Ways to Boost Regional Economic Growth in a Slower Growth Environment
Former Global Chief Economist for JPMorgan Chase (Ph.D. in Economics) & Current BrightQuery Chief Economist
Photo by Getty Images
One of Wall Street’s top voices, Blackstone’s Steve Schwarzman, noted at the World Economic Forum in Davos, Switzerland that he expects the U.S. economy will see slower economic growth over the near term. Against that backdrop, local governments should not ignore that the successful development of an Aerotropolis can generate faster regional economic growth. Current projections suggest worldwide travel will expand by 200 percent by 2030. This means securing exposure to this emerging trend will be a productive endeavor!
The concept of an Aerotropolis is not new but remains an innovative concept introduced by University Professor John D. Kasarda’s pathbreaking book, “Aerotropolis: The Way We Will Live Next.” Dr. Kasarda has published over 100 articles on this topic, focusing on creating a blueprint for an airport capable of serving as a conduit of economic growth for cities surrounding the airport.
Products and facilities supporting time-sensitive industries are well suited for DIA’s Aerotropolis. Some products include perishables (e.g., high-grade sushi tuna), high-tech goods (e.g., semiconductor chips), and biomedical products (e.g., heart-lung machines, medical lasers, and other related medical lab equipment). E-commerce fulfillment, telecommunications, and logistics will be favored as they require economies of speed rather than economies of scale.
Airports also move people, including business professionals and tourists. The low-hanging fruit on this front will include a Conference Center (e.g., DEN's Great Hall Project) and other facilities to house professionals who fly in for in-person meetings. Although some pessimists will argue that virtual meetings will make such venues obsolete, this view may be far from reality. What is more likely is that the demand for such venues will be more efficient, like the rest of the commercial office space sector. We won’t need as much, but it will not be eliminated and employed strategically. A case in point is the supply of hotels, which was expanding at a 2% to 3% yearly pace before COVID-19, then collapsed to a 0 to 2% growth pace during the global pandemic. Today, we have a shortage of premium hotel space, with demand growing at a 4% to 6% yearly pace. Other logical candidates for an Aerotropolis include warehousing facilities to facilitate the products flown in.
As nearshoring and friendshoring reduce the distance between where a product is manufactured and sold, the feasibility of air transport is likely to increase, thereby creating a demand for warehousing space near airports supporting local real estate activity.
Economic Impacts of Having an Aerotropolis in the Neighborhood
Using data gathered from the Federal Reserve Bank of St. Louis and the Bureau of Economic Analysis, we computed the yearly growth in real GDP in the metropolitan statistical areas (MSA’s) where Aerotropolis was located. We compared it to the national real GDP growth rate and found that every year, Real GDP growth rates outperformed in each of the MSAs that housed a large Aerotropolis!
The results revealed that real GDP MSAs, including a U.S. Aerotropolis, outperformed the national U.S. yearly Real GDP growth rates. It is also important to note that the largest airports, namely the DIA and the DFW Airports, remain a work in progress as they are not fully developed and have not attained their full potential, which means that their economic impacts have likely not reached their full potential.
Source: Federal Reserve Bank of St. Louis and the U.S. Bureau of Economic Analysis
Which Domestic Airport Offers the Greatest Future Potential as a Domestic Aerotropolis?
In the United States, we remain impressed with the success of the Dallas Ft. Worth Airport and other major airports. However, the airport with the most extensive land mass and untapped potential is the Denver International Airport (DIA).
Source: Flyopedia.com
Growing Pains and Vision 100
DIA’s Vision 100 plan strives to grow its passenger volume from 69.2 million to 100 million by 2027 and 120 million by 2045! As this airport grows, it will likely become the largest U.S. Aerotropolis and continue to boost regional economic growth.
However, with a projection of nearly doubling passenger volume, an additional 100 Gates, and up to two other runways, the DIA Aerotropolis will require an infrastructure upgrade. Since traffic congestion entering and exiting the airport through Pena Boulevard has grown by 80% since its inception three decades ago, it has become a challenge for its residents. Such expansion will also require a meaningful expansion of Aerotropolis's hospitality offerings.
As the airport looks to increase its mixed residential properties, it will encounter environmental concerns. People have complained about the run-off of de-icing materials into the environment for years. An emerging option has become available to recycle the fluids that bounce off the aircraft onto the ground with specialized vacuum trucks to reduce damage to the local environment. Another idea is to welcome hydrogen-powered aircraft to reduce harmful environmental emissions.
Source: Bureau of Transportation Statistics
Additional Expansion Ideas
Ideally, as the DIA Aerotropolis seeks to expand its roster of 1200 companies and 30 thousand employees working within its confines and attract additional tourists, the DIA will need to find ways to shorten the travel time between the airport and the city. It also means becoming more creative about selecting companies that may add to the allure of flying into DIA. That may involve leasing space for tourist activities, a golf course, an entertainment arena, etc. Other tourists may choose DIA if they can take a quick helicopter ride to go skiing in Vail, CO, after spending time in Denver. That means providing space to a local company that can satisfy this need may entice skiers to spend some time in the local area before flying to their favorite ski destination! Given the popularity of helicopter ride tours to iconic landmarks like Pike’s Peak, leasing space to these companies for tourists who wish to stay at a hotel near the airport is an attractive option.
As the DIA begins to plan to develop nearly 16 thousand acres, sustainability needs to be top of mind. At the same time, everyone knows that solar panels power buildings, which can be challenging to dispose of at the end of their lifespan. At the 2024 CES show in Las Vegas, the Best Innovation award went to transparent solar technology called SQPV Glass. These panels are attractive alternatives to consider, given that they are made of easy-to-source materials that can be disposed of in an eco-friendly manner. While this is a new concept, we are confident that other competitors will soon enter this space and make this exciting technology readily available.
An exciting view of the future for any Aerotropolis will likely be generated at the premier MIPIM 4-day (March 2024) international property conference, which will be held in France. Exciting keynote addresses will be delivered at this conference, and companies will gather to explore sustainable solutions for the global property market! It will be an excellent opportunity to target companies that wish to transport freight to airports such as DIA, which are centrally located!
Support for Recruited Companies
To strengthen DIA’s company recruitment efforts, Aerotropolis should have a team working with local universities to create curriculums that equip students with the skills needed by companies relocating to Aerotropolis. This effort will dovetail nicely with DIA’s Center of Equity and Excellence in Aviation. This CEEA conference center will be the first of its kind and encourage global companies to look to Denver for the best in naval aviation talent.
Similarly, the Aerotropolis needs another group to work with companies to help them navigate the local permitting process to minimize delays in developing the structures required to begin operating in the area!
Lessons From an Overseas Aerotropolis
Dubai's International Al Maktoum International Airport is being built on 35 thousand acres, slightly exceeding Denver International Airport’s (DIA) 33.5 thousand acres. This development will set the standard for all other Aerotropolis. The Aerotropolis will include a logistics hub, a trade and exhibition facility, a commercial district, residential housing, a hotel area, and a luxurious golf resort! The goal will be to create a city with seamless connectivity!
The Airport will showcase its initial stage of development in 2030 and permit millions of passengers to flow through its terminals. During its next phase in 2050, it will move 255 million passengers through its terminals, exceeding DIA’s current number of 69.2 million passengers and its projected number of 120 million passengers by 2045! It may also be a good idea for any significant Aerotropolis to send a few of its representatives to meet with officials of this exciting development to observe its development plans directly.
Summary and Concluding Thoughts
The projected doubling of airline travel by 2030 offers exciting opportunities for many Aerotropolis in and outside the United States. Although all global airports will benefit from this trend, the question is which ones are best equipped to profit from this development. The Al Maktoum and DIA airports are best positioned for this emerging development.
Preparing Aerotropolis for growth will require meticulous planning and effort to optimize its growth sustainably, which will benefit its stakeholders. For this reason, it must be done after considering the voices of all those affected. It should be an optimizing exercise that strives not to satisfy everyone but to ensure that any actions taken will be a Pareto-optimal improvement from the status quo.