Real estate for freight
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Posted Date: 16/06/2008
Issue: Airside International June 2008
Publication: Airside International
An ambitious plan is underway at Brussels Airport to redevelop existing cargo warehousing into five new hangars located both airside and landside. The new logistics park will deliver up to 120,000m2 in total hangarage, thereby increasing and modernising the storage capacity at this location.
“We are building five new warehouses with the first one already being constructed on a speculative basis,” comments Peter Demuynck, Brucargo Real Estate Manager at the Brussels Airport Company. “There are three landside warehouses totaling 70,000m2 and we will be constructing two buildings airside that are purely for handling.”
Buildings 4 and 5 – the airside handling warehouses – are being built on the apron. They are ideally placed for cargo handling so there is little wonder that already there is competition for their tenancy. “We have more potential tenants than we need for the handling warehouses so we have decided to apply objective selection criteria in order to ascertain to which tenant we will assign the buildings. For the buildings landside, the situation is totally different. For these buildings we are targeting airfreight companies,” he says.
The rationale for the plan
The rationale for investment in cargo real estate at Brussels Airport in this way is straightforward: “We want to maximise our investment in buildings to help companies establish their businesses at the airport. For the first time, we want to own all the real estate,” Demuynck explains. “In the past, it has been the airport’s policy to allow airside concessions for periods of around 30 years. These concessions were awarded in the 1970s and 1980s; and they will end in 2010, 2015 or 2020.”
He continues: “These concessions are too long for our clients. Their businesses change over time and so do their clients and their competition. The tenants need to be free to react to market changes and yet they are stuck with a long-term lease for land. We want to change this situation and to invest in the buildings ourselves then rent out the space on shorter terms – these could be five years, 10 years or 12 years.”
The aim at Brussels Airport is to be more flexible. “We do not want our tenants to make on-balance investments that are purely about real estate and are long term,” he states. “We think our tenants ought to be able to concentrate on their businesses rather than real estate and so we plan to take care of the investment.” In addition to building two airside and three landside hangars, the investment at Brucargo includes infrastructure development such as roads and services such as security.
Before all this can take place, the airport operating company has to acquire those areas of land not currently fully in its ownership. “While the freehold is owned by the airport, it has granted long leases carved out of the freehold to leaseholders who have occupied the site for a number of years. As the existing leases expire in 2010, Brussels Airport is taking back the leases and demolishing the buildings in order to erect new cargo hangars.
“We even have some grassland amongst the cargo area at the moment. This is a nonsense because airport land is so expensive,” Demuynck comments. “We would like to change this system and to use land in a different ratio; at present we only have buildings on 45% of the land and we want to change that to 70-80%.”
A further issue is the temporary attitude to the hangars given the impending end of the lease term. “We have seen that the tenants are no longer investing in these buildings as they know that in 2010 the lease will come to an end. We would like to avoid seeing this situation again in the future,” remarks Demuynck. Already, Brucargo is in negotiations with the tenants of all the buildings to see if they are disposed to early termination. “We could then invest in the buildings and change the relationship to a rental system,” he says.
Brussels Airport Company is fully committed to funding the infrastructure development both airside and landside. 75% of the company's shares have been held by a consortium of Australian investors led by Macquarie Airports and the Belgian State owns 30% of the shares.
In terms of a schedule, hangars 4 and 5 should be built by late 2009. The construction of hangar 1 (30,000 m²) is already underway but agreements are yet to be signed. “Putting up buildings is not a problem,” remarks Demuynck. “The difficult part is undertaking the construction in phases and making sure that operations are not blocked, security is not compromised and the future growth of the cargo airport is secured for the future.”
Future-proof designs
The general technical specifications of the warehouses comprise: polyconcrete floors, a steel frame, sprinkler installation, loading docks, overhead doors, a minimum clearance height of 10m, insulated walls and roofs, smoke vents, car and truck parking facilities and heating through hot air blowers.
The warehouses are designed to be modern and appropriate for today’s cargo handling functions but will probably not be highly equipped. “We know that different handlers use different types of equipment and we do not know which handler will occupy which building. Also, after, say, seven years, that handler may leave the building and another handler may take it up who uses a completely different system, so we have decided probably not to equip them,” Demuynck comments.
The project’s environmental credentials are derived from design details like the efficient use of insulation; but solar panels for energy are out of the question because of the radar. “But we continue to look for ways in which to respect the environment which are also affordable,” he says, adding that high costs cause rents to rise and this is obviously unwelcome to tenants. “We are looking to find a balance.”
To date, Brucargo has received a number of letters of intent to occupy the buildings. But Demuynck is preoccupied with finding the right tenants. “We want to find tenants who will bring the most business to Brucargo,” Demuynck states.
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