BAA Plc
which was de-listed from the stock exchange and
was re-christened BAA Limited.
In an effort to increase over all revenue, when the
BAA was privatised in 1986 the airport was
remodelled with an emphasis on retail, in order to
maximise non aeronautical revenue. The emphasis on
retail taken during the privatisation has had a far
reaching impact as even today the BAA is home to
the largest portfolio of retailers, with 7 UK airports
and management of 11 airports outside the UK
under its name. It is one of the largest commercial
landlords in the UK, providing more than 1 million sq
ft of accommodation for around 900 airport retail
organisations.
INDIA REPORT | MAY 2008
involved. Private players are in a better position
than the government to raise funds, not
forgetting the fact that Foreign Direct
Investments can also be considered for the
purpose.
Airports are built on gigantic land parcels,
providing for vast commercial spaces, both in and
around the airport complex. Private entities
handling such projects could design the airport,
facilitating substantial amount of real estate space
development. The economic division of the
commercial spaces available would result in
amplifying the revenue that a public airport earns.
With an airport's primary role as an entry and
exit point for the world, these are virtually our
store fronts. A “destination” experience
coupled with “destination” merchandise and
flawless infrastructure can achieve non-
aeronautical revenue from a captive
international audience.
UK Airports Retail Revenue 2007
Media
Other retail
Airside specialist 6%
(Advertising)
7% Catering
12%
shops, 15%
Bureau
Lanside and
Book shops
de change
12%
10%
Car rental
5%
Car parking
33%
Source: BAA Annual Report 2007
As of 2007, total aeronautical charge per passenger
for UK airports was £6.9 (INR 550.9) while net retail
income per passenger £3.22 (INR 257.11*).
Comparatively, landing charges here are 60-70% less
than the fees charged by New York's JFK. Currently,
approximately 10% of BAA airport space is allocated
to retailing, although the revenues derived from this
source contributes approximately 40% to the total.
With the Indian airports currently in a privatisation
mode, it would be in their advantage to study the
model and layout used by international airports like
the BAA to capitalise on their experience, success
and strategy as well as replicate similar models in the
country.
* Conversion rate: GBP (£) 1 = INR (Rs.) 79.8481
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Currently, companies that have shown interest
in developing Greenfield airport projects in India
include the UK-based Caparo Group Ltd, GMR
Infrastructure Ltd, Lanco Infratech Ltd, IVRCL
Infrastructures and Projects Ltd, GVK Airport
Case Study II: Bangalore International Airport Ltd (BIAL)
Globally, airports have been expanding their facilities
to accommodate real estate developments including
retail outlets, office spaces, convention and
hospitality centres etc. Encompassing all these non-
aviation facilities and more, the Bangalore
International Airport aims at setting a benchmark
for the development of future airports in India.
Shareholding Pattern
13%
13% 40%
17%
17%
Siemens Project Ventures, Germany Unique Zürich Airport
Larsen & Toubro Government of India
Government of Karnataka
Source: BIAL
A study conducted in June 2005 estimated the
Bangalore International Airport's opening year
(2008) traffic flow to be 6.7 million passengers. With
a capacity of 3.5 million, the passenger traffic at the
Hindustan Aeronautical Limited (HAL) airport
increased from 2.3 million in 2001 to approximately
7.5 million in 2006; BIAL appointed Lufthansa
Consulting to update the traffic forecast and
Setting benchmark for future airports - Planned
real estate in BIAL
After the initial phase of the airport becomes
operational, approximately 31,500 sq. ft. of retail
space and 9,000 sq. ft. of food and beverage
space is planned for initial phase of the airport.
Of this total retail space of 40,500 sq. ft.,
approximately 4,500 sq. ft. is planned for the
Arrival Duty Free at BIAL. Estimated overall
investment in retail and F&B fixtures would be
approximately INR 30 million.
INDIA REPORT | MAY 2008
Developers Pvt. Ltd, Maytas Infra Ltd, Mukesh
Ambani-promoted Reliance Industries Ltd, Anil
Ambani-led Reliance Airport Developers Pvt. Ltd,
Unitech Ltd and Hindustan Construction Co. Ltd.
to name a few.
develop planning parameters. The study revealed that
Bangalore had the fastest growth rate in passenger's
traffic among all the Indian Metro Airports.
BIAL, the owner and operator of the future
international airport at Bangalore, will have a
concession of operating the airport for a period of
60 years. The master design plan focussed on
equipping the new Bangalore International Airport to
handle large capacity airplanes and cargo as well as
to effectively manage a future passenger traffic
capacity of 40 million. Together with the airport,
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
across several phases, with the initial phase
scheduled to be operational by Quarter 2, 2008.
Phase 1 of the development includes a passenger
terminal, a 4,000 meters-long runway that can take
any commercial aircraft with taxiways and two rapid
exits, an apron with 42 Code C aircraft stands and
eight passenger boarding bridges, a four-lane access
road, an air traffic complex and auxiliary buildings, a
fuel farm, a parking area with a capacity of 2,000
slots, two large cargo complexes with a capacity of
300,000 tonnes and two flight catering buildings. The
overall investment of BIAL stands at INR 20 billion,
with additional investments of the selected partners
standing at another INR 7 billion.
BIAL has already selected the Oberoi Group to
operate a first class international hotel under the
Trident Hilton brand. This truly will be the first
Airport hotel in India within walking distance
from the terminal building. The hotel will
comprise of 321 rooms, large conference
facilities, restaurants and a world class spa and is
expected to be operational by November, 2008.
Also, as part of real estate development, there
are plans to develop premium office space,
technology centre and business centre over
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approximately 150 acres and a major urban
entertainment centre on an area of
approximately 50 acres, which will be tendered
out at a later stage. The opening of the new
BIAL : Airport City
Divisions Sectors Area
(in acres)
Downtown Urban entertainment 39
centre
Business Unit Office/ hospitality 46
Technology Office/ research 90
Centre campuses/ health
care/ retail/
hospitality
Airport Hospitality
Hotels
Source: BIAL
AIRPORT DEVELOPMENT PROJECTS &
SECTOR-WISE ANALYSIS
Keeping in mind the need for infrastructure and
the growth in air traffic, the government has
initiated development of 47 airports covering a
total of approximately 40,000 acres of airport
area. This includes 40 Brownfield and seven
Greenfield projects across tier*-I, II and III
locations of India. Of these, four projects are in
tier-I locations Delhi International Airport Ltd
(DIAL), Mumbai International Airport Ltd
(MIAL), Bangalore International Airport Ltd
(BIAL) and the 2,600 acre Greenfield airport
project at Panvel, Mumbai. The tier-I cities
account for a total area of approximately 14,650
acres, that represents 37% of the total area
under airport development.
Another five projects with a total airport
area of about 10,229 acres (26% of the
total airport development area) are located
in the tier-II cities of Kolkata, Chennai,
Hyderabad, Ahmedabad and Pune. The rest
are all spread across 38 tier-III cities and towns,
including Greenfield projects at Gulbarga/
INDIA REPORT | MAY 2008
Bangalore International Airport will set
benchmarks for airport real estate sector in the
form of retail, office space, convention centre
and hospitality.
Theme Development Process
Shopping area with various retail Development in phased manner
formats, entertainment facilities, through a tender process by
offices and hospitality facilities. single developer.
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.
Hub for global corporates for Land lease agreements with
establishing research campuses, corporates who will then design
house healthcare, support retail their facility with the preferred
and hospitality services. developers
Destination retail, serviced Land lease agreements with
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.
Shimoga (697 acres), Hassan (495 acres),
Halwara, Kohima and Gangtok (50 acres each).
Under various phases of development, it is
estimated that this mega aviation infrastructure
re-structuring exercise will stand completed by
2015.
Real Estate Space Projections
The real estate space for retail, hospitality and
other commercial use generated by the 47
projects underway is estimated by Cushman &
Wakefield Research at approximately 78 million
sq. ft. Majority of this space (nearly 50%) will be
concentrated within the tier-I cities of Mumbai,
Bangalore and New Delhi, with Mumbai alone
accounting for nearly 45% of real estate space in
tier-1 cities for non-aeronautical utilisation. This
supply, over the long term, is expected to be
matched by fundamentally strong demand drivers
for commercial and retail segments in India,
owing to the opportunities that even a moderate
GDP growth rate will produce.
*Tier-I cities - Bangalore, Delhi and Mumbai
Tier-II cities - Kolkata, Chennai, Pune, Hyderabad and Ahmedabad
Tier-III cities - Bhopal, Chandigarh, Amristsar, Lucknow, Agra, Jammu,
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
at being self-sufficient hubs with sector-wide
development simultaneously; aerotropolises,
which are regarded as powerful engines of
economic growth, are being created around
these new airports. The majority of new airports
are located in the outskirts of cities, which is
likely to create new corridors for business and
residential markets, a trend which was initiated
in Shamshabad (Hyderabad) as well as
Devanahalli (Bangalore) that became investment
hot-spots once the airports were announced. In
future these locations may witness more
development activity than traditional micro
markets.
Retail Space
Growth in airport retail is directly related to
growth in travel and air traffic patterns.
According to the International Air Transport
Association's (IATA) short-term projections
(2005-09), the strongest growth is expected in
Asia and the Middle East, concurrent to the
strong economic growth of these regions. With
changes in airport security, passengers today are
required to arrive early, consequently finding
themselves with adequate time to spend before
departing. What better example of a “captive”
consumer-base in the real sense of the term,
with high spending power? Airports are
beginning to be recognised as lucrative markets,
enabling international and domestic retailers to
establish brand presence at the first interface of
the city, addressing a wide end-user population.
Already big business in the global arena, this is a
relatively new retail format in India.
Duty-free retailing in India is still virgin territory.
Homegrown retail heavyweights like Shoppers'
Stop and Pantaloon Retail have just begun to
grapple with the format via partnerships with
international specialists in this area, such as the
Swiss operator, Nuance Group and the UK-
based Alpha Airports Group. The five core
categories of duty free as well as domestic
terminal merchandise that will be on offer are
perfumes and cosmetics, luxury goods, wines
and spirits, tobacco goods as well as
confectionary and fine foods.
INDIA REPORT | MAY 2008
According to Cushman & Wakefield research's
estimate, space for retail accounts for 18% of
the total real estate space projections made for
airport projects. Most of this supply is
concentrated at tier-III towns and cities (tourist
destinations) with tier-I locations accounting for
Commercial Development Space (Airport) - Retail
34%
43%
23%
Tier 1 Tier 2 Tier 3
Source: Cushman & Wakefield Research
34% and tier-II cities for 23% of the total. With
nearly five million sq. ft., the highest allocated
space for retail is concentrated at Bangalore,
New Delhi and Mumbai; with Bangalore
accounting for retail supply of nearly 1.7 million
sq. ft. Overall, Hyderabad, with its nearly 1.8
million sq. ft., leads the retail space supply at new
airport projects.
Entertainment is given special attention in
airport planning, such as golf courses and
amusement parks to name a few.
Such developments are not restricted to tier-I
cities alone, but are gaining prominence in cities
which have the potential to develop into
preferable office/commercial destinations in the
long term. Entertainment zones are new
phenomenon of the city side development and
they add to the overall experience offered by
these new projects.
Hospitality Space
The direct correlation with the travel industry is
the high point of the hospitality sector. It is
estimated that the country's total international
passenger boarding will increase from 25 million
last year to 45 million by 2010. International
tourists to the country are also expected to rise
to 10% from the current 4% in the next couple
of years. The Commonwealth Games scheduled
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in 2010 are likely to contribute additional five
million tourists, of which four million are
expected to be domestic, while the remaining
one million, international travellers.
These astounding numbers have made it
imperative for the government to undertake
airport developments to support the continued
growth of the hospitality sector.
Hotel Category
19%
37%
44%
5 star 4 star 3 star & below
Source: Cushman & Wakefield Research
Fast Facts
 According to the World Travel and Tourism
Council (WTTC), revenue from travel and
tourism in India is expected to grow to USD
$158 billion by 2017 from USD $61 billion in
2007
 An estimated USD $11.41 billion is the expected
investment in the hospitality sector in the next
two years; and India is likely to have at least 40
international hotel brands by 2011
 An increase in short-bound and domestic air
travel is expected
 According to the WTTC, travel and tourism in
India is expected to grow at the rate of 7.9% per
annum from 2008 till 2017
The mismatch between tourist growth and the
current stock of airport hotel rooms has
enabled hoteliers to command higher rate per
room vis-à-vis global rates. The Average Room
Rate (ARR) has increased by 20% annually in
past two-three years, which is at par with that in
developed nations.
The current hospitality space supply planned till
2010 is likely to get support from the
modernisation and privatisation of airports,
which is expected to add around 27,000 rooms
to the supply by 2015.
INDIA REPORT | MAY 2008
Hotel Development in Airports
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Tier I Tier 2 Tier 3
5 star 4 star 3 star & below
Source: Cushman & Wakefield Research
According to estimates, demand is expected to
exceed supply by at least 100 percent over the
next two years indicating a clear need to address
this shortfall with joint government and private
sector initiatives.
According to the research estimates by
Cushman & Wakefield, space for the hospitality
industry accounts for nearly 30% of the total
airport real estate space projection. This
hospitality space will comprise roughly 27,525
rooms at 10,050 five-star properties, 12,270
four-star properties and 5,200 three-star, along
with other budget properties across the country.
With more than 50% of hospitality space at tier-I
locations accounted for by five-star properties,
the absence of three-star and other budget
properties is conspicuous. In tier-II cities too,
five-star facilities dominate the supply, with four-
star properties coming a close second, while
three-star and other budget facilities are
barely present. On the other hand, quite
understandably, supply at tier-III locations is
dominated by four-star and three-star properties
(47% and 42%, respectively), with five-star
facilities accounting for a mere 11%
of the total space in this sector.
Commercial Space
India has emerged among the most favoured
office destination in Asia Pacific, backed by the
strong performance of Indian businesses and
continued influx of leading multinationals which
has sustained the demand for commercial office
space in tier-I and tier-II cities in the country. In
addition, the effects of rapidly growing economy,
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talent pool, low operational cost and increasing
purchasing power is also felt across tier-III cities
which are emerging as the next best and/ or
alternate office destinations. Against that
background, existence of airports is one of the
crucial factors that are considered during
location analysis and selection. Apart from
offering the connectivity advantage, the airport
regions are often considered as viable options
for commercial operations.Various firms also
use incubating space available at certain airports
before they establish their presence in a city.
According to Cushman & Wakefield Research,
space for commercial office use accounts for
more than 50% of the total real estate space
projections made for the airport projects, with
nearly 41 million sq. ft.; which is evenly
distributed across tier-I and III locations (34%
each), with the tier-II cities accounting for the
remaining 32% of the space.
Commercial Development Space (Airport) - Office
34% 34%
32%
Tier 1 Tier 2 Tier 3
Source: Cushman & Wakefield Research
Of the total 41 million, the tier-I and tier-II cities
(eight cities) account for 66% of the total
commercial office space owing to the
confidence of corporate entities in these cities
coupled with fairly developed infrastructure.
Nevertheless, tier-III cities such as Lucknow,
Kochi, Coimbatore, Mysore, Jaipur, Indore and
Bhubaneswar are gaining prominence as they
possess the potential to emerge as office
destinations in future.
Apart from commercial office space supply,
these airport projects will also allow time saving
business meetings during the transit/ waiting
period with the proposed convention and
business centres that form part of the overall
development plan.
INDIA REPORT | MAY 2008
IMPACT ON REVENUES
Globally, airports derive a large portion of their
income from non-aeronautical revenue sources,
which include retail, hospitality, office, trading
concessions, public admission fees and
miscellaneous income i.e. advertising, car parking
etc .By harnessing this potential revenue-earning
model, airports have achieved a higher level of
efficiency by essentially bringing down aeronautical
charges and being increasingly profitable models
for airlines to operate out of. A case in point is
the Changi Airport in Singapore, which was
launched in 1981 and earned nearly 40% of its
revenue from non-aeronautical sources. Currently,
more than 60% of the airport's revenue streams
from non-aeronautical sources that have enabled
bringing down of aeronautical charges, resulting in
increased demand by way of cheaper tickets,
ultimately giving stiff competition to other modes
of travel. This has also enabled the airport to cater
to more than 30 million passengers. This increase
in air traffic is not only attributable to the
increased airport efficiency, but more prominently
to the increase in tourism and economic boom
witnessed in the country.
Air travel in India has already witnessed
stupendous growth in the last few years, both in
the case of inbound as well as outbound travel,
which can be attributed to increased purchasing
power, entry of budget airlines and an open skies
policy that has enabled domestic airlines to fly
abroad, increasing competition and resulting in
fare wars. India has not only emerged as a hot
business destination but also as a tourist
destination for international travellers. This
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INDIA AIRPORT REALTY TAKING OFF
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exponential growth can be maintained by the AAI
through new or upgraded airports, providing
better connectivity to overall airport network and
feeding international network through hub/ metro
airports.
As of 2005-06, AAI generated approximately 69%
of its revenue from aeronautical sources. With
proper planning of new airport projects, the land
available for commercial use can now be exploited
to increase the non-aeronautical revenue
component, increasing efficiency and decreasing
aeronautical charges, which in turn, is expected to
increase the flow of air traffic. India's first PPP
airport venture, Cochin International Airport, for
instance, expects to do away with landing charges
by 2012 as its non-aeronautical revenue will cover
all operational expenses by that period.
Airport Revenue in India
100%
80% 46%
65%
60% 79%
40%
20% 54%
35%
21%
0%
2006 2007 2015
Non Aeronautical Aeronautical
Replacement or co-existence
In many cases, the development of a second airport has
raised questions about the existing airport in a city. As
planned airports at Hyderabad and Bangalore take their
maiden steps, the debate about the merits of closing
the existing facility for aviation services continues
unabated. Questions are already being raised about
impending closure of downtown airports, as required
by the 30-year concession agreements with the private-
led airport development consortia. The reason for this
is because new privately funded airport developments,
for the most part, include a lock-up of first-right of
refusal condition.
Meanwhile, the parliamentary standing committee on
transport, tourism and culture has recommended that
the old airports be retained; stressing on the need for
renegotiation with the developers for allowing the
older facilities to continue functioning. But the future
still remains unpredictable.
Going by the experience of other Asia-Pacific nations
that have faced similar situations, old/ replaced airports
could offer MRO (Maintenance Repair Overhaul)
INDIA REPORT | MAY 2008
With the privatisation of airports in the country,
non-aeronautical revenue has increased from 21%
in 2005-06 to 35% in 2006-07. This increase is
mainly attributable to the one time upfront fees
from joint ventures as the privatisation at the
major Airports (Mumbai, New Delhi, Hyderabad,
Bangalore) was initiated during the year.
According to Cushman & Wakefield, if the current
privatisation trend continues and all airport
projects under development, as specified in the
11th Plan, are modernized on schedule, then non-
aeronautical revenues might increase from the
current 35% to 54% by 2015. Rent from retail,
office and hospitality space will constitute
approximately 45% of the total non aeronautical
revenue and the rest from other traditional forms.
Non Aeronautical Revenue Break up in 2015
27.0%
45.0%
1.0%
17.0%
1.0% 9.0%
Retail Hospitality Office
Trading Concessions Public Admission fees Miscellaneous Income
Source: Cushman & Wakefield Research
services, function as flying schools, or even offer general
aviation and other associated activities. There have been
cases where old airports became the transit point for
domestic flights or LCC (Low Cost Carriers) for e.g.
Bangkok's old Don Muong Airport, which was re-
opened in March 2007 for domestic flight services.
The closure of gateway airports is an issue that
governments have had to grapple with in other
countries as well. In some cases, pressures to re-open
old airports have prevailed. Perhaps the best example
would be that of Bangkok, which has a dual airport
system; while still others could be Kuala Lumpur's
former airport at Subang, which is still under negotiation
for re-opening, since it is much closer to the city and
arguably cheaper to operate.
However, there are several examples where new
airports have been successful and old airports have
adopted new business models. The future of gateway
airports is purely dependant on the performance of new
airports and their impact on the overall economic
health of the city.
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CONCLUSION The modernisation of the airport is a matter of

public convenience and gives a facelift to the
The aforementioned projections indicate the
city's image. In terms of real estate development,
holistic nature of development that the airports
in most cases these areas are fairly developed;
are likely to bring with significant fresh supply
hence the quantum of planned projects ideally
across the office, retail and hospitality sectors.
does not get impacted as a result of the
The overall impact of airport development can
upgradation process. For instance, the Chennai
be segregated on the basis of greenfield and
or Kolkata airports that are up for
brownfield airports. Mumbai and New Delhi,
modernisation might not trigger significant
which will witness modernisation of their
development activity in the airport vicinity as a
current brownfield airports, are engulfed by
direct consequence, since these areas have
developed micro-markets within city-limits.
Having already already witnessed considerable sector-wide
These upgradation projects would not impact
become important development over the past few years.
the real estate sector the same way as greenfield
hubs for business airports like those at Bangalore and Hyderabad. Airport development offers an opportunity to
and hospitality The latter which are located on the outskirts of airlines to increase their sector connectivity and
centres, India's the city, would have a more decongesting impact, ultimately helps to increase employment in fields
airports are all set offering new growth corridors to the sector. of security, maintenance, aviation crew etc. While
to become the next it is expected that prospects of the property
generation of retail Historical evidence points that the overall city's
market near airport zones will remain promising,
and entertainment economic and social infrastructure receives a
exactly how much these markets develop further
centres. boost with greenfield airport projects; however
will, to a large extent, depend on a number of
the overall improvements take significant time.
factors like the ability of the government to
As observed in the case of Bangalore and
deliver adequate infrastructure to support
Hyderabad airports, land values witnessed a
growth, overall urban planning as well as the
spike in these cities, soon after the airport
timely provision for infrastructure and other
development plans were announced. These
support systems for each property sector to
locations received significant interest from
progress successfully.
investors and developers wanting to capitalise on
the future growth potential and expected As has been pointed out earlier, as a global entry
returns. Commercial and residential and exit point, our airports are virtually our
developments in adjoining areas too witnessed store fronts to the world. Having already become
increased interest from end-users, leading to important hubs for business and hospitality
price appreciation. As these airport regions centres, India's airports are all set to become the
move towards being self-sufficient hubs, areas in next generation of retail and entertainment
proximity eventually transform into future centres. With various greenfield as well as
business districts. brownfield aviation infrastructure projects
underway, it is now just a matter of realising the
The airport real estate supply in the form of
true potential of a 24-hour air-mall with vast
commercial office space, retail space and
parking lots, a retail and entertainment centre
hospitality space combined with other planned
that serves growing catchments of financially
supply for the region is likely to put pressures on
stable and educated shoppers, who happen to
rentals over the long term. One reasoning would
have a few hours to kill. Anything from post
say that with adequate infrastructure support
offices and playhouses, to video conferencing
and demand, the new projects are likely to
facilities, grooming parlours and movie
command a premium; however there could be a
entertainment might be on offer. A whole new
scenario where in these projects offer
generation is waiting impatiently by the lounge -
competitive prices to attract end-users.
ready for take off!

INDIA REPORT | MAY 2008 12

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