A Second Runway for Gatwick Appendix A19 Commercial Facilities Requirements

Gatwick Airport Davies Commission Submission Second Runway facility requirements

01/05/2014 Contents

1. Introduction 4 2. Methodology 5 3. Estate Assessment 7 4. Key Drivers shaping future facility requirements 30 5. Future Airport considerations 37 6. Forecast Scenarios 41 Appendix Market Commentary Market Assessment

Gatwick Airport -Second Runway Facility Requirements 2 Introduction and Methodology

Gatwick Airport -Second Runway Facility Requirements -Working Draft 3 Introduction

In2012,thegovernmentaskedSirHowardDaviestochairanindependentCommission,taskedwithidentifyingandrecommendingoptionsformaintainingtheUK’sstatusasaninternational hubforaviation.TheDaviesCommissionisexaminingthescaleandtimingofanyrequirementforadditionalcapacityandisidentifyinghowanyadditionalcapacityshouldbemetintheshort, mediumandlongterm.

GatwickAirportLimited(GAL)hasidentifiedtheconstructionofasecondrunwaytothesouthoftheexistingrunwayaspartofthesolutionfortheSouthEastofEngland’santicipatedfuture runwaycapacityrequirements.Gatwick’sresponsetotheDaviesCommissionproposestheexpansionofGatwickaspartofa‘constellation’ofthreemajorairportssurroundingLondon.It wouldbedeliverableusingexistinginfrastructureandisexpectedtocreatelessenvironmentalimpactthanotherkeyproposals,includingHeathrowandStansted.Gatwickbelievesthis constellationvisionisthebestsolutionforpassengers,forLondon,andfortheUK.

DeloitteRealEstate(DRE)hasbeencommissionedbyGALtosupportGatwick’ssecondphasesubmissiontotheDaviesCommission.ThisreportfollowsaninitialsubmissionmadebyGAL totheDaviesCommission.Itisintendedtosetouttheanticipatedfutureairport-relatedfacilityrequirementsthattheexpansionoftheAirportcouldgenerate.Thestudyalsosetsoutthe benefitswhichwillresultfromthedevelopmentofcommercialfacilitiesattheAirport.

GALisseekingtounderstandthequantumoffacilitiesthatwillberequired,baseduponforecastpassengernumbers(providedbyGAL)asat2030,2040and2050.Theforecastisbased uponapreferredrunwaydesignoption.Futurecommercialfacilitiestobeconsideredinclude:

• Offices • • Industrial/warehousing&motortransport • Cargo • Hangars • Carrental • Petrolfillingstations/fastfoodandconvenience • Groundservicesandancillaryairside

Thefollowingsetsoutthemethodologywhichhasbeenadoptedtodeterminethelikelyquantumofrequiredairportrelatedfacilities.Theapproachandoutputisintendedtoenableefficient airportmasterplanning.

Gatwick Airport -Second Runway Facility Requirements 4 Methodology

Forecasting future facility requirements is not an exact science as markets, technology and occupier requirements change overtime. This can be further complicated by changes in the passenger profile of the Airport and changes to the characteristics of passengers using the Airport.

When seeking to forecast facilities 40 years in the future it is important to apply robust methodologies. The approach seekstoinitially set out a review of the existing available supply at the Airport. This baseline assessment enables an analysis of the Airport’s current use and how it compares to other similar airports. To do this, we have benchmarked other airports and explored how and why different types of airports have different types of facility requirements.

The nature of an airport and the profile of its passenger base are determined by the markets and destinations which the airport services. We have identified the key characteristics of an airport’s use and the resulting impact on required facilities. We then explore the key drivers that are likely to influence the demand for future facilities, such as market conditions and the level of off-airport competition.

To understand the Airport’s market position, we have reviewed both the on-airport and off-airport property provision and the level of future supply that will form competition for the Airport. We also consider the rate at which the Airport will grow (both in terms of passengers and the resulting employment numbers on-airport) as a key driver to increasing the demand for facilities. A forecast scenario is then developed applying relevant benchmarks based upon other similar airports.

Key Drivers Future Airport Forecasting Estate Assessment shaping future Conclusions Considerations scenario requirements

•Baseline assumptions • Macroeconomic •Forecast Passenger growth •Baseline assumptions •Facility quantum conditions •Site context •Cargo forecasts •Benchmarking •Benefit of developing on- • Market conditions airport •Existing facilities and future •Preferred Runway design •Select and apply suitable supply • Surrounding development forecast models •Changing passenger profile pipeline •Accessibility •Triangulation of results •Development capacity •Scenario testing •Current on-airport employment

Gatwick Airport -Second Runway Facility Requirements 5 Estate Assessment

Gatwick Airport -Second Runway Facility Requirements -Working Draft 6 Estate Assessment Survey Key facts and figures

Location Thereiscurrentlyalackofhighqualityofficeaccommodationinandaroundthe GatwickAirportisstrategicallylocated29.5miles(47.5km)southofCentralLondoninWestSussex. surroundingGatwickarea(i.e.off-airport).Themarketisdistinctlytwotiered,with TheAirportisrecognisedasgeneratingdemandforfacilitiesclosetotheAirport.Thishasresultedin asignificantsurplussupplyoflowqualitystock,forwhichthereisminimaloccupier thesurroundingdevelopmentshavingahighproportionofairportrelatedoccupiesandtenantsthat andinvestorappetite.Similarlythereislimitedmodernindustrialaccommodation benefitfromtheproximitytotheAirportandtheinternationalconnectivityitoffers. availableclosetoGatwick.

Site TheAirportcurrentlyhaslimitedindustrialaccommodationthatisfitforpurpose. OvertimeGatwickhasexpanded.Itinitiallycomprisedasingle,SouthernTerminalandhasgrownto Historically,Gatwickhasdevelopedlimitedindustrialaccommodationduetoalack incorporatetheNorthTerminal.EachTerminalhascreatedacommercialhub.Officeandhotel ofsuitableavailableland.Asaresult,industrialdevelopmenthasoccurredinthe developmentisconcentratedclosetotheAirport’stwoterminalsaswellasotherusesthatservethe surroundingestates.Specifically,thefacilitiesinManorRoyallocatedtothesouth needsofpassengerssuchascarrentalfacilities. oftheAirportareapproximately33%occupiedbyairportortransportrelated occupiersthatcouldpotentiallybenefitfrombeinglocatedon-airport. TherailwaystationalsoactsasahubfortheSouthTerminalarea.ItislocatedbetweentheSouth Gatwickhasonesignificantcargobuildingon-airportwhichisownedbyathird Terminalandpassengercarparksandeffectivelyactsasa‘frontdoor’totheAirportestate. party.Thebuildingcomprises291,539sqft(GEA)andisasingle,multi-letbuilding benefittingfromlandsideandairsideaccess.Duetoreducedlevelsofcargo Thesouthernperimeterisoccupiedbycurrentandformeraircraftmaintenancefacilitiesandalimited throughput,thebuildingiscurrently 60%let.However,6.7%ofthebuildingis numberofindustrialbuildings.Theseusestypicallyhavelessofaneedtobelocatedclosetothe occupiedbynon-cargorelatedusers. commercialhubsofeachterminalandaresitedonlowervaluelandareas. TheNorthZoneprovideslandforlargerindustrialrelateduserssuchasaconcretebatchingplantand Gatwickhasonlytwohangars,whichisconsideredlowforanairportofitssize siteofficesandyardsforairportcontractors. includingtheVirginHangarandtheBritishAirways(BA)hangarownedbyBA.The Airportiscurrentlyclosetosecuringanumberofopportunitieswhichwould Largescaledevelopmentcapacityislimitedduetoscarceavailableexpansionland.Thereispotential increasetheamountofhangarageon-airport.Also,astheAirportdevelopsand howeverforin-filldevelopmentinsomeareasintheNWzone.However,thecurrentAirportsite providesforagreaternumberofairlinestheremaybethepotentialtodevelop provideslimitedlandtoaccommodateadditionalairport-relatedfacilities. additionalhangarage.

Thefollowingprovidesareviewoftheexistingfacilitieson-airport.Wehave Assetoverview undertakenareviewofotherairportstocomparethefacilityprovisionatother Airportrelatedfacilitiescompriseofficebuildings,cargo,transitshedsandindustrialaccommodation. similarairports,bothwithintheUKandinternationally.Thisbenchmarkingofthe Also,passengersrequirefacilitiessuchashotelsandcarrentalofferings.Other“backofhouse”type quantumoffacilitiesdevelopedattheseairportsenablesustoconsiderthe usessuchasancillaryfacilitiesandairsidesupportareasareessentialtoprovideaccommodationfor applicablebenchmarkstoapplywhenweforecastthefuturefacilityrequirements. occupiersthatcontributetotheon-goingoperationsoftheAirport.ManyoftheAirport’sexisting offices(excludingJubileeHouse)aredatedandreachingastageofeconomicandfunctional Wehaveincludedanoutlineofthebroadlandcategorisationthatisusedwithinthe obsolescence.Thereisscopetorenewandretro-fitmuchoftheexistingstockintohighquality Airport’scurrentmasterplanandexistinglandownershipboundaries. offices,whichmayappealtoaviation-relatedoccupiers.However,thereisthepotentialforthistobe morecostlythanaredevelopment/replacementoption.

Gatwick Airport -Second Runway Facility Requirements 7 Estate Assessment Key facts and figures

The Airport’s current draft master plan sets out the existing airport layout which is divided into eight categories. As the table below shows, these include a range of different uses and land take.

Site Category Description size

Runway, taxiways, safety areas, Airfield and the extensive grass areas that 228 ha surround them

Including the terminal processor Passenger buildings and their adjacent and 18 ha terminals associated facilities

Aircraft aprons and the terminal piers through which the majority of Aprons 161 ha passengers enter and leave their aircraft

Air cargo facility, associated truck Cargo 11 ha dock and landside facilities

Aircraft maintenance hangars and Maintenance 9 ha associated aircraft aprons

Ancillary activities, such as vehicle maintenance depots, flight Ancillary 27 ha catering facilities, offices and hotels

Surface Roads, car parks and facilities for transport 145 ha coaches, taxis and rental cars facilities

Landscaping Airport boundary, areas of planting and surface or natural vegetation & features 132 ha water associated with surface water drainage drainage Fig 1.02 Source: GAL Masterplan

Fig 1.01 Source: Deloitte Research

Gatwick Airport -Second Runway Facility Requirements 8 Estate Assessment Key facts and figures

Leasehold Interests Airport Boundary

Fig 1.03 Source: Deloitte Research / Google Maps Gatwick Airport -Second Runway Facility Requirements 9 Office Supply

Theofficeaccommodationcomprisesanumberofbuildingslocatedeitherontheterminalbuildingsorwithinwalkingdistance.TheoccupiersoftheofficesareallairportrelatedandincludeGAL staff,airlines,Governmentagencies,groundhandlersandairlineserviceproviders.Thepropertiesinclude: • AshdownHouse • ConcordeNorthandSouth • AtlanticHouse • DestinationsPlace • JubileeHouse AtlanticHouseiscurrentlybeingredeveloped.Theofficeprovidesalinkforairlinecrewandotherairsideoperationsstafftobescreenedandpassthroughtoairside.JubileeHouseprovidesa similarfunctionforstaffaccessingairsideattheNorthTerminal.DestinationsHousewhichislocatedontheSouthTerminalisoccupiedsolelybyGatwickAirportbyadministrationandoperations staff.

Ashdown House is predominately occupied by Government agencies such at Customs and Excise, Police and Immigration. The building’s proximity to the South Terminal and Atlantic House allows for convenient access to airside and terminal operations. Concorde North and South are located to the south of the Southern Terminal. These are occupied by airlines and airline service providers. The following is a summary of the buildings, their size, vacancy rate and occupancy by third parties and GAL. Jubilee House Atlantic House

Area Tenanted Area Vacant Area GAL % GAL Demise Area (sq ft) % Tenanted % Vacant (sq ft) (sq ft) Occupied (sq ft) Occupied Ashdown House Jubilee House 83,588 67,256 84% 200 0% 4,975 6%

Ashdown House 40,000 33,853 84% 1,153 0% 6,147 16% Destinations Concorde North 45,000 31,050 69% 7,650 17% 6,337 14% Place

Concorde South 45,000 41,399 92% 0 0% 3,885 8% Concorde Atlantic House* 35,000 0 0% 0 0% 0 0% 2000

Destinations Place 44,731 0 0% 0 0% 44,731 100%

Total 293,319 149,664 9,003 66,075

* Currently being redeveloped Fig 1.04 Source: GAL Fig 1.05 Source: GAL / Google Maps

Gatwick Airport -Second Runway Facility Requirements 10 Analysis of Future Office Supply

To determine the airport’s future demand for airport-related office accommodation, we have benchmarked the airport’s current occupancy against other airport’s office provision, based upon passenger numbers at each airport.

Offices Offices Airport Pax Pax per sq ft LCC use (sq ft) (sq m)

Destinations Place Heathrow 69,983,139 707,361 65,716 99 Nil

42,000 (adjacent to 38,360,604 452,084 85 Medium Concorde South terminal only)

Paris Charles de 61,611,934 1,420,836 132,000 43 Low Concorde North Gaulle

Amsterdam 51,035,590 4,284,036 398,000 12 Low Ashdown House

Frankfurt 57,527,251 1,722,226 160,000 33 Low Jubilee House

Manchester 19,654,100 297,310 27,621 66 Medium - 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 Area (sq ft) Gatwick 34,218,668 297,872 34,485 115 High Area Tenanted Area GAL Occupied Area Vacant

Fig 1.06 Source: GAL Fig 1.07 Source: Deloitte Research

Wehavebenchmarkedothernationalandinternationalairportofficeprovisiontodeterminethelikelylevelsoffacilitiesrequired.Officerequirementscanvaryconsiderablybetweenairports. Thereareanumberoffactorsthatwillshapethedemandforon-airportofficerequirementsincluding:

• Typeof;

• Proximityofairporttocity;

• Airport’sproximitytosurroundingofficeparks;and

• Levelofon-airportrentalpremium.

Futuredemandisexpectedtobedrivenbyasimilardemandprofile,whilsttakingintoconsiderationthegrowingproportionoflonghaulthatisforecasttousetheAirport.Wehaveassumed thatthereisnosignificantincreaseintheamountofoff-airportofficedevelopmentaccommodationclosetotheAirport.IfhowevertheexpansionoftheAirportincludeslandthatiscurrently occupiedbyoff-airportofficebuildings,suchasCityPlace,theresultingdisplacementmayincreasetherequireddevelopmentofofficeaccommodationon-airport.

Gatwick Airport -Second Runway Facility Requirements 11 On-Airport Supply

TheAirportcurrentlyhas3,483hotelbedroomsontheAirportestate.ThecurrentredevelopmentofLongbridgehousewillprovideanadditional192bedrooms.WeareawarethatNorfolk Houseisbeingredevelopedintoathreestar240roomhotel.By2014itisanticipatedthattogetherwiththeexpansionofotherhotels,on-airporttherewillbe3,675bedroomson-airport.

Hotel Star Rating No of Rooms Distance to Major UK Airports Passenger Hotel Rooms Ratio Terminal Numbers (million) (Ave. no. passengers (Miles) per room space)

Best Western Gatwick 3 125 2.5 Moat House 51 1,007 50,645 Birmingham 8.9 1,759 5,060 3 218 0.5 Gatwick 9.2 245 37,551

Hampton Holton 3 192 0 57.5 2,664 21,584

Hilton Gatwick 4 821 0 Gatwick(current) 34.2 3,483 9,819 Airport 7.2 754 9,549 HolidayInn Gatwick 3 210 2 Heathrow 70 8,340 8,393

Mercure Gatwick 4 265 2.5 9.6 459 20,915

NorfolkHouse 3 245 0 Manchester 19.7 2,046 9,629

Premier Inn Budget 630 0 Munich 38.4 646 59,443

Premier Inn –Gatwick Budget 220 1.5 Paris Charles de Gaulle 61.6 1,598 38,548 Airport Central Stansted 17.5 1,173 14,919 London Gatwick 4 518 0 Fig 1.10 Source: Deloitte Research Gatwick Budget 185 2.5 Airport Ourviewofthefuturehotelrequirementsisbaseduponindustrybenchmarksandreviewofotherairports.The Yotel Gatwick Airport Budget 46 0 abovetableoutlinestheprovisionofhotelsatotherairportsintheUKandEurope.Whencomparingthebenchmark Total - 3,675 - toGatwick,thereareanumberofconsiderationswhichwillshapetheamountofhotelsupplyrequiredatanairport Fig 1.08 Source: Deloitte Research including: Hotel Types by Star Rating (on-airport) • Passengerprofile

• Proportionoftransferpassengers Budget 3 Star • Typeofairlinesandtheirschedule(LowCostCarrierearlydepartureincreasesdemand)

• Proximityandeaseofaccesstothecity 4 Star • Typeofdestination(Airportsatleisuredestinationshaveloweron-airporthoteldemand)

• Levelofoff-airportcompetition. Fig 1.09 Source: Deloitte Research Gatwick Airport -Second Runway Facility Requirements 12 On-Airport Hotel Supply On-Airport Hotel Future Supply Off-Airport Hotel Future Supply Thereareanadditional 2,812bedroomsin12hotelslocatedwithina5mileradiusof Therearefourhotelschemescurrentlywithfullplanningpermissionthatarecurrentlyunder Gatwick.Thelocationofthesehotelsisindicatedbelowandonthefollowingpage.There constructionorrecentlycompleted.Theseare: arealsoanumberofsmallerB&B’swhichwehaveexcludedfromouranalysis.

• A630-bedroomPremierInnhotelopenedatGatwickNorthTerminalinDecember2012. Hotel Star Rating No of Rooms ThehoteloccupiesthesitepreviouslyusedascarparkingfortheSofitel.Thehotelisthe largesthotelinthePremierInnportfolioandoneofthelargestterminal-linkedbudget London Gatwick Budget 141 Premier Inn Gatwick Airport South Budget 105 hotelsintheUK. Copthorne Gatwick 4 227 • The192-bedroomHamptonbyHiltonhoteloperatedbyShivaHotelsLimitedisdueto Gatwick 4 294 openatGatwickAirportNorthTerminal.ThehotelwillbelocatedwithinLongbridge Arora International Crawley 4 432 House,aconvertedofficeblocklinkedtotheNorthTerminal. Menzies Chequers Gatwick 4 104 Russ Hill hotel 3 130 • The143-bedroomextensiontotheTravelodgeGatwickAirportCentralhotellocatedon London Gatwick 4 151 PoveyCrossRoad.AspartofTravelodge’seffortstoincreaseitspresenceinthewider Ramada Crawley Gatwick 3 79 Gatwickhotelmarket,Travelodgeacquiredthe257-bedroomMercureGatwickAirport, Premier Inn Gatwick Crawley East Budget 82 whichwasinneedofsignificantinvestment.Aspartoftheplans,Travelodgeobtained EXHI Gatwick Crawley Budget 138 Copthorne Hotel Effingham Gatwick 4 122 planningpermissiontoincreasethetotalroomcountto400bedroomsbyrearrangingand Premier inn Gatwick Crawley 3 42 convertingthepublicfacilities. Premier Inn Gatwick Manor Royal 3 204 • NorfolkHouse,isbeingconvertedintoa245bedroomhotel.Thedeveloper,Bloc, Premier Inn Gatwick Crawley South 3 48 commencedbuildingworkinMay2012andthehotelisduetoopenininJanuary2014. Britannia Europa Gatwick 3 211 Gatwick George Hotel 3 84 Total 2,594

Asanairportgrowsandservesmultiplemarketssuchaslonghaul,sunseekersandLCC,itis Fig 1.12 Source: Deloitte Research importantthatthetypesofhotelsofferedincreases.RecentdevelopmentsatGatwickin additiontothegrowthintraditionalhotelroomshaveseenawiderrangeincludingsleeping However,theon-airporthotelsareinamorefavourablepositiontotheoff-airport podsofferedbyYotelandBloc’splansforNorfolkHousetoofferroomsonanhourlybasis. competition.TypicallypassengersprefertostayclosertotheAirportparticularlyatairports withahighproportionofLCCcarriersduetotheearlydeparturetimesasaresultofthe On-Airport Hotel Supply 4,500 airlinesfirstrotation.Therefore,on-airporthotelshavethepotentialtocompetitivelyprice 4,000 availablesupplytoincreasemarketpenetration. 3,500 3,000 SimilartotheyieldmanagementthattheAirport’scarparkteamundertake,thehotel 2,500 operatorshavethepotentialtodrivedemandthroughcompetitivelypricingavailable 2,000 of Rooms 1,500 supplytobringdemandon-airport.Thisislikelytobetothedetrimentofoff-airporthotel No 1,000 operators. 500 0 2011/2012 2012 - 2014 Fig 1.11 Source: Deloitte Research

Gatwick Airport -Second Runway Facility Requirements 13 Hotel Locations

Existing Supply

Future Supply

5 4 6 15 8

2 7 3 14 1

11

13 9

10 12

1 Hilton London Gatwick Airport 8 Premier Inn Gatwick Airport Central 2 Sofitel London Gatwick 9 Ibis Gatwick Hotel 3 Courtyard by Marriott Gatwick 10 Premier Inn –Gatwick Airport South 4 Gatwick 11 Travelodge –Gatwick Airport 5 Gatwick 12 Premier Inn –Gatwick Manor Royal 6 Gatwick Moat 13 Premier Inn Gatwick (Pound Hill) 7 Yotel Gatwick Airport 14 Norfolk House (Future Supply) 15 Longbridge House (Future Supply) Fig 1.13 Source: Deloitte Research / Google Maps

Gatwick Airport -Second Runway Facility Requirements 14 Cargo Supply & Demand

InrecentyearstheAirport’sincreaseusebyLowCostCarriers(LCC) hascontributedtodecreasedcargotonnagepassingthroughtheAirport.Thistogetherwithcurrenteconomic conditionshasseencargolevelsdecreasefromapeakof320,000tonnesin2000to104,000tonnesin2010.AtitspeaktheAirportreceivedasignificantlygreaterproportionoflonghaul flights,particularlytrans-Atlanticflightswhichgeneratedsignificantcargothroughput.Also,atthetimeanumberofdedicatedfreightersusedtheAirport,whichcontributedtothehighercargo throughput.

OpenskiespolicyresultedinanumberofUSairlinestransferringoperationstoHeathrowwhichresultedinreducedcargotonnage.Thereducedcargotonnagehasledtoanunder-utilisation oftheAirport’scargotransitsheds.On-airportthereisonetransitshedwhichisownedbySegrounderalonggroundleasewhichpaysGALanominalrental.The27,085sqmetrecargo buildinghasavacancyrateof40%reflectingc.16,169sqmetresofvacantspace.

TheAirport’sroutedevelopmenttoAsiaandtheforecastgrowthinlonghaulislikelytogenerateadditionalcargotonnagefortheAirport.However,itiscurrentlynotexpectedtoincreaseto thehistoricallevelstheAirporthaspreviouslyexperienced.

Cargo Throughput

Airport Total Cargo Area Area Tonnage Tonnes Tonnage Area (sq m) Occupied Occupied (2012) per sq m estimate (sq m) (sq ft) 300,000

Amsterdam 525,000 525,000 5,651,048 1,483,448 2.83 250,000 Frankfurt 52,000 52,000 559,723 500,000 9.62 200,000 Gatwick Airport 27,085 16,169 136,652 97,567 6.03 150,000 174,193 174,193 1,874,996 1,464,390 8.41 100,000 Newark Liberty 117,358 117,358 1,263,230 741,277 6.32

New York -JFK 687,965 687,965 7,405,186 2,318,834 3.37 50,000

Paris Charles de Gaulle 500,000 500,000 5,381,950 2,150,000 4.30 -

Paris Orly International 36,500 36,500 392,882 300,000 8.22

Stansted Airport 41,441 41,441 446,067 214,160 5.17 Gatwick Tonnage

Fig 1.14 Source: Deloitte Research Fig 1.15 Source: CAA

Gatwick Airport -Second Runway Facility Requirements 15 Cargo Supply & Demand

Theabovetableoutlinestheprovisionofcargo/transitshedsatotherairportsandtheir cargothroughput.Anumberoffactorsthatwillshapethedemandforcargoandtransit Gatwick Cargo shedsincluding: Centre

• Typeofcargo;

• Proportionoftransitshedsandcargosheds

• ProvisionofaBorderInspectionPost;and

• Proximitytooff-airportindustrialparks.

Itisimportanttodifferentiatebetweentransitshedsandcargosheds.Lookingatthe above,tableHeathrowandGatwickreflectairportswithahighproportionoftransitsheds. Fig 1.16 Source: GAL / Google Maps Asaresultthecargobenchmark(tonnagepersquaremetre)ishighat7-9tonnesper metre.ManchesterandEMAhavebeensuccessfulinattractingalargeproportionofthe region’slogisticsproviderstoestablishoperationson-airport.Theseairportshaveahigher proportionofcargosheds,whichreducestheoverallbenchmark.

Thecargoshedoccupiesasitewhichmayberequiredforthefutureexpansionofthe NorthTerminal.Acquisitionmaybeaconsiderationdependentuponwhichterminal expansionoptionispursuedbyGAL.

Fig 1.17 Source: SEGRO letting brochure Gatwick Airport -Second Runway Facility Requirements 16 Market Analysis –Industrial -Supply

The total existing industrial accommodation at Gatwick (on-airport) is 191,647 sq ft. There is limited vacancy at the airport. this excludes the ramp accommodation located within the ramp level of the terminals and the temporary accommodation in the north west zone. Gatwick industrial building comprise dated motor vehicle workshops in the north zone and the Northgate building near the northern terminal which is currently used by contractors, to the south various workshops and small workshops are located along the southern perimeter read. On-airport industrial occupiers predominately comprise airline and airport contractors. A significant proportion of these require a facility on-airport. However, many airport service providers base their operations in Manor Royal where rents are between 15–25% less than comparable industrial buildings on-airport. As a result of the substantial rental savings offered off-airport, only those occupiers who undertake operations that have a time sensitive function to airport customers base their operations on-airport.

Area Tenanted Area Vacant Area GAL % GAL Demise Area (sq ft) % Tenanted % Vacant (inc GAL) (sq ft) (sq ft) Occupied (sq ft) Occupied

Building 583 D 7,013 7,013 100% 0 0% 0 0% Ex-Dunlop Building 5,587 5,587 100% 0 0% 0 0% MT Snowbase 20,647 20,674 100% 0 0% 0 0% TBU3 13,764 0 0% 13,764 0% 0 0% Building 583 A 5,117 5,117 100% 0 0% 0 0% Destinations 1,034 1,034 100% 0 0% 1,034 100% Place 583B 6,293 6,293 100% 0 0% 2,144 34% 583C 6,293 6,293 100% 0 0% 5,951 95% Forecourt South Terminal 743 743 100% 0 0% 743 100% portacabin AOSU 7,236 7,236 100% 0 0% 7,236 100% AGL 5,613 5,613 100% 0 0% 5,613 100% Building 702 14,917 14,917 100% 0 0% 14,917 100% Building 701 6,648 6,648 100% 0 0% 6,648 100% View Point 21,935 21,935 100% 0 0% 2,780 13% MT Building 68,807 68,807 100% 0 0% 27,523 40% Atlantic House 7,500 7,500 100% 0 0% 0 0% Total 199,147 185,410 - 13,764 - 74,589 -

Fig 1.18 Source: GAL

Gatwick Airport -Second Runway Facility Requirements 17 Industrial Locations

Northgate

TBU3

TBF Corrall Area

Cargo Building (part)

GAL Vehicle Facility

MT Snowbase

Viewpoint Building 583A

Building 583D Ex Dunlop Building

Fig 1.19 Source: GAL / Google Maps Gatwick Airport -Second Runway Facility Requirements 18 Market Analysis –Hangar

TheAirportcurrentlyhasthreehangars.TheremainingBAhangar(locatedonBA‘sgroundlease)andtheVirginhangarareusedforthemaintenance,repair,andoverhaulofaircraft. Hangar1isusedbyBAforgroundsupport.BAisexpectedtosurrenderthisleasein2013anddemolishthebuilding.Thishangaristhereforeassumednottoformpartoftheindustrial accommodationon-airport. OurreviewofhangarsatUKairportshasconcludedthatthereislittlecorrelationbetweenpassengergrowthandhangardemand.Analysiscanbeskewedbythedevelopmentof MaintenanceRepairandOverhaul(MRO)facilitiesorlargenumbersofprivatehangars.

Gatwick Airport Airport Hangarage Site Area Pax Paxper estimate 2012 sq ft Building Total Area (sq Area Occupied SiteArea (Million) m) (sq m) (Acres) Manchester 42,247 16 19.7 466

Hangar 6 7,850 7,850 11.9 Luton 54,869 20 9.6 175

VirginHangar 8,643 8,643 8.2 Stansted 43,800 17 17.5 400

Total 16,493 16,493 20.1 Newcastle 28,000 - 4.4 157

Gatwick Fig 1.20 Source: GAL 17,605 13.5 34.2 1943 Airport

Fig 1.21 Source: Deloitte Research

Inrecentyearstherehasbeenatrendforincreasingamountsofmajormaintenance,repairandoverhaul(MRO)tobecarriedoutintheUK.This“on-shoring”ofservicesisasaresultof inflationandwagegrowthinthefareastwherealargeproportionaircraftmaintenancehashistoricallybeenundertaken.Also,airlinesarelookingatthetotalcostofmajoraircraftworks includingtheamountof“downtime”thatincreasesflyingtheiraircrafttotheseregions.Also,thefareast’sgrowthinaircraftdeliverieshasoutpacedthedevelopmentofskillsintheregions. ThedemandfornewhangarsintheUKhaslargelybeenattributabletothesefactors

Weareawareofanumberof“live”opportunitiestodevelophangarsinthesoutheastofEngland.WearealsoawareGALhashadrecentdiscussionswithanumberofpartiesinterestedin developinghangarsattheAirport.

ConsideringthecostofleasinglandatGatwickandtheAirports’landingchargesbeinghigherrelativetoalternativelowercostsairportssuchasBigginHillorSouthend,itismorelikely demandwillbefromMROoperatorsservingtheGatwickairlinemarketthanfromoperatorsseektodevelophangarson-airportforthestorageofaircraft.

TheAirporthasthebenefitofasitethathasbeensetasideintheAirport’smasterplan,paralleltotherunwaytothenorthoftheAirport.Thissiteisideallylocatedforthisuse,remoteof othercommercialandpassengeroperationsandincloseproximitytoavailabletaxiways.

Gatwick Airport -Second Runway Facility Requirements 19 Hangar Locations

Virgin Hangar

Hangar 6

Fig 1.22 Source: GAL / Google Maps

Gatwick Airport -Second Runway Facility Requirements 20 Market Analysis -Car Rental

Car parking capacity requirements Thedemandforcarrentaldiffersbetweenairportsandisdependentuponarangeofinfluencing factors.Theseinclude: Passenger % of Private Car Rental Airport Numbers Transport Site Area • Passengerprofileincludingproportionofinboundvoutboundandpercentageoftransfer (millions) Use (acres)

passengers(greaterinboundincreasingcarrentaldemand) Gatwick 34.2 57.6% 5.50 • Availabilityofpublictransport(transportmodalsplit) Heathrow 70.0 58.9% 10.25 • Catchment’scarownership Stansted 17.5 50.9% 5.02 • Levelofoff-airportcarrentalcompetition Birmingham 8.9 79.2% 6.50 • Travelpattern(summerpeaksorconsistentdemand) Manchester 19.7 85.6% 6.50

ToforecastfuturedemandwehavecomparedtheAirportagainstotherUKairport’scarrental Edinburgh 9.4 64.0% 3.08 capacity.Todetermineanappropriatefuturedemandbenchmarkwehaveconsideredhowthe Figure1.23 Source: CAA and Deloitte Research Airportcomparestotheotherbenchmarkedairportswhenconsideringtheabovementioned demandfactors.

WeanticipatethatGatwick’sinternationalgrowthandincreasedproportionofinboundtrafficwill resultinahighergrowthindemandforcarrental.However,duetothewidervariationsbetween airportsandthecharacteristicsoutlinedaboveweconsiderthereistobeweakcorrelation betweenpassengernumbersandthesizeofthecarrentalfacilities.Thatsaidasinbound passengersgrowattheAirportdemandforcarrentalwillincrease.

Inthepast3-5years,airportshavemovedtowardsprovidingconsolidatedcarrentalfacilities. Thesetypicallyprovideformoreefficientusesofairportlandandhavereducedoperationalcost forthecarrentaloperators.In2009Edinburghdevelopeda12,464sqftbuildingoccupyinga siteof3.08acres.Thebalanceofthesiteincludesawashdownfacilityandparkingfor approximately400cars.Thefacilityisfullyletto8carrentaloperators.

Gatwick’sexistingcarrentalfacilitieslocatedtotheeastoftheSouthTerminalareoldanddated andnearingtheendoftheirusefullife.TheAirport’s“BeyondQ5”capitalbudgetidentifiesthe opportunitytodevelopaconsolidatedcarrentalfacility.Wewouldanticipatedemandfora similarconsolidatedcarrentalfacility.Typicallyairportsseektoco-locatecarrentalfacilities Fig 1.24 Edinburgh Airport Master plan remotefromtheterminalarea.Wewouldanticipatethatanewlocationwouldbeidentifiedthat wasequi-distantbetweenthethreeanticipatedterminals.

Gatwick Airport -Second Runway Facility Requirements 21 Market Analysis –Petrol Filling Stations Incorporating Convenience Stores

Airport petrol stations

Petrolstationsaretypicallyfoundatthemajorexitpointsofairports.Generallywelllocatedairportpetrol Petrol Station Number of PetrolStations Passenger Numbers (million) stationstradewellattributabletothecaptivemarketofbothpassengersandon-siteemployeeswhichthey serve. Heathrow Airport 8 70.0

Demandcomesfrompassengersexistingtheairportsbutisalsodependentuponlocation,and the Manchester Airport 2 19.7 amountofoff-airportmarkettheyalsoserve.WithintheAirport,petrolstationsarebettersituatedonthe roadexitingtheAirportasdemandisgreater.Passengersaremoreinclinedto“topup”theircaraftertheir Frankfurt Airport 2 57.5 holidayorabusinesstripthanonthewaytotheAirportduetotimepressuresandincreasedstresslevels. Also,departingairportpassengerareinclinedtoalsomakeuseoftheconvenience/retailoffering SchipholAmsterdam Airport 5 51.0

purchasingessentialsupplies(milk,breadetc.)afterbeingawayforaperiodoftime. Fig 1.26 Source: Deloitte Research Gatwick petrol filling stations GAL Ground Lease Gatwickhastwopetrolstationson-airport,onelocatedattheexitofthesouthterminalandanotherlocated Competing Petrol Stations ontheexitroadleavingtheNorthTerminal.AlsolocatedclosetotheAirportistwoadditionalpetrolfilling stations Texaco Petrol Filling Station Petrol Filling Petrol Station Description Total Area (sq m) Station

North Terminal Petrol Filling Station 8 pumpsand a convenience store 4,047 North Terminal 10 pumpsand a small convenience South Terminal Petrol Filling Station 3,133 Petrol Filling store Station Co-operative convenience store Texaco Petrol Filling Station 2,600 and car wash

Esso Petrol Filling Station small convenience store 2,200 South Terminal Petrol Filling Total 11,980 Station

Fig 1.25 Source: GAL and Deloitte Research Fig 1.27 Source: GAL / Google Maps

Gatwick Airport -Second Runway Facility Requirements 22 Market Analysis –Fast Food Restaurants

Fastfoodrestaurantsarealsotypicallyfoundatthemajorexitpointsofairports.Welllocatedrestaurantstypicallytradewellduetothecaptivemarketofbothpassengersandon-site employees.

Toincreasethecommercialappeal,fastfoodrestaurantsrequirealocationthatprovideseaseofaccesstopassingtraffic.Goodexposuretooff-airportarterialroadswillalsoincrease commercialviability.

Fast Food Restaurant Description Total Area (acres) A singlestorey building of McDonald’s drive approximately 1,759 sq ft, 0.50 through located on the easterly exit of the Airport Proposed fast food restaurant South Terminal Drive adjacentto the existing 1.47 Through Site McDonald’s. Proposed fast food restaurant North Terminal Drive adjacentto the existing Shell 1.00 Through Site Garage.

Fig 1.28 Source: GAL Proposed Fast Food Restaurant

Fast Food& Fast Food Numbers Passenger Numbers Convenience (million)

Heathrow Airport 4 70.0 Proposed Fast Food Restaurant Manchester Airport 1 19.7

Frankfurt Airport 2 57.5 McDonald’s

Munich Airport 3 38.4

Fig 1.29 Source: Deloitte Research

Fig 1.30 Source: GAL / Google Maps

Gatwick Airport -Second Runway Facility Requirements 23 Market Analysis –Ground Services and Ancillary Airside

Ground services and ancillary support areas

AreasusedforAirsideoperationsaccommodateabroadrangeofoccupiersforavarietyofairportrelatedfunctions.Thesecaninclude:

• Groundhandlers-storageoftugs,dollies,buses,trucksandcars

• Airlines–storageofaircraftstairs,push-backtractors,de-icingequipment,standbygenerators,watertanks,specialistaccesslifts,beltloaders,towbars

• Commonareas-cargobins

Airportsseektolicenceareasforindividualairportuserstostoretheirequipment,inordertoenablegoodestatemanagement.However,thiscanbechallengingasaresultofoperators preferredstoragelocationsandthesharingofequipment.

Areasrequiredtostoretimecriticalequipmenttoensuretheefficientturnaroundofaircraftareclosetotheaerobridgesandpiers.Thesearetypicallyoccupiedbystairsbaggageloaders, tugsandstandbygenerators.OtherareasusedforthelongertermstorageofcargobinsaretypicallyfoundinmoreremoteareasoftheAirport.

Theproportionofremotegatesatanairport(i.e.thosegatesnotservedbyaerobridges)willdeterminetheamountofairsidebuscarparkingareas.Wewouldanticipatethatabusparkwill berequiredforeachterminal,consideringtheanticipateddistancebetweentheproposedthirdterminalandtheexistingNorthandSouthTerminals.

Thefollowingareareasoccupiedairsideforancillaryandgroundserviceoperators.

Demise Area(acres)

Open Store (1) 0.66

Open Store (2) 0.30

Open Store (3) 0.29

Open Store (4) 0.25

Open Store (5) 0.85

Open Store (6) 0.25

Airfield Operations 0.53

Stillage Sites 0.58

Coach Park and De-Icing 1.10

BA Stillage/Tug& Dolly Site 0.98

BA De-Icing 0.37

Total 6.17 Fig 1.31 Source: GAL

Gatwick Airport -Second Runway Facility Requirements 24 Ground Services & Ancillary Airside Locations

Open Store (1)

Open Store (2)

BA De-Icing Open Store (3)

BA Stillage/Tug & Dolly Site Open Store (4)

Airfield Operations

Stillage Sites

Coach Park & De- Icing Open Store (5)

Open Store (6)

Fig 1.32 Source: Deloitte Research / Google Maps

Gatwick Airport -Second Runway Facility Requirements 25 Employment

Asapartofthebaselineassessmentwehavesorttounderstandbetterthecurrentemploymentnumbersbasedon-airport.Thisunderstandingoftheexistingon-airportemployment numbersprovidesinsightintohowon-airportfacilitiesarecurrentlybeingoccupiedandbywhom.Asasecondarybasisofcalculatingforecastfuturefacilitieswillemployacrosscheckwhich considersemploymentutilisationoffacilities.Thiscalculatestheforecastemploymentnumbersandforecastfacilitiestodeterminefutureemploymentutilisation(squaremetresper employees)asacrosschecktothecurrentutilisation.

GatwickAirportisoneofthemostsignificantemployersinthesub-regioncommonlyreferredtoastheGatwickDiamond.In2012GatwickundertookanEmploymentandTravelSurveyof employersandemployees.Thestudydeterminedthat21,000staffareemployedontheGatwickEstate.Baseduponasimilarsurveyundertakenin2008,thisrepresentsa7%declinefrom 22,711.Inthesametimeperiod,passengernumbersincreasedfrom34,162,014to34,218,668.

Thereareanumberofpotentialreasonsastowhyemploymentnumbershavedeclinedby7%whilstpassengernumbershavestayedbroadlythesameincluding:

• Employeesproductivityhasincreased,resultinginmorebeingdonebylesspeople; • Changesinhowpeoplework(workingfromhome,greateruseoftechnology),althoughwenotethatonly12%oftheworkforcehavethetypeofjobwherethislevelofflexibilitywouldbe possible.

Thereisalsothepotentialthatagreaterproportionofairportrelatedworkisbeingundertakenoff-airport. Gatwick Estate Employees

Other Passenger Car Park Hotel Services Operator 3% 8% Passenger 1% Services 2%

Cleaning Airline 4% 39% Contractor 4% Government Services 3% Retail 9%

Catering 5% Airline Handling Agent GAL 2008 9% Fig 1.34 Source: GAL Master plan 13%

Fig 1.33 Source: Deloitte Research Gatwick Airport -Second Runway Facility Requirements 26 Employment

TheEmploymentandTravelSurveyundertakenbyGatwickAirportestablishedthefollowing:

• ThetotalnumberofcompanieswithstaffwhoreporttoworkatGatwickis230comparedwith200in2008; • Therehasbeenanincreaseinstaffemployedinprofessionalandmanagementrolessince2008with13%ofstaffnowemployedinthesetypesofoccupation.Fewerstaffareemployed byairlinesandhandlingagents; • ThevastmajorityofGatwickemployeesworkshifts,althoughthishasdecreasedfrom88%to84%since2008.Manymorestaffnowworka4dayshiftpatternthanpreviously; • Therehasbeenanincreaseintheproportionofemployeesearningrelativelylowincomeswithanestimated25%ofpermanentemployeesearninglessthan£13,000ayearin2012.This is5%moreemployeeswhencomparedwith2008; • Gatwickemploysanolderworkforcethanwaspreviouslythecaseatthetimeofthelastsurvey.Now,morethanathirdofemployeesareover45.Theworkforceisalsopredominantly male(63%)andthisproportionhasgoneupsince2008.Themajorityofemployeesarewhite(86%)andthishasalsoincreased; • MorethanonethirdoftheworkforceatGatwickliveinCrawley;7%inHorley,and6%eachinBrightonandHorsham.Morethanhalfofallemployeesarefromthesetowns.

Thefindingsofthereporthighlightthatapproximately50%ofGatwick’semployeeslivewithin10milesof Gatwickandtwothirdstraveltoworkviacar. Place of Employment Use Class 2012 . South Terminal Office 37% Althoughthereisalimiteddataset(onlybeingabletocompare2008and2012)thesurveyhighlightshow North Terminal Office 19% theworkforceandthetypesofcompaniesbasedattheAirportischanging.Specifically,thereisan Concorde House Office 15% increasingnumberofprofessionalandmanagementroles.Also,thatairlinesandgroundhandlershave Jubilee House Office 11% reducedtheirworkforce.Webelievethismaybeasaresultofmarginpressuresandanoverallincreasein Atlantic House Office 3% efficienciesfromtheseAirportusers. Schlumberger House Office 2% Ashdown House Office 1% BasedupondiscussionwithManagementanddiscussionswithindustrystakeholdersitiswidelyconsidered World Cargo Centre (transit sheds) Cargo 1% thatthecurrentemploymentnumbersrepresentanefficientuseofresources. Maintenance Area Hangar 1% 1% Inaddition,thegrowthoftheAirportisexpectedtogenerateincreasedemploymentontheGatwickEstate. Control Tower (inc Control Tower Road) Operational 1% Thisgrowingworkforcewillincreasethedemandforfacilities.Asacrosschecktoourforecastingscenario Fuel Farm (Povey Cross) Operational wehaveconsideredthegrowthofemploymentandtheincreaseinfacilityrequirementsbaseduponaverage Airfield Ops Operational 1% airportworkspacerequirements. Other Other 7% Fig 1.35 Source: Deloitte Research

.

Gatwick Airport -Second Runway Facility Requirements 27 Key Drivers shaping future facility requirements

Gatwick Airport -Second Runway Facility Requirements -Working Draft 28 Airport Profile Impact of airlines on accommodation requirements

Introduction

ThekeydriversthatwillshapeGatwick’sfuturefacilityrequirementswillbedrivenbythetypeofairportGatwick currentlyisandhowitgrows.ThisisasaresultofthetypesofairlinesthatusetheAirportandthedestinations theyserve.AsaresultitisimportanttounderstandtheAirport’sairlines,theirpassengers,andtheAirport’s passengerprofile.

GatwickistheUK’ssecondbusiestairport,withanincreaseof1.7%passengersbetween2012and2011.It offersmoretraveldestinationsthananyotherLondon-airportservicingthecatchmentofLondonandtheSouth East.Inthepastyear,over3.2millionpassengerstravelledtoEuropeanandNorthAfricandestinations.Oneof Gatwick’sstrengthsisitsrangeofairlineservicesandroutes. TheAirportisnowservedbymorethan70 regularlyoperatingairlinestravellingtoover199destinations.ThisishigherthanHeathrow’soffering.

Thetypesofairlinesoperatingfromanairportandthenumberandtypeofroutesofferedwillimpacttheamount ofaccommodationandtypeoffacilitiestheyrequire.Anairlinewithgreaternumberofaircraftbasedatanairport aremorelikelytoneedgreateramountsofaccommodation.Suchaccommodationmayincludeofficespace, Figure 2.02: Source: GAL Master plan lounges,stafftrainingfacilitiesandmaintenance.

TypicallylegacycarrierssuchasBritishAirwaysandVirginAtlanticarelargerusersofairportaccommodationas aresultofprovidingawiderrangeofservicesandamenitiestotheirpassengersandstaff.ConverselyLowCost Carriers(LCCs)minimisetheiron-airportfacilitiespreferringtolocatebackofofficefunctionsandcrewreportoff- Airline Profile (2012) airportatlocationswithlowerrentals.Also,thetypeoffacilitiesLCCsrequirearefeweraslessservicesare providedtopassengers.However,thisischanging,Easyjetisnowservinglargernumbersofbusinesstravellers EasyJetnowservesmorethan100routesfromGatwick,theairline’s whodemandappropriateamenities largestbase,whereits14millionpassengersperannumaccountedfor 38%oftheAirport’syearlytotalin2012/2013.Thisincludesmorethan Airline % of total Airline % of total twomillionbusinesstravellers,puttingEasyJetfirmlyaheadofGatwick’s EasyJet 38% Ryanair 5% nextlargestairline,BritishAirways,whose4.5millionpassengers

British Airways 14% Norwegian Air 3% accountedfor14%ofthetotalpassengertraffic.

Thomsonfly 9% Aer Lingus 2% Themajorityofpassengersaretypicallyshort-haulroutestodestinations intheUKandEurope,althoughanumberoflong-hauldestinationssuch Monarch 6% Emirates 2% asOrlando,DubaiandSharmElSheikhareamongGatwick’sbusiest Thomas Cook 6% Other 9% longhaulservices. Virgin Atlantic 5% Figure 2.01 : Source: GAL Master plan

Gatwick Airport -Second Runway Facility Requirements 29 Route Development Changing profile of airlines and routes

ForecastpassengergrowthintheSouthEastoftheUKisanticipatedtoputexistingrunwaycapacity Gatwick Slot Availability (Departures) underincreasingpressure.TheconstructionofasecondrunwayatGatwickwillalleviatesomeofthis pressureandenabletheAirporttoincreasethenumberofdestinationsitserves.

AlreadyGatwickisseekingtoattractmorelong-haulflightswhichtypicallygenerategreaterfacility requirements.Attractingnewairlinesisdependentuponthefollowing:

§ Catchment;

§ Capacity(slotavailability);

§ Connectivity(destinationandsurfaceaccess)

§ Airportcharges; Figure 2.03 : Source: GAL Master plan § Alternativeairports;and Heathrow Slot Availability (Departures) § PerceivedprofileoftheAirport

Gatwickhasanattractivecatchmentbeinglocatedinanaffluentareawherepeoplehaveahigh propensitytotravel.ItiswidelyconsideredtobeEurope’sstrongestcatchmentareawithover15million peopleresidingwithin1hourdrive.Also44%ofGatwick’scatchmentisinthehighestsocioeconomic groupAB1.

TheCAAreportsthatdespitethecurrenteconomicuncertaintyintheUKandEurope,growthelsewhere intheworldisforecasttostimulatesignificantgrowthindemandforaviationoverthenext20years. WhileLondoniswellconnectednow,capacityconstraintswillincreasinglyshapenetworkconfiguration byreinforcingthetrendtowardsfocusingonthemostprofitable,high-yieldroutes.

Gatwickhascapacityinnon-peakperiodsandcanthereforeattractairlinesthatwanttoexpandinto London. Figure 2.04 : Source: GAL Master plan GatwickprovidesthelargestnumberofdestinationsofanyLondonairport,includingextensivedomestic andEuropeanconnectionsavailableonawiderangeofairlines.TheAirportprovidesconnectionstoall ofthetop10domesticdestinationsfromLondon,havinga41%marketshareandprovidestwiceas manydestinationsasLHR.

Gatwick Airport -Second Runway Facility Requirements 30 Route Development Changing profile of airlines and routes TheamountofcommercialspacetakenbytheseairlinesattheAirportisminimal.However asAlliancessuchasStarAllianceorStarTeamestablishthemselvesandachieveacritical Profile masswewouldexpecttoseeadditionalfacilitiesbeingrequired.

ThetypeofdestinationsandtheAirport’sexistingairlineswillshapetheprofileoftheAirport. AsGatwickmovestowardsservinggreaternumbersofAsianmarketsandotherlonghaul Thatprofilemaytheninturninfluencethedecisionmakingofotherairlinesorbusinessesto destinationsthenumberofairlinesoperatingfromtheAirportwillgrowaswillexistingairlines locatethere. astheiroperationsincrease.

TheperceptionofGatwickasapurelyleisureairportischanging.GALhasinvestedheavilyin Brandisimportanttoairlinesandtheyliketomaintaintheirownidentityinthespacethey itsinfrastructureandfacilitiestosignificantlyimprovepassengerexperience. Themarket occupy.Airlinessignupforslotsperseason,i.e.ona6-monthlybasis.Theleasetermsfor perceptionisnowthatGatwickisconsideredmore“businesstravelfriendly”andhas accommodationthereforeneedtomatchthis.Whilstthisprovidesflexibilityfortheairlinesit appropriatefacilitiestosupportlong-haulflights. Asagreaternumberoflonghaul meanssecurityofincomeforGatwickislimited. destinationsareservedbytheAirportthepassengerprofileisexpectedtochangeandsoto Outlook thefacilitiestheydemand. TheGlobalairlineindustryisgraduallyrecovering.However,thetradingconditionsbetween TodevelopbusinesstravelfromtheAirporttherightdestinationsandappropriatefrequency regionsandairlinesdiffers.Similarly,theperformanceofthethreeairportsinthesoutheast needtobeofferedbytheairlines.Associatedbusinessfacilitiesandsurfaceconnectivityare oftheUKdifferssignificantly.Heathrowexperiencedminordecreasesinpassengernumbers alsoessential. throughouttheeconomicdownturn.PassengerdeclinewasgreateratStanstedandGatwick, Passengersarethefocusforairlinesandthequalityoffacilitiesandinfrastructuretosupport howeverGatwickhasimprovedsignificantlytobeinlinewithhistoricalthroughputnumbers. theirbusinessisthereforekey.ThisrequiresanAirporttobeabletomeettheairlines’ Stansted'sperformanceandpassengernumbershavecontinuestodeclinewhilsttheother requirements.Ideallythisrequiresairportstoalwayshaveavailablefacilitiesasairlines twosoutheastairporthaveimproved.Basedupondiscussionswithmanagement,evenin commenceoperationsfromanairport.Thistypicallyleadstoanaturallevelofavailablesupply thesetestingtimesGatwickhasgrownpassengernumbersbutfacescontinuingchallenges inanairport’spropertyportfolio. withairlinesreducingservicesfromtheAirportandanumberofairlinesinfinancial problems. Recent Airline Development at Gatwick Gatwickcontinuestopromoteitselfandisconfidentmoreairlineswillbesecured. In GAL’smanagementhasfocusedonimprovingthefacilitiesandpublicperceptionofthe particular,withincreasingtraffictoAsiaitishopedthatUSairlineswillbeattractedoncethe Airport.Thistogetherwiththerecentchangeinlandingcharges,offeringfreelandingsinoff economyrecovers. Asmoreairlinesareattractedthiswillstarttocreatebehavioursthat peaktimeshasresultedintheAirportsecuringanumberofnewairlinesofferingarangeof reinforceGatwickasLondon’sairportofchoice. newroutes.ManyoftheseareAsianairlines–Vietnam,KoreanAir,–reflecttheareasof globaleconomicgrowthandpassengergrowth.Inaddition,thetimingoftheavailableslots Gatwick’sforecastpassengergrowthwhichisoutlinedinthefollowingsectionofthisreport areidealforAsianoutboundandinboundflights.TheAirportwouldappeartohaveovercome highlightshowthepassengerprofilewillchangeasaresultofanincreaseinlonghaul acredibility“hump”andasaresultoftheserecentcommitmentsotherairlinesareexpectedto destinationsbeingservedfromtheAirport. announcethecommencementofoperations.Itisalsoimportanttonotethehighgrowthrates However,passengergrowthandprofilearenottheonlydriversthatwillshapethetypesand ofthesenewerairlines,theeconomiestheyserviceandthepotentialfuturedemandthis quantumoffacilitiesrequiredattheAirport entails. Gatwick Airport -Second Runway Facility Requirements 31 Macroeconomic conditions

In addition to the factors previously outlined, the following are key drivers that we also consider will shape future facility requirements including:

• Macroeconomic conditions; • Market conditions; • Surrounding development pipeline;

The study period for the assessment of future facility requirements extends from 2013 to 2050. Macroeconomic forecasting is at best limited to the immediate future and is therefore challenging when considering this time horizon. Of relevance is the current macroeconomic outlook drawing on a consensus of differing views to be applied to our forecasting model. Included in Appendix B is a summary of the current macroeconomic outlook that we have considered. We have assumed that throughout the study period there will not be a significant economic correction, boom or recession. The likelihood of neither of these economic events occurring throughout such an extended time frame is unlikely.

Considering the cyclical nature of the global economics there is a higher probability that we may witness all three again between now and 2050. However, accurately timing the peaks and troughs of the economic cycle is impossible. As a result we have assumed a constant overall growth in line with Bank of England long term GDP growth forecasts, which are reflected in figure 2.05. These however only forecast to 2016. The long term real (excluding nominal growth) average GDP growth between 1948 and 2010 was 2.4%. We have assumed this growth rate would continue and therefore there is no explicit assumption of a reduced utilisation of existing stock, neither on-airport nor in the surrounding local markets.

”Cities have been responsible for 78pc of the UK’s economic growth over the last ten years”

GDP Growth Inflation % % 6.0 4.0 5.0 3.0 2.0 4.0 1.0 0.0 3.0 -1.0 2.0 -2.0 -3.0 1.0 -4.0 0.0 -5.0 -6.0 -1.0 -7.0 -2.0

Quarterly GDP growth Annual GDP growth RPI CPI

Fig 2.05 Source: Deloitte Research Fig 2.06 Source: Deloitte Research

Gatwick Airport -Second Runway Facility Requirements 32 Property market conditions

MarketConditions

TheannouncementthatUKGDPgrewbyafirstestimateof0.6%overQ22013cameaswelcomenewsaftergrowthofjust0.2%over2012asawhole.Deloitte’sCFOSurveyQ32013suggests thatoptimismhasrisenforthefifthconsecutivequarterwithCFO’sseeingfewerrisksintheglobaleconomyandgreateropportunitiesforexpansion.Thissitsalongsideanincreaseinoptimism regardingcompanies’ownprospectsandindicationsthatcreditisbothcheaperandmoreeasilyavailable.

OutsidetheLondonandsoutheastmarkettherecontinuestobeweaknessinoccupierdemandandareluctancetocommittoadditionalspace.Therecentimprovementinconsumerconfidence andimprovementineconomicfundamentalsisstilltotranslateintogrowthindemandforemploymentaccommodation.ThelocalmarketssurroundingtheAirportparticularly,Crawley,andHorley aretypifiedbysecondaryofficeandindustrialaccommodation.Broadlythemarketischaracterisedbyolderstylebuildingsandthemarketforthesepropertieshascontinuedtoexperience challengingoccupierdemandandlimitedinvestordemand.

Duetothelongtimehorizonassociatedwiththestudyperiodandthecyclicalnatureofthepropertymarket,thecurrentmarketconditionswillhavelimitedimpactonthelongtermdemandfor additionalfacilityrequirements.Areviewofeachmarketincludingoffice,industrial,hotels,petrolfillingstationsisincludedinAppendixB.

Property yields vs. swap rates % % Quarter-on-Quarter Total Return 8 %6.0 7.0 5.0 7 6.0 4.0 6 5.0 3.0 4.0 5 2.0 3.0 4 1.0 2.0 0.0 3 -1.0 1.0 2 -2.0 0.0 1 -3.0 -1.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 -2.0 Positive carry (RHS) Negative carry (RHS) All Property Industrial South East Office South East 5 year swap rate (LHS) All property initial yield (LHS) Figure 2.08 : Source: IPD Figure 2.07 : Source: Deloitte Research

Gatwick Airport -Second Runway Facility Requirements 33 Development Pipeline

Development Pipeline

Offices TotalofficestockinCrawleyisestimatedat4.9msqft,themajorityofwhichisconcentratedinManorRoyal. Developmenthasfallenawayduringthedownturn–theonlyschemetocompletesince2009wasthe speculative30,200sqftStJohn’sHouseinthetowncentrewhichcompletedinearly2012.Weestimatethat thetotalproposedofficeaccommodationindevelopmentpipelineis2.9msqft,howeverthevastmajorityof thisspaceisinthepre-applicationstage.

Availabilityroseinmid-2013toatotalofapproximately770,000sqftwhichrepresentsavacancyrateof 15.8%.However,themajorityofavailableunitsarepoorsecondhandunitswiththeprimeoffice accommodationincityplacenowfullylet.

Industrial TherehasbeennonewspeculativedevelopmentinCrawleyfor12yearsandthereforethemajorityofthe availablespaceisofolder,poorerqualitystock,muchofwhichisunlikelytobefitformodernoccupiers runninglogisticsrelatedoperations.Weestimatethatthetotalindustrialstockisapproximately9.1msqftand thatafurther2.7msqftofindustrialaccommodationiscurrentlyinvariousstagesofthedevelopmentpipeline.

Itisestimatedthatthecurrentvacancyratesarebetween2-3%(atotalofaround300,000sqftcurrentlyon themarket)whichrepresentsadecreasefrom5%in2012.Thisdemonstratesthecontinuedtakeupover recentmonths,withnonewsupplycomingonline.Inadditiontheavailabilityispredominantlyallsecondhand space,someofwhichisrefurbished.Howeveralargepartisstillundertenantcontrolandconsideredtobeof limitedquality.

Gatwick Airport -Second Runway Facility Requirements 34 Future Airport Consideration

Gatwick Airport -Second Runway Facility Requirements -Working Draft 35 Preferred Option

GALhaveidentifiedapreferredoptionforhowthenewrunwayscouldbeconfiguredandoperated.Thiswillgiverise toimplicationsforthefuturefacilitiesrequiredtosupporttheexpansion.

Option:IndependentMixedMode

TheOptioncomprisesasecondrunwaypositioned1,035mapartfromtheexistingrunway.Thismakesitpossibleto operatethetworunwaysin‘independentmixedmode’enablingflexibilityandcapacitytobemaximised. Itisestimatedthatcapacitycouldamountto95movementsperhour.Thiswouldequatetosome95mppa. Therunwayseparationandadditionalfacilitiestosupportthegreatercapacitywouldrequireland-taketobe increasedfurther.

Figure 3.01: Source: GAL submission to the Airports Commission

Gatwick Airport -Second Runway Facility Requirements 36 Introduction Passenger Numbers

Wehavebeenprovidedwithforecastpassengernumbersforthepreferred 2013 2030 2040 2050 scenario(Option). Forecast PAX 34,000,000 65,000,000 83,000,000 95,000,000 ThisforecastisbasedonthedesignoftheOption,reflectingtheseparationof Movements 240,000 405,000 496,000 560,000 therunwaysandtheoperationsconstraintsthisentails,togetherwiththe forecastairtrafficdemandforLondonandtheSouthEastoverthenext40 Figure 3.02: Source: GAL yearsandthegrowthGatwickwillsecure.

Wehaveusedtheforecasttoformthebasisofouranalysisoffuturefacility requirements,includingthetimingofphasingandquantumofspacerequiredto meetanticipateddemand.

Passenger Forecast PAX % of PAX Passenger Profile (Long Haul forecast) 100,000,000 40.00% 90,000,000 35.00% 80,000,000 30.00% 70,000,000 25.00% 60,000,000 20.00% 15.00% 50,000,000 Runway completion date 10.00% 40,000,000 5.00% 30,000,000 0.00%

Option 3 - PAX Option 3 - Long Haul Figure 3.03: Source: GAL Figure 3.04: Source: GAL

Gatwick Airport -Second Runway Facility Requirements 37 Forecast Scenario

Cargo Employment

Wehavebeenprovidedwith cargoforecastsuntil2050.Gatwick’scargovolumesare Wehavebeenprovidedwithforecastemploymentfiguresuntil2050.Thishasbeen forecasttogrowtoover1,070,000tonnesby2050.Thisisoverninetimesbiggerthan2012 estimatedbasedonhistoricalefficienciesandexpectedfutureefficienciesrelativetothe butstillsignificantlysmallerthanLHRtoday. appropriatedemanddrivers(e.g.passengervolumes,numberofflights).

Over95%ofcargotonnageisprovidedbythelonghaulmarkets(outsideEU). Althoughtotalairporttrafficvolumesareforecasttoincreasebyover100%,thetotalnumber ofemployeesarenotforecasttoincreasebythesameproportionduetoefficiencygains.

2012 2030 3040 2050 2013 2030 2040 2050

Forecast Freight(Tonnes) 101,000 520,000 841,000 1,070,000 Forecast Employment 21,025 29,685 35,210 39,943

Figure 3.05: Source: GAL Figure 3.07: Source: GAL

Cargo Tonnage Forecasts On-airport employment

Tonnage 1,200,000 45,000

1,000,000 40,000

800,000 35,000

600,000 Sq ft 30,000

400,000 25,000

200,000 20,000

- 15,000 2013 2025 2030 2040 2050

Cargo… Employment

Figure 3.08: Source: GAL Figure 3.06: Source: GAL

Gatwick Airport -Second Runway Facility Requirements38 Forecast Scenario

Gatwick Airport -Second Runway Facility Requirements -Working Draft 39 Forecast Scenario Baseline assumptions

Theforecastingoffuturefacilityrequirementsisnotanexactscience.Thereareanumberofmaterialfactorsthatwillshapethefuturerequirementandthequantumrequired.An assessmentofthekeydriversandconstraintslikelytoshapethefuturefloorspacerequirementsissetoutintheprevioussections.

TherecommendationsoftheDaviesCommissionandresultingexpansionoftheSouthEast’sairportsislikelytohaveamaterialimpactonhowGatwickAirportisdeveloped.Additional capacitythroughtheconstructionofadditionalrunway(s)atbothoreitherHeathroworStanstedislikelytoresultinchangingtheforecastpassengergrowth.Itmayalsoinfluencethe destinationsandfunctionofGatwickAirportandthenbydefaultthepassengerprofile.IfforexampleHeathrowisnotexpandedthereisthepotentialforagreaterproportionoflonghauls tobeservedbyGatwickandasaresult,thepotentialforagreaterproportionoftransferpassengers.

Tocalculatethefuturerequirementsthereareanumberofbaseassumptionsthathavebeenemployedtominimisethenumberofvariables.Thestudyisbaseduponthefollowingsetof baseassumptions:

• GatwickwillformpartofaconstellationofairportsservingtheLondonmarket

• NoadditionalrunwaycapacitywillbedevelopedintheSouthEast

• GatwickAirport’scurrentPassengerprofiletoremainconstantbetween2013and2050andthereforethefollowingwillremainconstant:

• Pointtopointandtransfermix;

• Transportmodalspilt;

• Proportionofinboundvoutbound;

• PassengerforecastsarebasedonGALoutputs.

• CargothroughoutisforecastsarebasedonGALoutputs.

• On-airportjobgrowthisbaseduponadvicereceivedfromICFSH&E.

• Theproportionofairportrelatedusersoccupyingoff-airportfacilitiesisexpectedtoremainconstant.

• Newrequiredfacilitieswillbeincrementaldemand,i.ewehavenottakenintoaccountthedisplacementofexistingdevelopmentsasaresultofairportexpansion(e.g.CityPlace)

Gatwick Airport -Second Runway Facility Requirements 40 Methodology

Demandforkeyairport-relatedusesisdrivenbyairportactivity–i.e.passengernumbersandchangesinroutes/airlines.Theexistingamountandqualityofspaceprovidedhasbeen benchmarkedagainstotherairport’sfacilityprovisiontodeterminefurtherdemandforadditionalspacewhichisexpectedtoberequiredasaresultofpassengergrowth.Thefollowinguses havebeenstudiedandthedetailedappraisalidentifyingfuturerequiredquantumissetoutinthefollowingpages:

• Airport-relatedoffices;

• Cargo;

• Hangars;

• Industrial; Industry • CarParking(retailandstaff); Benchmarks • Hotels;and •Analysed current supply •Forecast future demand based •Reviewed comparable airport upon forecast passenger numbers •Determined current occupancy facility supply •Identified development pipeline and or cargo tonnage •Determined benchmarks based • AncillaryGroundSupportandAirside. timing (future supply) •Identified future facility upon passenger numbers requirements •Compared benchmarks to Gatwick Inanalysingtheopportunitiesforeachofthesemarketswehaveundertakenthefollowingprocess: Current and Future Demand Forecastinghasbeenbaseduponapplyingbenchmarksonastraightlinebasisi.e. Future Supply aconsistentbenchmarkappliedforthelengthofthestudyThisrisksnottaking intoaccounthowtheAirportanditsusersarelikelytochangeovertime. The Airport’sforecastlonghaulgrowthislikelytochangethequantumofrequired facilities.However,thereisalsotheneedtotakeintoconsiderationairport occupiersincreasingtheirefficientuseofspace.Thisislikelytoreducetheirfacility requirements.

TocrosscheckourforecastscenariowehaveconsideredtheAirport’sforecast employeegrowthontheGatwickEstate.

Gatwick’sEmployeeSurveyprovidesthenumberofemployees,theirtypeofemploymentandtheirplaceofwork.Thisinformationprovidesanindicationofthecurrentworkspaceutilisationper employeepertypeofemployment(office,industrial).Theoutputsfromourbenchmarkscenarioforecastsarecrosscheckedagainstthefutureemploymentnumberstoensuretheworkspace utilisationisbroadlysimilar.

Thefollowingsetsoutthequantumofrequiredaccommodationpertypeandtheanticipateddeliveryortherequiredfacilitiesovertime.

Gatwick Airport -Second Runway Facility Requirements 41 Forecast–Airport-related Offices

ToforecastGatwick’sfutureofficeaccommodationrequirementswehaveconsideredthe supportingbenchmarksoftheotherairport’sofficeprovision.Wehavethencomparedthe previouslymentionedvariablefactorswhichshapeanairportsrequirementandcompared Office Outputs thosetoGatwick.ThisincludestherelativelyhighproportionofLCCairlinesandthe 2013 2030 2040 2050 Airport’sproximitytocompetingofficeaccommodation.Weareoftheviewthatour 34,000,000 65,000,000 83,000,000 95,000,000 Forecast PAX Numbers benchmarkof130–140passengerspersqftofofficeaccommodationisapplicableto Forecast Office Demand (per sq ft) 261,538 403,643 469,784 493,482 determinefutureofficerequirementattheAirport.Thisbenchmarkrangealsorecognises Forecast Employment forecast 18,502 24,853 29,680 32,900 thecurrenton-airportdemandandlevelofvacancywiththeexistingportfolio.

Employment Density (per sq ft) 14.1 16.2 15.8 15.0 ApplyingthistoGAL’sforecastpassengernumbersweestimatethatthereisnoneedfor Figure 4.01: Source: GAL and Deloitte Research additionalofficespaceuntilafter2020.Atthistimedemandwillexceedthecurrent availablesupply.However,theremainingusefullifeoftheexistingofficebuildingsandthe highlevelofobsolescerequiresconsiderationtobegiventohowbesttoprovidefor currentandfuturerequirements.Mostoftheexistingofficewillrequirereplacementinthe next10-15years.Therestillremainsanoversupplyofavailableofficeaccommodationon- airportofapproximately40,000sqft.Asaresultwedonotanticipateadditionaloffice Forecast Requirement for Office Space accommodationforairportrelatedusersbeingrequiredforanother7-8years. Employees 550,000 34,000 Inaddition,theconstructionofthesecondrunwaywillrequirelandwhichcurrently 500,000 32,000 incorporatestheCityPlaceofficedevelopmenttothesoutheastoftheAirport.This 450,000 30,000 togetherwithotherrequiredlandthatincorporatesofficedevelopmentwilldisplace 28,000 occupiersofapproximately1,000,000sqftofoffices.Thedisplacementoftheseoccupiers 400,000 26,000 hasthepotentialtosignificantlyincreasetherequirementforadditionalofficesbyasimilar 350,000 24,000 amount. 300,000 22,000 Airportrelatedofficedevelopmentwillideallybesituatedincloseproximitytoboththe 250,000 20,000 200,000 18,000 existingandfutureterminals.Thesearelikelytoattractapremiumasairportrelated occupiersseektobelocatedincloseproximitytokeyoperationalareasandarewillingto payarentalpremium.Othernon-airportrelatedoccupiersarelikelytobemoreattractedto OForecastption 3 Employment 3 officessituatedonsitesthatprovideeaseofaccesstotheSouthTerminal’srailwaystation andsiteswithgoodexposureandeaseofaccesstothearterialroadsattheentranceand Fig 4.02 Source: Deloitte Research exitsoftheAirportestate.

Gatwick Airport -Second Runway Facility Requirements 42 Forecast-Airport-related Office

550,000

500,000

450,000

400,000 ft

Sq 350,000

300,000

250,000

200,000

Fig 4.03 Source: Deloitte Research Supply Demand

Future Office Requirements Phasing of Delivery Forecast Forecast Years DateRequired Delivery (sq ft) Total (sq ft)

Existing Supply (sq ft) 293,319 7 2020 40,000 40,000

13 2026 40,000 80,000 Forecast Future Supply (sq ft) 200,000 16 2029 40,000 120,000

Total Supply (2050) (sq ft) 493,319 19 2032 40,000 160,000

No. of Office Buildings 5 25 2038 40,000 200,000

Fig 4.04 Source: Deloitte Research

Gatwick Airport -Second Runway Facility Requirements 43 Forecast–Hotels ToforecastGatwick’sfuturehotelrequirementswehaveconsideredthesupportingbenchmarksof otherairport’shotelprovision.Wehavethencomparedthepreviouslymentionedvariablefactors whichshapeanairport’srequirementandcomparedthosetoGatwick.Thisincludestherelatively Outputs highproportionofLCCairlinesandtheamountofoff-airporthotelcompetition.Baseduponour analysisweareoftheviewthatGatwick’sprofileissimilartoMunichandManchesterAirports. 2013 2030 2040 2050 Thereforeweconsiderabenchmarkof11,000–12,000passengersperhotelroomtobean 34,000,000 65,000,000 83,000,000 95,000,000 Forecast PAX Numbers appropriatebenchmarktobeappliedtodeterminefuturehoteldemandattheAirport. Forecast Forecast Hotel Demand (rooms) 2,957 5,217 6,783 7,565

Fig 4.05 Source: GAL and Deloitte Research Basedonourbenchmarkrangeofpassengersperbedroomandtheforecastedpassengernumbers thereislikelytobefuturedemandforahotelin2020.However,thisassumesthatoff-airportsupply doesnotincreaseatagreaterratethanon-airportrooms.

Forecast Requirement for Hotel Accommodation

Rooms Baseduponthisbenchmarkrangeby2014therewillbeanoversupplyof365bedrooms.However, ason-airporthotelsarelocatedinpreferablelocationscomparedtooff-airportcompetition,wewould 8,000 expectthatthroughyieldmanagementmarketpenetrationcouldbeincreasedtofilltheavailable 7,000 supply.Thiswouldhoweverreducetherevparoftheon-airporthotels.Anumberoffactorsmay 6,000 bringforwardthedemandforanadditionalhotelon-airportincluding: 5,000 • Proposedoff-airportdevelopmentdoesnotoccur 4,000 • Increasedearlydepartures 3,000 • Increasedtransferpassengers 2,000 • Increasedmarketpenetrationthoughimprovedyieldmanagement 1,000

- Inaddition,theconstructionofthesecondrunwaywillincorporatelandwhichhasfiveexistinghotels totalling566bedrooms.Therequireddemolitionofthesehotelswillbringforwardthehotel requirements.Wewouldanticipatethiswouldbepost 2021.TheAirportshouldseektoprovide Option 3 - Hotel Demand (forecast) availablelandsoastobeabletoincreasetherequirement(setoutinfigure4.05)byandadditional Fig 4.06 Source: Deloitte Research 328bedroomsassumingtheAirport’scurrentmarketshare. Airporthotelsbenefitfromproximitytoterminalareas.Wewouldrecommendlandbeing safeguardedadjacenttothenewterminalfor4-5*hotelsthatprovidedirectterminalaccess.Also, landbesetasidewithinwalkingdistancefromthenewterminalfor3*hotels.Consideringthelikely demandforbudgethotelswewouldsuggestlandforthesehotelsberemoteoftheterminaland locatedontheAirport’snewsouthernperimeter.

44 Gatwick Airport -Second Runway Facility Requirements Forecast-Hotels (Rooms)

8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 -

Fig 4.07 Source: Deloitte Research Supply Demand

Phasing of Delivery Future Hangar Requirements Forecast Forecast Years DateRequired Delivery (rooms) Total (rooms) 9 2022 500 500 Existing Supply (rooms) 3,483 13 2026 500 1,000 15 2028 500 1,500 17 2030 500 2,000 Forecast Future Supply (rooms) 4,082 19 2032 500 2,500 23 2036 500 3,000 Total Supply (2050) (rooms) 7,565 26 2039 500 3,500 30 2043 500 4,000 No. of Hotels 9 36 2049 82 4,082

Fig 4.08 Source: Deloitte Research

Gatwick Airport -Second Runway Facility Requirements 45 Forecast-Airport-related Cargo facilities

ToforecastGatwick’sfuturecargorequirementswehaveconsideredthesupportingbenchmarks Outputs ofotherairport’scargoprovision.Itisalsoimportanttonotethedistinctionbetweencargotransit 2013 2030 2040 2050 shedsandairportcargowarehouses.Ourforecastsarebasedupontransitshedsonly.Therefore,

Forecast Freight (Tonnes) 101,000 520,000 841,000 1,070,000 lessreliancehasbeenplaceduponthe benchmarksofairportssuchasManchesterandEast Forecast Forecast Cargo Demand (sq ft) 135,488 531,072 807,429 995,454 Midland.

TheforecastofcargotonnagereflectsthegrowthoftheAirport’slonghaulnetworks.Currentlythe Fig 4.09 Source: GAL and Deloitte Research Airport’sexistingtransitshedhaveavailabilitytoaccommodatetheimmediatefuturegrowthin cargothroughput.Materialgrowthincargodoesnotoccuruntilafterthesecondrunwayis constructed.After2025,cargogrowthaccelerateswhichresultsintheforecastdeliveryofan additional703,000sqft.

Thereareanumberofconsiderationsforthepotentiallocationthefuturetransitsheds.Principally Forecast Requirement for Transit Sheds thelocationofthefuturecargoapronswilldeterminethelocationofthetransitsheds.Thiswould

100,000 ideallybelocatedadjacenttotheexistingtransitsheds.However,thisareamayberequiredfor 90,000 futureterminalexpansion. 80,000 Theforecastsinfigure4.09onlyestimatetheAirport’sfuturetransitshedsrequirements. 70,000 Internationalairportstypicallyhaveasignificantelementofcargowarehousingon-airportwhich 60,000 serveasdistributionfacilitiesforthesurroundingmarket.Thefuturedevelopmentofnewand Sq ft 50,000 existingairportscommonlyincorporatesprovisionforlogistichubstoleveragetheconnectivitythe 40,000 30,000 airportprovidesandmeetoccupierdemand.Logisticcompaniesbenefitfromestablishing 20,000 distributionhubs,atorclosetoairports.DuetoGatwick’slimitedavailableland,meetingthis 10,000 demandhasnotbeenpossible.Historically,astheAirportgrewthedemandforcargo - warehousinghasbeenmetbytheexpansionofManorRoyal.

Option 3 - Cargo Demand (forecast)

Fig 4.10 Source: Deloitte Research

Gatwick Airport -Second Runway Facility Requirements 46 Forecast-Airport-related Cargo facilities

100,000 90,000 80,000 70,000 60,000 50,000 m 40,000 Sq 30,000 20,000 10,000 -

Supply Demand

Fig 4.11 Source: Deloitte Research

Phasing of Delivery Future Cargo Requirements Forecast Years DateRequired Delivery (sq ft) Total (sq ft) Forecast 15 2028 80,750 80,729 16 2029 80,750 161,459 Existing Supply (sq ft) 291,539 17 2030 80,750 242,188 18 2031 80,750 322,917 Forecast Future Supply (sq ft) 703,915 21 2034 80,750 403,646 24 2037 80,750 484,376 Total Supply (2050) (sq ft) 995,454 27 2040 80,750 565,105 30 2043 80,750 645,834 No. of Hangar Buildings 9 35 2048 58,081 703,915

Fig 4.12 Source: Deloitte Research Gatwick Airport -Second Runway Facility Requirements 47 Forecast -Airport-related Industrial Facilities

Comparatively,Gatwickhasaverylowamountofindustrialaccommodationcomparedtoother UKairports.ThiscanbeattributabletothecloseproximityofManorRoyal,whichhasa significantproportionofairport-relatedindustrialoccupiers.Asaresultwehaveanalysedthe Outputs localindustrialmarketconditionsinordertoarriveatourbenchmarksandtherelated 2013 2030 2040 2050 commentaryinincludedinAppendixB. 34,000,000 65,000,000 83,000,000 95,000,000 Forecast Forecast PAX Numbers Thereislimitedavailableindustrialaccommodationthatisfitforpurposeon-airport.Alarge Forecast Industrial Demand proportionoftheindustrialaccommodationonairportisnearingtheendofitsusefuleconomic (sq ft) 226,667 358,076 424,044 449,193 andphysicallife.Thelifeexpectancyforbuildingsdoesvarydependingonthemaintenanceand Fig 4.13 Source: GAL and Deloitte Research refurbishmentineachcase.However,themajorityofbuildingsarenotfitforpurposeanditis worthconsideringwhetherthesebuildingsshouldberedevelopedinthenextfewyears.

TheAirport’srecentconstructionoftheViewpointbuildingismoreinlinewithmodernindustrial Forecast Requirement for Industrial Space facilitiesrequiredon-airport.Thesignificantdemandforthisbuildingsupportstheneedfor 500,000 additionalfitforpurposeindustrialaccommodation. 450,000 TheexpansionoftheAirportwillprovidetheopportunitytodevelopadditionalfitforpurpose 400,000 350,000 industrialaccommodationandbringaproportionofindustrialuses,currentlyoccupying33%of 300,000 ManorRoyal,on-airport.TheAirportsabilitytodevelopcosteffectivefitforpurpose ft 250,000 accommodationclosetokeyareasofoperationwilldeterminetheproportionofthemarketthey Sq 200,000 canbringon-airport. 150,000 Wecurrentlyareoftheviewthatthereislatentdemandforapproximately30,000sqftof 100,000 50,000 industrialaccommodation. - Baseduponthegrowthforecastweanticipateapproximately258,000sqftofindustrial accommodationwillberequiredon-airportbetween2014–2050.

Option 3 - Industrial Demand (forecast) Theconstructionofthesecondrunwaywillalsodisplaceapproximately3,000,000sqftof Fig 4.14 Source: Deloitte Research industrialaccommodationinManorRoyalandlandtothesouthoftheAirport’scurrentboundary. Baseduponsurroundingareasbeingoccupiedbyapproximately30%airportandtransport relatedusers,thisdisplacementwillcreatedemandforpotentially1,000,000sqftofindustrial accommodation.

On-airportindustrialaccommodationtypicallyoccupieslowvalueland,forexampletheNorth Zoneandthesouthernperimeterroad.WewouldsuggestthefurtherdevelopmentoftheNorth ZoneaswellandinfillsitesbetweentheSouthTerminalandthefutureterminaltothesouthas idealforfutureindustriallandareas.

Gatwick Airport -Second Runway Facility Requirements 48 Forecast -Airport-related Industrial Facilities

500,000 450,000 400,000 350,000 300,000 ft 250,000 Sq 200,000 150,000 100,000 50,000 -

Fig 4.15 Source: Deloitte Research Supply Demand

Phasing of Delivery Future Hangar Requirements Forecast Forecast Years DateRequired Delivery (sq ft) Total (sq ft) 1 2014 30,000 30,000 Existing Supply (sq ft) 191,647 2 2015 30,000 60,000 6 2019 30,000 90,000 Forecast Future Supply (sq ft) 257,546 13 2026 30,000 120,000 15 2028 30,000 150,000 Total Supply (2050) (sq ft) 449,193 17 2030 30,000 180,000 20 2033 30,000 210,000 No. of Industrial Buildings 9 24 2037 30,000 240,000 30 2043 17,546 257,546

Fig 4.16 Source: Deloitte Research

Gatwick Airport -Second Runway Facility Requirements 49 Forecast -Hangar Facilities OurreviewofhangarsatUKandinternationalairportshasconcludedthatthereislittle correlationbetweenpassengergrowthandhangardemand.Analysiscanbeskewedbythe developmentofMaintenanceRepairandOverhaul(MRO)facilitiesorlargenumbersofprivate hangars.Asakeyfactorthatwillshapetheamountofhangarageisthequantumofaircrafts Outputs basedatanairport.Thisisparticularlyrelevantwhenconsideringnationalcarriers. Pointto

2013 2030 2040 2050 pointairportswithlessbasedaircrafttendtohavelesshangars,whilsthub-airportstypically 34,000,000 65,000,000 83,000,000 95,000,000 Forecast Forecast PAX Numbers beingahomebasefornationalcarriershaveasignificantlygreaterdemandforhangarfacilities.

Forecast Hangar Demand (sq ft) 304,977 538,195 699,654 780,383 ThereareanumberofkeyconsiderationsthatwillshapethedemandforhangarageatGatwick including: Fig 4.17 Source: GAL and Deloitte Research • Numberofbasedaircraft • Numberofairlines • GrowthinUKMROmarket

Therearebroadlytwotypesofhangarswhichhaveverydifferentspecificationrequirements. Forecast Requirement for Hangar Accommodation Hangarsareeitherrequiredforthestorageofaircraftwhicharelowspecificationoralternatively Sq m 500,000 hangarsforMRO.Thesehangarsaretypicallyhighspecificationwithahighproportionoftenant 450,000 fitout.Hangardevelopmentistypicallyvery“lumpy”withlargedevelopmentsbeingundertaken 400,000 onapre-letbasis. 350,000 Whilstunabletodrawuponbenchmarkstoestablishaforecastdemandforhangarageatthe 300,000 250,000 Airport,thecurrentlevelofenquiresdirectlytomanagementtogetherwithourknowledgeofthe 200,000 currentlevelofmarketactivitynationallyindicatesastronglikelihoodofdevelopmentintheshort 150,000 tomediumterm. Weareoftheopinionthatthereisadequatedemandtoassumethe 100,000 developmentof twonewmaintenancehangarsintwostages.WewouldrecommendGAL 50,000 continuestopursuethisopportunity.Inthemediumtermweanticipateanadditionalfivehangars - wouldberequiredwhilstrecognisingnegotiationsfornewhangardevelopmenttypicallytakesa numberofyearsasaresultofthesignificantinvestmentrequiredbybothparties.

Option 3 - Industrial Demand (forecast) TheexpansionoftheNorthZoneadjacenttoandoppositetheexistingVirginhangarareideal Fig 4.18 Source: Deloitte Research locationsforadditionalhangars.Thesesitesareremotefromcommercialoperationsandbenefit fromexistingtaxiwaysandaprons.

Gatwick Airport -Second Runway Facility Requirements 50 Forecast -Hangar Facilities

900,000 800,000 700,000 600,000

ft 500,000

Sq 400,000 300,000 200,000 100,000 -

Fig 4.19 Source: Deloitte Research Supply Demand

Future Hangar Requirements Phasing of Delivery Forecast Forecast Years DateRequired Delivery (sq ft) Total (sq ft)

3 2016 91,500 91,493 Existing Supply (sq ft) 177,529 4 2017 91,500 182,986

9 2022 91,500 274,479 Forecast Future Supply (sq ft) 640,452 15 2028 91,500 365,973

Total Supply (2050) (sq ft) 817,981 18 2031 91,500 457,466

24 2037 91,500 548,959 No. of Hangar Buildings 7 31 2044 91,500 640,452

Fig 4.20 Source: Deloitte Research

Gatwick Airport -Second Runway Facility Requirements 51 Forecast -Car Rental Facilities

OurforecastsassumethattheAirportdevelopsaconsolidatedcarrentalfacilitiesinthe 2013 2030 2040 2050 next2-3years.ThisisbasedupontheAirport’scurrentCapitalplantodevelopafacility Pax– 34,000,000 65,000,000 83,000,000 95,000,000 inthenextquinquennium. Forecast Car Rental area 5.5 8 8 8 (acres) Factorsthatarelikelytoshapethedemandforlandareasdedicatedtocarrentalstorage includingcarrentalfacilitiesincludes:

1. Proportionofinboundvoutboundpassengers; Fig 4.21 Source: GAL and Deloitte Research 2. Numberofterminals;

3. Proximitybetweenterminalsandtheircarrentalfacilities;

4. Linkagesbetweentheterminals;and

5. theestablishmentofoff-airportbackupfacilities.

Thetimingofthefirstadditionalcarrentalfacilityislikelytocoincidewiththeopeningofa thirdterminal.OurforecastassumptionsarebaseduponGatwickconstructinganew terminalin2025andtheterminalrequiringanewcarrentalfacility.Thesededicated areasarerequiredforthetemporarystorageofcarandshouldbelocatedwithinan appropriatewalkingdistancetotheterminal.Also,carrentaldesksshouldbeprovided withintheterminallocatedincloseproximitytothepassengersexitfromCustomsorina highlyvisibleareaclosetotheterminalsexits.

Gatwick Airport -Second Runway Facility Requirements 52 Forecast -Petrol Filling Stations Incorporating Convenience Stores

ThereislimitedcorrelationbetweenthesizeoftheAirportandthenumberofpetrol 2013 2030 2040 2050 stations.Wewouldanticipatethatonepetrolstationpermajorairportexitwhichservesa Pax 34,000,000 65,000,000 83,000,000 95,000,000 terminalareaasbeingrequired.Factorsthatarelikelytoshapethedemandforpetrol Forecast Forecasted Number 2 3 4 4 stationsoratleastincreasetotalfuelthroughputtoinclude: of Petrol Stations

• Locationandproximityofcompetingpetrolstations Fig 4.22 Source: GAL and Deloitte Research • Locationofairportandproximitytomajorarterialroads

• Amountofnon-airportrelatedpassingtraffic

• Passengerprofileincludinginboundvoutboundandtransferpassengers

OurforecastassumptionsarebaseduponGatwickcontinuingtoprovide50%ofthe immediateareassupplyofpetrolstations.Alsothattheadditionalrequiredpetrolstations willbesimilartotheexistingformatofstationincorporatingasignificantelementretailin theformofalargeformatconveniencestore.

Thetimingofthefirstadditionalpetrolfillingstationislikelytocoincidewiththeopeningof anothermajoraccesspoint,leadingtoathirdterminal.

Gatwick Airport -Second Runway Facility Requirements 53 Forecast -Fast Food Restaurants

WeareawarethatanumberofpotentialdevelopershaveapproachedtheAirportto 2013 2030 2040 2050 constructtwonewfastfoodrestaurantsattheAirport.Specificallyamajorfastfood Pax 34,000,000 65,000,000 83,000,000 95,000,000 operatorareseekingtoleasethesiteadjacenttotheSouthTerminalservicestation Forecast Forecasted Number of 4 5 6 6 andanotherpopularfastfoodrestaurantchainareseekingtoleaseasiteadjacentto fast food restaurants theNorthTerminalpetrolstation.Thisdemonstrateslatentdemandfortwonewsites.

Fig 4.23 Source: GAL and Deloitte Research Factorsthatarelikelytoshapethedemandforfastfoodrestaurantsinclude:

• Locationandproximityofcompetingfastfoodrestaurants

• Locationofairportandproximitytomajorarterialroads

• Amountofnon-airportrelatedpassingtraffic

• ProportionofPAXusingprivatecars

LikepetrolstationsthenumberofmainentrypointstotheAirportwilldrivethelocation offastfoodoutlets,whicharetypicallysitedadjacenttopetrolstations.Thenumberof terminalsmayalsohaveabearingonoutletnumbers.

Intheeventthatagreementsaremadeforthetwopreviouslymentionedopportunities, weanticipatefurtherdemandforanadditional2-3fastfoodsites. Againwewould anticipatetherequirementforthefirstoutlettocoincidewiththeopeningofanew accesspointtothenewterminal.

Gatwick Airport -Second Runway Facility Requirements 54 Forecast -Ground Services and Ancillary Airside

Existinglandcurrentlydedicatedtothirdpartyuseforthestorageofgroundsupport 2013 2030 2040 2050 equipment(GSE)andancillaryequipmenthasbeenlimitedtolandleasedandnot Pax 34,000,000 65,000,000 83,000,000 95,000,000 areaseitherlicencedorusedonatemporarybasis.Alsowehaveexcludedairside Forecast GSE areas (acres) 6.17 10.88 14.15 15.78 areasusedbyairlinesforthestorageofequipmentclosetotheaerobridges.Asa result,ourforecastsshouldbeconsideredinthecontextofotherplannedairside operationalareasandtheavailabilityofapronandlandforthestorageofequipment. Fig 4.24 Source: GAL and Deloitte Research AnotherkeydriverforlandareaswillbedeterminedbytheAirport’spolicyonULD storageandhowwelltheairsideismanaged.Strictpoliciesaroundthestoragewill increasedemandfordedicatedULDareas.AlsoiftheAirportinvestsinmultiracked ULDfacilitieswithlowertherequirementsforlandtobesetasideforULDstorage.

AnothercontributingfactorthatcanshapedemandforGSEstorageisthelocationof airsideworkshops.Ifworkshopareasareremotefromareasofoperations,typically, airlinesandengineeringserviceproviderswithrequirestorageareasclosertothe aircraftsandkeyareasofoperations. Thefollowingisahighlevelindicationofthe anticipatedfuturelandareasrequirements.

Gatwick Airport -Second Runway Facility Requirements 55 Re-provision considerations

ThesizeofGatwickAirport,being1,665acres(674hectares),isrelativelysmallwhencomparedtoothersimilarairportswithpassengersof30m–45mperannum.Asaresultofthesite beingrelativelyconstrained,theAirporthasbeenrequiredtoprioritiselandforoperationalfacilityrequirementsanddirectairportrelatedfacilities.Asaresult,availablelandsurrounding GatwickhasbeentakenupbydevelopersthathaveconstructedfacilitiestomeetthedemandsofotherairportrelatedoccupiersthatprovideservicestotheAirportorbenefitinsomeway fromproximitytotheAirport.OfparticularnoteisManorRoyal,whichhasgrownaspassengernumbershaveincreasedattheAirport.

ManorRoyalcomprises593acres,ofwhichapproximately18%isusedforofficeaccommodation,77%ismanufacturingandindustriallanduseandasmallerbutimportantproportionof landisusedfornon-Bclassesincludingretail,cardealershipsandservicing,leisureandhotels.BaseduponDeloitteresearchweestimatethatapproximately30%ofalloccupiersare directlyrelatedtoGatwickAirportbeingaviationandortransportrelated.

CityPlacehasalsobeendevelopedtothesoutheastoftheAirport.ItwasinitiallydevelopedbytheformerownersoftheAirportandcurrentlycomprisesapproximately9acresofoffice park.Thefourofficebuildingscomprise300,000sqftandareoccupiedbyarangeoftenantsincludingNestle,BDO,SantanderandChapmanFreeborn.TenantsciteCityPlace’sproximity totheAirportasacontributingfactortotheirdecisiontobasetheiroperationswithintheEstate.

Theconstructionofthesecondrunwaycouldpotentiallyrequiretheacquisitionofapproximately2,588acresoflandtothesouthoftheAirport.Thiscouldpotentiallyresultinthe displacementofapproximately35%ofManorRoyal’slandareaandthewholeofCityPlace.Intotal,thereisestimatedtobeafurther3,000,000sqftofindustrialand1,000,000sqftofoffice accommodationwithinthewiderareathatisexpectedtobeacquiredforthesecondrunway.Withinthisarea,wealsoestimatethatapproximatelyfivehotelswillneedtobeacquired, comprisingcirca566rooms.

Existinghighlevelestimatessuggestthatcirca30%ofthefacilitiesthatarelocatedwithintheaffectedareawouldrequirealocationthatisinrelativeproximitytotheAirport.Intheabsence ofsignificantofficeandindustrialsupplyinthesurroundingregions,itislikelythatGALwouldneedtoconsiderre-provisionofindustrialandofficeaccommodationaspartofthe2nd runway proposals.Suchanapproachwoulddemonstratea‘solution’-basedattitudetowardsmitigatingthelocalimpactsofthe2nd runway.Itisalsolikelytogenerategreaterpoliticalsupportand reduceoppositionfromlocaloccupiers.On-sitere-provisionmayalsoprovideoperationalbenefitsfortheairport,wheretenantsformpartoftheairportsupplychain.Inaddition,re-provision throughthecreationofanairportinvestmentassetmayalsobemoreeconomicallybeneficialfortheairportthansinkingCPOcostsintooff-airportrelocations.

Re-provisionofaproportionoftheexistingaccommodationwouldclearlybeasignificantundertaking,butitprovidestheopportunityfortheAirporttoconsidernewandinnovative developmentstructures,whilstsolvingapotentialproblemthatwouldresultfromamajoracquisitionoflandtothesouthoftheAirport.Evermoreglobalairportsareexpectedtosafeguard developmentlandforairportrelatedoccupiers,duetothecommercialappealandthesynergiesthatco-locationatanairportprovides.Additionalbenefitsofon-airportdevelopmentinclude reducedenvironmentalimpactandenhancedcommercialreturns.Theseissuesareoutlinedfurtherinthefollowingpageandshouldbegivenfurtherconsiderationinthefutureplanningof theAirport.

.

Gatwick Airport -Second Runway Facility Requirements 56 Benefits of on-airport development

TheAirportestateisacomplexenvironment.Ideally,planningthedevelopmentorexpansionoftheAirportestatewouldseektodevelopallrequiredfacilitieson-airportinproximitytothe areasofoperation.Thepositioningoftherequiredfacilitiesshouldbeplannedtooptimisetheestatelayout,co-locatingfacilitiesandoccupiersthatprovidesynergiesandefficiencies.The developmentofairportrelatedfacilitiesbeinglocatedon-airportiscriticalforanairporttobeefficientandmeettheexpectationsofairportstakeholders.Also,on-airportdevelopmenthasa numberofbenefitswhichinclude:

• Reducingenvironmentalimpact; • Creatingoperationalefficiencies; • Enhancingcommercialreturn;and • Increasedcommercialdevelopment.

Minimisingenvironmentalimpact

Thedevelopmentofairportrelatedfacilitiesbeinglocatedoff-airportwouldresultinagreaterenvironmentalimpactthanon-airportdevelopment.Anyadverseimpacttotheenvironmentthat is(ideally)avoidableisexpectedtoresultingreaterresistancefromtheLocalPlanningAuthority(LPA).

Airportrelatedusersoccupyingoff-airportfacilitieswillgenerateincreasedtripgenerationontheroadnetworksurroundingtheAirport.Thiswouldincreasecongestionontheroadsand provideanadverseimpacttotheenvironmentwhichcouldbeavoidediflocatedon-airport.Theefficientsightingoffacilitieson-airportinproximitytotheusersareasofoperationwillreduce thistripgeneration.

CommercialBenefit

Thedevelopmentofon-airportfacilitiescreatescommercialbenefitfortheAirport.Iffacilitiesarenotprovidedon-airporttoservethedemandcreatedbytheAirport’sexpansion,developers andpropertyinvestorswillmeetthisdemandbylocatingthefacilitiesimmediatelyoff-airport.Typically,thisisinascloserproximitytotheAirportoperationsasiscommerciallyviable, resultingisalostopportunityfortheAirport.

Facilitiesdevelopedon-airportinproximitytoareasofoperationscreateefficienciesforairportusers.Thisoperationalbenefittranslatesintoapremiumbeingpaidforon-airportfacilitiesAsa resultarentalpremiumistypicallyfoundforon-airportaccommodationwhencomparedtocomparableoff-airportfacilities.Thispremiumtypicallydiminishesthefurtherawayfromthe operationallocation.AsaresultdevelopersaremotivatedtocreatefacilitiesasclosetotheAirportaspossible.

Also,ourresearchindicatesthatoccupancylevelsandleaseretentionratesarehigherforrealestateassetslocatedon-airport.Asaresultairportrelatedassetsattractapremiumfrom investors.Onalikeforlikebasiswewouldexpecttoseeon-airportassetstradingatapremiumtocomparableoff-airportassets.ThisprovidestheAirportwiththeopportunitytocapitaliseon thecaptivemarketofoccupierdemand,developfacilitiesandachieveassetpricepremiums.Thepotentialcommercialreturnswhichcanbederivedfromthesecommercialinitiativescan enhancetheAirport’sabilitytore-investproceedsintotheAirportoperationsorreturntoshareholders.

Gatwick Airport -Second Runway Facility Requirements 57 Benefits of on-airport development

Thereanumberofexamplesofdevelopmentoccurringimmediatelyoff-airportasaresultofAirportseithernotdevelopingfacilitiestomeetthedemandorduetolimitedavailabilityoflandor funding(e.g.OrlyAirportformspartoftheParisconstellationofairports).

Createoperationalefficiencies

Airportoccupiersrequireproximitytoareasofoperations.Thedevelopmentoffacilitiesclosetotheterminal,airsideaccesspoints,andthecustomerstheyserviceiscritical.Thecomplexity ofairportoperationsandthe“justintime”requirementsofairlinesandcargooperatorsrequiresfacilitiesbeprovidedon-airport.

Airportsarecompetitivemarketswhichrequireoperationsandtheinteractionofstakeholderstobelocatedincloseproximity.Operationallyitisessentialforairportrelatedfacilitiesrequired byairportstakeholderstobelocatedascloseaspracticallypossibletokeyoperationalareas.Also,theco-locationoffacilitieswhicharecomplementaryisessential.Forexample,cargo transitshedshouldbelocatedinproximitytocargoaprons.Accessforarticulatedlorriesshouldbeviadedicatedroadswhichareseparatedfromroadsfrequentedbypassengeraccessing carparksandtheterminals.

Increasedcommercialdevelopment

Theco-locationofcomplementarybusinesseson-airporthasthepotentialtoincreasetheviabilityofadditionaldevelopment.Thiscatalyticeffectofairportrelateddevelopmentislikelyto delivercriticalmassandincreasetheviabilityofserviceproviders’on-airport.Thisimprovestheservicesavailabletoemployeesandincreasesjobsatisfactionandproductivity.Bringing togetherclustersofcomplementaryserviceprovidersenablesthedevelopmentof,forexamplerestaurants,medicalfacilities,hairdressersanddrycleaners.Thiscanalsoresultinadditional environmentalbenefitsreducingstafftripsoff-airport.

Inaddition,beingincontrolofthedevelopmentoftheestateinwhichtheAirport’susersarebased,providestheopportunitytohaveapositiveimpactontheestatesenvironment.Itwillalso promoteandfacilitatethecreationofanairportcommunitywithcommongoalsandprioritiesthroughanalignmentofobjectivesandinitiativesfortheAirport’sestateanditscommunity.

Gatwick Airport -Second Runway Facility Requirements 58 Appendix A

Forecast Scenario GEA & Forecourt/Site Areas

Gatwick Airport -Second Runway Facility Requirements -Working Draft 59 Future Forecast Scenario

Forecast

Site/Forecourt Area GEA (Acres)

Office Requirements

Existing Supply (sq ft) 363,243 N/A Forecast Future Supply (2050) 247,880 N/A Total Supply (2050) (sq ft) 611,123 N/A No. of Hangar Buildings (2050) 6 N/A Hotel Requirements

Existing Supply (sq ft) 1,480,275 N/A Forecast Future Supply (2050) 1,734,942 7.0 Total Supply (2050) (sq ft) 3,215,217 N/A No. of Hangar Buildings (2050) 9 N/A Cargo Requirements

Existing Supply (sq ft) 291,539 19.12 Forecast Future Supply (2050) 703,915 46.17 Total Supply (2050) (sq ft) 995,454 65.29 No. of Hangar Buildings (2050) 9 9 Industrial Requirements

Existing Supply (sq ft) 201,733 11.58 Forecast Future Supply (2050) 252,858 15.56 Total Supply (2050) (sq ft) 454,592 27.14 No. of Hangar Buildings (2050) 9 9 Hangar Requirements

Existing Supply (sq ft) 177,529 10.19 Forecast Future Supply (2050) 640,452 36.76 Total Supply (2050) (sq ft) 817,981 46.95 No. of Hangar Buildings (2050) 7 7 Fig 6.01 Source: GAL and Deloitte Research

NIA = 15% deduction from GIA GIA = 5% deduction from GEA Gatwick Airport -Second Runway Facility Requirements 60 Appendix B

Market Commentary

Gatwick Airport -Second Runway Facility Requirements -Working Draft 61 Market Commentary UK Economy GDP Growth % 4.0 OfficialdatashowsthattheUKeconomicrecoveryhasgatheredmomentumduringthe 3.0 secondandthirdquarterswithGDPexpandingby0.6%,asignthattheUKeconomyis 2.0 1.0 movingintherightdirection.Recentsurveyshavereportedariseinbusinessconfidence,a 0.0 sharpincreaseinservicesectorgrowthandmoreoptimismsurroundingtheUKhousing -1.0 market. -2.0 -3.0 TheminutesfromMarkCarney’sfirstMonetaryPolicyCommitteemeetingindicatethat -4.0 -5.0 interestratesaretobeheldat0.5%anditisunlikelythatinterestrateswillriselaterthis -6.0 year.Thelevelofquantitativeeasingwillalsoremainunchangedat£375billion.Thebase -7.0 07 08 09 10 11 12 13 14 07 08 09 10 11 12 13 14 ratehasnowbeenheldat0.5%foroverfouryearsandthefirstriseininterestratesisnow 07 08 09 10 11 12 13 14 ------c c c c c c c c p p p p p p p p n n n n n n n n notexpecteduntilsummer2015. e e e e e e e e Ju Ju Ju Ju Ju Ju Ju Ju Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Se D Se D Se D Se D Se D Se D Se D Se D

Quarterly GDP growth Annual GDP growth Thefallinthevalueofsterlingsincethestartofthisyear,whileprovidingaboostto exporters,hasalsomeantthatinflationisunlikelytofallasfastaspreviouslypredicted.CPI Fig 7.01 Source: IPD and Deloitte Research rosefrom2.7%inMayto2.9%inJune,whichwasa14monthhigh.Thelatestmonthly comparisonofindependentforecastscompiledbyHMTreasuryexpectsCPIonlytofallto Inflation % 2.5%byQ42013,andjustfractionallylowerbyQ42014. 6.0 5.0

Totalemploymentisforecasttocontinuetoexpand,from29.5millionpeoplein2012, 4.0 accordingtotheOBR,to30.1millionby2015,andthisismatchedbyastable 3.0 unemploymentratewhichhasbeenhoveringaround4.8%ontheclaimantcountmeasure forthelastyear. 2.0 1.0

0.0

-1.0

-2.0 07 07 08 08 09 09 10 10 11 11 12 12 13 13 14 14 ------l l l l l l l l v v v v v v v v o o o o o o o o Ju Ju Ju Ju Ju Ju Ju Ju Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 N N N N N N N N RPI CPI

Fig 7.02 Source: IPD and Deloitte Research

Gatwick Airport -Second Runway Facility Requirements 62 Market Commentary Commercial Property Market Property yields vs. swap rates % % 8 6.0 Duringthefirstquarterof2013,allpropertytotalreturnswereup1.1%fromthe0.8%, 7 5.0 deliveredinthelastquarterof2012.Propertyequitiesreturned1.2%,narrowlyedgingdirect 4.0 6 commercialproperty,whileequitieshadastrongquarter,returning9.7%(MSCIUK).Bonds 3.0 returned1.0%(JPMorganUK7-10year). 5 2.0 4 1.0 UKpropertyvaluesroseforthesecondconsecutivemonthinJuneassentimentimproved 0.0 3 aroundthenascentUKeconomicrecovery.AccordingtotheIPDUKJunePropertyIndex, -1.0 capitalvaluesincreasedby0.2%,asthefractionalgrowththatemergedinMaygaineda 2 -2.0 littlemomentum.Totalreturnsroseto0.8%,thehighestmonthlyreturnsinceMarch2011. 1 -3.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

IPDdatashowsthatUKpropertyreturnsremainedsteadyinJuly,at0.8%,drivenby Positive carry (RHS) Negative carry (RHS) 5 year swap rate (LHS) All property initial yield (LHS) incomereturnsof0.6%.Fig5.04showstheIPDallpropertytotalreturnoverthepasttwelve months,whichstoodat1.9%asatJune2013. Fig 7.03 Source: Deloitte Research

Londonhasremainedthemaindriverofpropertyvalues,withthemajorityofregional Annual total Total return outlook returns % assetsstillseeingadeclineincapitalvalues.However,asconfidencehasreturnedtothe 25 marketoverthelastfewmonths,theseregionaldeclineshaveslowed. 20 15 TheimprovementsseenaroundtheUKhavebeeninpartduetoimprovingoccupier 10 demand.Wheretherehasbeendemandfromtenantsforspace,valuershaveupgraded 5 theiroutlook.IPDJune2013figuresindicatethatallpropertyheadlinerentalgrowthrose 0 0.1%,forthefirsttimesinceMay2011. -5 -10 -15 -20 -25 2003200420052006200720082009201020112012201320142015 IPD historic IPF consensus central forecast Range

Fig 7.04 Source: IPD

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