By approving the £18 billion ($22.5 billion; €21.2 billion) expansion of Heathrow Airport, the UK government ended, for now at least, a 70-year debate over whether or not to build a third runway.
The first proposal was drawn up in the aftermath of the Second World War and more than a dozen requests to expand the airport have since been rejected. But with Heathrow operating at nearly maximum capacity for the last decade, and the country suffering a tumultuous summer, it appears Prime Minister Theresa May has called time on the treatment of the third runway as a political football.
The move will create up to 180,000 jobs and £211 billion in economic regional benefits by 2050, according to the UK Airports Commission, which was set up to map out the future of Britain’s airports. The expansion has been welcomed by the business community and, while it may seem infrastructure is the obvious benefactor, there are huge potential benefits for real estate, too.
One London-based property agent, Lambert Smith Hamptons, has estimated that the planned third runway could boost commercial real estate values in the surrounding area by as much as £7.6 billion. The firm calculated that local property values may reach £18.3 billion in aggregate by the time construction is completed, a vast increase on current estimated values of £10.7 billion.
The consensus among UK real estate figures suggests retail and logistics will be the most obvious sectors to see early benefits, with Manish Chande, senior partner at London-based fund manager Clearbell Capital, stating that firms with huge logistics platforms, like Blackstone, would prosper.
David Sleath, chief executive of property developer Segro, echoed those sentiments, adding that the new runway would bring greater opportunities for businesses looking to connect with international trade markets, boosting demand for space.
Some firms, such as London-based office and logistics specialist Valor Real Estate Partners, which owns offices and logistics assets near Heathrow, have already publicly stated they are looking to invest in the area, while west London and The Square Mile are also projected to prosper.
One fly in the ointment is the impact on local residential property values from aircraft noise and the lengthy construction process. Yet some industry observers believe this to be a short-term issue, because the long-term benefits to office, retail and logistics assets will trickle through and eventually see affected house prices rise again.
Meanwhile, other factors are crucial to the project’s viability. Will Rowson, partner at real estate advisory firm Hodes Weill, warned that the government’s ability to connect the expanded airport to Crossrail 2 and HS2, the high-speed rail projects, would be critical to the project’s success or failure.
But despite calls from business to get shovels in the ground as soon as possible, a third runway would not be operational until 2025 at the earliest. Such a timetable would require construction to begin within the next five years, notwithstanding a potentially lengthy consultation process and Britain’s propensity to delay major infrastructure projects.
Some commentators have also speculated about the timing of such an announcement and whether it was a post-Brexit countermeasure, designed to give the country and the economy a much-needed turbo-charge and confidence boost. Other onlookers have even questioned whether the announcement would have been made at all had the electorate not voted for the UK to leave the EU.
Nevertheless, the decision to invest such vast sums on such a project completes a remarkable about-face by the Conservative government following almost a decade of austerity measures.
Heathrow bosses can expect a stream of legal challenges, including a joint appeal by environmental group Greenpeace and four London borough councils, situated under the flightpath, which also has the support of London Mayor and anti-expansion campaigner Sadiq Khan.
There is also a sense of history repeating itself. In 2010, when the UK government last approved a third runway, an appeal from a coalition including Greenpeace and local councils was upheld in the High Court. Lord Justice Carnwath ruled the decision to greenlight the project was “untenable in law and common sense,” adding that the government had failed to take into consideration its own climate change policy.
The difference between 2010 and today seems to be the economic and political context. Now there is a feeling that Britain’s ailing economy needs the new runway, whereas in 2010 the country merely wanted it.