Why One Unconventional Location Benefits Hurting Retailers

Experts explain why booming consumer spending at airports is a big opportunity to boost retail real estate revenue.

Air travelers are the Holy Grail for retailers—a flow of affluent customers who arrive on schedule and remain captive to each airport’s dining and shopping options. That mix of disposable income and boredom could mean $60B in annual spending by the end of the decade, according to consultancy Verdict Retail, which projects airport retail sales growth will accelerate from 8.4 percent annually in 2015 to more than 10 percent by 2020.

Airports seeking to maximize the value of their retail real estate are working on innovative infrastructure with shopping center investors to give passengers a better experience. This is meant to enhance the profitability of terminal property by increasing direct–retail lease revenue and, by enticing airlines to route more flights through airports with top-tier consumer amenities, boosting landing fees.

“Retail property is very important in making airport assets so attractive to infrastructure investors,” says Hywel Rees, investment director for airports at AMP Capital in London. Retail revenue can range from 20 percent to 40 percent of an airport’s total receipts, says Rees. The retail upgrade at Heathrow’s Terminal 5 sparked a double-digit revenue gain from luxury stores catering to well-heeled international passengers in last year’s third quarter, as total retail revenue at Heathrow rose 6 percent through September.

Australian shopping center developer Westfield Corporation, with nearly $30B of assets under management, is working with airports to turn air travel into stroll on Fifth Avenue. The American Association of Airport Executives held its first Innovation Forum last November at Westfield Labs, an innovation unit that develops, tests and builds new retailing concepts. “Applying a holistic approach like Westfield’s,” says AAAE President and CEO Todd Hauptli, “can provide more opportunities for airports, airlines and, ultimately, the travelers themselves.”

Dominic Lowe, executive vice president at Westfield, says the innovations center on what airport retailers call “dwell time”—capturing and holding passengers’ attention while offering broader choice and easier wayfinding. Swiss airport market research firm DKMA says the most satisfied passengers are twice as likely to shop, and spend 7 percent more than average on retail and 10 percent more at duty-free.

German airport owner Fraport AG knows how to wring revenue from retail real estate; fees and lease payments from retailers in its airports already comprise 42 percent of Fraport’s revenue, and retail revenue per passenger rose 6.7 percent through Sept 30, 2015. Fraport is adding online payment capability, a loyalty program, and home delivery options to boost retail revenue. The German company expanded into the U.S. in 2014 with the acquisition of Airmall—which operates retail property at airports in four second-tier U.S. cities—from private equity firm Prospect Capital.

Today’s mobile consumers spend more time in airports for business and pleasure, and just as dense urban cores supplanted suburban office parks, airport real estate may become a focal point for urban communities.