The government’s decision to give a third runway at Heathrow the green light is unlocking significant development opportunities for the airport’s owners.
This time last year the country was in the midst of an increasingly heated debate in the lead-up to the Brexit vote and the government was mulling whether Heathrow or its rival Gatwick should be given permission to build an extra runway.
Twelve months on and the country is on the verge of triggering Article 50 and starting the process of leaving the EU and while there are still significant hurdles to be overcome, a third runway at Heathrow has been granted provisional permission.
So how does Heathrow’s property team intend to capitalise on the third runway at a time when the UK’s place in the world is in a state of flux?
Heathrow had been wanting to expand for decades and was seen as the frontrunner for increasing airport capacity in the South East after the Davies Commission concluded in its favour. Then, in March 2016, Justine Greening, the international development secretary, said that David Cameron’s government would not back it.
In retrospect, the public’s subsequent vote to leave the EU might not have been the result Heathrow’s owners were hoping for, but it may well have been the one it needed.
Heathrow’s chief executive John Holland-Kaye told the Financial Times ahead of the referendum that for business to thrive the UK needed to be part of the European single market.
However, he added that Heathrow would remain “robust” in the face of a vote to leave and even predicted that Brexit could signal a quicker resolution to the third-runway debate. He was right.
The vote to leave brought about a swift change in the airport’s fortunes, thanks in part to a change in prime minister. Just four months into her premiership, Theresa May bit the bullet, risking the wrath of many in her own party, and many more besides, and declared that a third runway would be built at Heathrow, in line with the recommendations of the Davies Commission.
It isn’t quite a done deal yet, however. Last month, plans for the third runway were published as part of a four-month-long public consultation. Separately, the conditions for the planning consent are to be outlined in a national policy statement and will include facilitating more domestic routes, capping noise levels and meeting climate change obligations.
Following consultation and parliamentary scrutiny, the final statement is expected to go to a vote in around a year’s time and will have to gain a majority in favour if the third runway is to proceed.
Most commentators do not anticipate a problem in getting the necessary votes, but it will still be a controversial decision: around 900 homes are expected to be demolished, including much of the village of Harmondsworth.
Presuming it does get the green light, Heathrow has vowed to use 370,000 tonnes of British steel in the building of the new runway and a sixth terminal.
It will also look to prioritise new ‘Brexit boost’ air routes to provide more connections to regional airports, giving a knock‑on lift to gateways such as Dundee, Humberside, Liverpool and Newquay.
While there remain both planning and political obstacles to overcome, the property team at Heathrow is gearing up to take advantage of the third runway.
Leading the charge is John Arbuckle, Heathrow’s head of property and facilities, who is tasked with identifying redevelopment opportunities as well as maximising revenues from the airport’s property.
Arbuckle is in charge of an investment property portfolio worth around £2bn, a figure that now looks likely to increase significantly as developments associated with the third runway come on stream.
“It is a really exciting time for me,” he says. “I want to focus on developing growth areas for our current customers as well as looking at how we might attract new customers. Our targets are to increase customer satisfaction and develop space solutions that are built sustainably and safely. This is at the heart of everything we do and informs all our future plans.”
Arbuckle’s property team manages around 1.9m sq ft of buildings, 100 ha of leased land, more than 200 houses and 807,000 sq ft of warehousing and offices leased from third parties. The type of space varies from hotels to offices and VIP passenger lounges to aircraft hangars, as well as a host of operational facilities.
The portfolio is 99% occupied and Arbuckle says there is high demand from prospective tenants, although it can be difficult to accommodate them. Heathrow owns around 1,250 ha of land around the airport, but most of it has already been developed and there is no land bank. The airport uses “every piece” of land it owns, according to Arbuckle.
“My role involves making the most of what we have and identifying redevelopment opportunities,” he says. “We work in a very constrained environment where every square metre is important to us.
“Our priority is to understand and respond to the space needs of our customers. We have a wide range of property customers, from airlines to service companies, hotels, lounge operators and business centres, and they each have individual requirements. So it is important we listen to them and continue to work with them to meet their needs.”
The airport continues to develop new passenger lounges for airlines and independent lounge operators, as well as Regus Express business centres. New spaces for Regus are planned for Terminal 2 and Terminal 3, in addition to the existing location in Terminal 5, which opened in 2014.
A number of hotels are also scheduled to open in response to the growing need for hospitality close to Heathrow. The airport’s recent successes include the extension of its partnership with the Arora Group to deliver two new terminal-linked hotels: the 750-bed Crowne Plaza/Holiday Inn Express at Terminal 4 and a 300-bed Hilton Garden Inn at Terminal 2.
“Part of my role involves developing our existing infrastructure to put the building blocks in place for a third runway in 2025,” explains Arbuckle. “We will complete the first stage of our long-term plan by 2019 when the new Terminal 2 hotel opens. Work begins this month.”
Despite the land constraints, Arbuckle is excited about the prospect of further development around a third runway. But he is keen to point out that working with the local communities surrounding Heathrow, many of whose residents work at the airport, remains a key priority.
“The government’s support for the expansion of Heathrow brings with it the opportunity to develop the surrounding areas,” he explains. “We have a dedicated expansion team that is working closely with the government, our local communities and our airlines throughout the consultation and delivery process to ensure Heathrow expansion is affordable and benefits all of Britain.
“On a local level, it is important we work with local businesses and the community on benefits and what this means for those living close to the airport. We have to work hard to make the most of the space we have and develop it in a way that takes into account both the smooth running of the airport operation and being great neighbours to the local community.”
Over the next five to 10 years there are plans to develop the Central Terminal Area (Terminal 2 and Terminal 3), which will involve ensuring all existing lettable space is being maximised and identifying opportunities for new commercial developments.
Logistics space is likely to come to the fore. Not only is Heathrow the UK’s largest airport, it is also one of the country’s primary cargo hubs, so the decision to expand presents an opportunity for more logistics development in the vicinity of the airport.
The connectivity that is vital to local businesses will continue to be on their doorstep - Adam Hetherington, CBRE
In the wake of the Heathrow announcement, CBRE said that it expected expansion to lead to increased requirements for commercial office and industrial space within easy reach of the airport. The airport itself expects a doubling of cargo throughput once a third runway is in place.
Adam Hetherington, CBRE’s London managing director, says that occupiers surrounding Heathrow can now make long-term location commitments “with the certainty that the national and international connectivity that is vital to their businesses will continue to be on their doorstep”.
Arbuckle’s task is to exploit the opportunities that the new runway and greater connectivity will bring. The challenges are very real, but if he can pull it off so too are the potential rewards.
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