The Aerotropolis and Real Estate Development

Economic Impact

There is an influx of companies to second-tier cities in the US. They are leaving the gateway cities for many reasons and among them is the cost pressure they, their employees, and suppliers are experiencing. Once supply chains begin this migration their 3rd party service suppliers and supply chain partners follow. The catalytic economic effect of these changes is to attract population to where the new jobs are. The Denver Aerotropolis and its real estate development might be part of the solution for these companies.  

One-half of it 150 square miles of the City of Aurora is undeveloped and may not yet be an attractive investment site. Aurora has no Central Business District (CBD) and may seem, to some, as a typical character-less suburban sprawl. However, given the lack of space in Denver, is there a possibility that Aurora could become a new urban center for Colorado?

Something is going on. Take a look at the Aurora Economic Development Council’s Board of Directors. What companies are represented there? It is replete with construction companies, financial entities, foreign developers, their service providers (lawyers, accountants, insurance brokers, etc.).

The Importance of Air Transportation

Air transportation is the most “global” of all transportation modes. Simply put, one can go to more places via air transportation than any other mode. An article in the December 2017 issue of 5280 Magazine cited the importance of the airport to attracting businesses to the city:

…easy access to nonstop and international flights attracts businesses looking for a place to establish themselves, says Kim Day, CEO of Denver International Airport (DEN). Businesses follow the airlines because “the global connectivity is imperative,” she says (emphasis added). Panasonic, for example, established its new headquarters in Denver last year in part because of a nonstop flight to Tokyo.

If these businesses are coming to Denver, their parts and materials will need to be shipped in and their final products shipped out. Today, most of the products produced in the Denver metropolitan area are carried by road to the gateway airports where they can be consolidated with other shipments by their freight forwarder. This consolidation lowers the transportation costs per kilo the shipper pays to the airline and adds just a few days to the door-to-door transit time.

Before Denver will become an international air cargo origin of significance a couple of things must happen. More producers must install their manufacturing operations here and DEN must add more long-haul wide body aircraft flights to more international destinations.

Site selection decisions of corporations are complex. There are some clear choice drivers.

RequirementIs it here?
WorkforceCheck
Land AvailabilityCheck
ConnectivityGetter there
Educationit depends
Lifestyle and AmenitiesCheck
HealthcareCheck

Denver International Airport

Denver International Airport (DEN) is a “destination cargo airport,” meaning it receives much greater volume of air cargo than it ships out. The chart below shows a comparison to other airports in the Airport Council International’s (ACI) ranking of the top 6 US airports by passenger volume: Atlanta (ATL), Los Angeles (LAX), Chicago O’Hare (ORD), Dallas (DFW), New York’s JFK and Denver International Airport. (DEN)

DEN’s passenger volume is 77% of ORD’s while its cargo is only 13.4%. Much of the products produced in the Denver metropolitan area are trucked to Chicago (and other gateways) and consolidated on international flights to the final destination. A Boeing 777 can carry 25-tons of cargo in its belly. Ideally, Denver would have the time-sensitive products to fill this space along with high international passenger demand sufficient to occupy all the seats every day.

DEN is served primarily by narrow bodied aircraft with limited cargo capacity. Denver has flights to over 200 cities, but the vast majority are short-haul domestic flights. The international destinations served by the long-haul, wide body aircraft are limited. Although Denver has 26 international destinations 70% (Mexico, Canada, Central America, Iceland) are serviced with narrow body aircraft.

AirportPassengersOutbound Air Cargo (LBS)
Atlanta (ATL)50,251,9622,781,647,652
Los Angeles (LAX)41,232,4167,197,930,264
Chicago (ORD)38,593,02810,373,559,593
Dallas (DFW)31,816,9334,155,362,297
Denver (DEN)29,809,0911,391,967,269
New York (JFK)29,533,1542,937,988,820

Source: Airport Council International

How will Denver generate the demand for those long-haul widebody flights? Through the continued development of the economic clusters that are large users of air transportation. Today total passenger volume at DEN is 61.5 million. Of that only 2.59 million (4.2%) is international passenger volume. Total passenger volume grey by 5.3% in 2017 over 2016 but international passengers grew by over 12%. In July 2018 international passenger volume was 21% greater than the same month in the prior year while cargo was up by almost 10%. Despite this growth, the 2.59 million passengers in 2017 do not put DEN in the ranking of the top 20 airports for international passengers in the US.

Air transportation connectivity is critical for site location decisions of companies in many industries. Global industries with time-sensitive products are usually big users of air transportation for passengers and cargo. There are many of these industries in Colorado and, more specifically, in the front range. They include aerospace and defense, aviation, homeland security, electronics, bioscience and advanced manufacturing

Conclusion

These industries do not operate in vacuums. Their operations attract third-party service providers such as transportation and logistics, financial services, insurance, auditing, consulting, hospitality, healthcare, and IT. All of these companies need sites for their operations, employees and places for their employees to live. As these companies grow they attract competitors and build economic clusters.

Colorado’s economy is booming. The population is increasing steadily. Unemployment is at record low numbers. These companies are a big part of Colorado’s success and Denver International Airport is a driver behind their investments here. This progress is going to continue as DEN adds more international connections and the city becomes a gateway airport.

Leave a Comment