Project/Case Overview
Property Type
Airport-related Operational and Commercial Lease Portfolio
Client
Corporate / Listed Airline
Reason for Service
Market rental valuation and lease strategy review
The engagement was commissioned in the context of Qantas reviewing its aggregate occupancy costs, lease structures and rent setting outcomes and considering the extent to which current passing rents reflected market based outcomes in an environment characterised by limited competition and potential monopoly rent setting by airport lessors.
The instruction required not only the assessment of market rents for individual tenancies, but also a broader review of lease structures, rent review mechanisms, data integrity and the commercial logic for bulk letting and anchor tenant discounts.
Summary of Scope of Services
The first phase of the engagement involved a detailed review of Qantas’ tenancy schedules and associated lease documentation across all ports.
Classification of tenancies into five principal categories:
- Ground or Land Leases
- Car Parking Leases
- Built Form Leases
- DTL Leaseback Leases
- DTL Head Leases
The engagement also included:
- Physical inspections of selected premises (where access permitted)
- Disaggregation of aggregated leases to identify value driving metrics such as land area, building area, use type and car bay numbers
- Assessment of current passing rents relative to market rent
- Extensive analysis of off airport and on airport rental and sales evidence by use type and location
- Development and application of airport specific rental valuation guidelines, drawing on historic Federal Airports Corporation principles
- Consideration of bulk letting and anchor tenant discount logic at both 5% and 10% levels
- Commentary on the prospect of monopoly rent setting and non market lease terms
- Preparation of a comprehensive, audit ready spreadsheet model supporting all conclusions
Asset Overview
The portfolio comprises a diverse range of highly specialised assets, including ground and land leases, terminal and built form tenancies, car parking facilities, DTL leaseback arrangements and head leases supporting core airline operations. These assets operate within tightly controlled airport environments characterised by constrained supply, complex lease structures and non-traditional market conditions, necessitating a rigorous and tailored valuation approach.
Valuation Methodology
Given the unique characteristics of airport property markets, where the traditional conditions of a “pure market” are often absent, a tailored valuation framework was adopted.
- Primary reliance on off airport market evidence for comparable or surrogate uses, with on airport evidence used only where demonstrably market derived
- Use based rental benchmarking for specialised terminal uses such as lounges, check in counters, baggage handling areas, offices and storage
- Ground lease rentals assessed by reference to off airport land rentals and, where necessary, capital value based rental derivation
- Market rent assessed on an effective rent basis, with consideration of lease terms, outgoings recovery, incentives and constraints on assignment
- Explicit disregard of tenant funded buildings, fitouts and goodwill in determining market rent
- Sensitivity analysis for bulk letting and anchor tenant discounts reflecting prevailing market conditions
This engagement demonstrates Preston Rowe Paterson’s expertise in:
- Complex Portfolio Rental Valuation
- Airport and Infrastructure Real Estate Advisory
- Valuation led Commercial Strategy
- Market Rent Benchmarking and Risk Identification
- Strategic Occupancy Cost Optimisation
- Data Integrity and Lease Administration Advisory
We Deal with the Mainstream & Specialise in the Complex for all asset classes
