Airports as a positive externality
Logistical hubs play a critical role in the national and regional infrastructure, and in economic development. They can bring foreign investment, tourism, trade, employment — also referred to as “positive externalities.” In Europe, one of the most important logistical hubs are airports. According to recent studies, European airports contribute to the employment of 12.3 million people earning €356 billion in annual income. European airports also generate €675 billion in GDP each year, equal to 4.1% of the GDP in Europe.
Schiphol Airport in Amsterdam (The Netherlands) is the #12 airport in the world, and of great importance for Dutch economy. Every year around 50 million passengers pass through the airport and roughly 1 million tons of cargo are transported. Consequently, Schiphol airport might be an important driver in the development of commercial, industrial and logistical buildings and businesses in the airport’s surroundings. Distance to the nearest airport is a datapoint that we calculate for all buildings in the GeoPhy database, and its impact on value is an important question for some of our clients. While research on the effect of airports on the real estate market typically focuses on airports as a negative externality — impacting the housing market through noise and pollution, we recently explored the effects of the distance to Schiphol Airport on the rents and prices of office and industrial buildings that are located within a 10 km driving distance of the airport.
There are several elements that factor into the rent and price of a building. For instance, their accessibility (either by car or by public transport); the (socio) economic profile of the region where the asset is located, and the building’s characteristics, such as recent renovations and the presence of amenities. The price and rent of a property might also be affected by the fact that the building is close to an airport — in this case Schiphol Airport. We explored this question using the GeoPhy database, which contains the rental values of 3,425 offices and 217 industrial assets, together with the transaction prices of 2,264 offices and 109 industrial assets. The transactions of the assets date from 2000 up to 2016.
We used a statistical method called Random forest to model the rent and price of office and industrial buildings, including the distance to Schiphol airport in addition to a host of other variables. The advantage of this method is that we can obtain the importance of the distance to the airport on the price and rent of the buildings relative to other factors.
Figure 1 shows the percentage contribution of five main groups of variables to the price and asking rent of offices and industrial buildings. In office buildings, for instance, the distance to the airport contributes 19% and 6% to the rent and sales price of the building respectively, and the building characteristics are the most important factor. For industrial assets, on the other hand, the distance to Schiphol is an even more important factor, with a weight of approximately 22% in the determination of both the rent and price of the building.
To explore the effect of Schiphol Airport on rents and prices, we model the rent (and price) in terms of the distance to the airport, using both the whole dataset and just the buildings that are not in Amsterdam. It is important to note that in our sample of 3,425 office buildings, some 14% of the assets are situated in Amsterdam, which in its own is a dominant factor that drives the value of a property. For industrial assets, on the other hand, it might more be advantageous to be close to an airport, in order to reduce the transportation costs of goods and services. We calculate the decay of the rent (and price) at 10 km, with respect to the initial modeled value of rent (and price). The outcome of this analysis is shown in Figure 2. Note that if we exclude Amsterdam, the rent and price of offices decay more slowly with the increasing driving distance to the airport. For instance, the price of an office building that is at a 10 km driving distance from Schiphol drops with 19% relative to the price of an office building located at the airport. This percentage decay is much higher if we include the office buildings in Amsterdam, which implies that Amsterdam is a dominant factor in the pricing of offices. For industrial assets, the situation is rather different: while the rent does not vary considerably with the distance to the airport (see results excluding Amsterdam), the distance to Schiphol Airport is quite important for the price of industrial assets.
Our analysis shows that Schiphol Airport plays an important role in determining the price of industrial buildings, and to some extent the price of office buildings. Other types of businesses, such as retail and hotels, might also be influenced by this important logistic hub. More research is, as always needed, but for now, all statistics show us that airports generally, and specially Schiphol Airport, can also be thought of as positive externalities in the real estate market.
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