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Why air is becoming a hot investment
The questions of who owns the air above buildings has long been a hotly contested issue in metropolises like London, New York and Hong Kong.
But as rapid urbanisation takes hold, and the amount of available space shrinks, more cities are waking up to the value of their air.
Air rights – which allow for the control, use or occupation of the space above a property – are increasingly being explored as an option to unlock equity or expand development potential, says Tom Aylward, a manager in Melbourne sales and investments at JLL.
“With land values surging, developers are thinking more creatively about how they maximise value,” he says.
In Melbourne, Australia, where the rate of population growth is among the highest in the world, recent negotiations in the city indicate developers are increasingly turning their eyes to the sky.
Property group Golden Age struck a deal with retail specialist Vicinity Centres to purchase the air rights above The Glen Shopping Centre in suburban Melbourne.
It paved the way for a 555-apartment scheme called Sky Garden due for completion in 2021. The scheme is incorporated into a A$460 million upgrade of the retail precinct completed in 2019.
“Air rights are definitely something that residential and commercial developers are paying much more attention to than they have historically,” Aylward says. “Not least as it can unlock equity in one property, while expanding on the development potential of another.”
Thinking vertically
The concept of air rights – sometimes referred to as transferable-development rights – can be traced back to the ad coelum legal doctrine, which held that property owners had the rights to the land underneath them going all the way to hell, and the air above them going all the way to heaven.
Nowadays, it is commonly coming into play to develop the space above transport hubs, from Hudson Yards in New York, to Tower Bridge in London, and the Sydney Metro site in the city’s central business district.
While limits on the height and depth of air above cities can be imposed, the value of a slice of the sky is less clear cut.
“It’s difficult to determine or apply a flat rate to,” Aylward says. “It all comes down to the individual site feasibility. I might buy your air space, but can I realistically develop it? The cost of construction is a key consideration here.”
Air rights are not just for bricks and mortar development. Savvy owners are also using their air space to erect solar panels, telecommunication towers, and other hardware.
“We recently sold a property involving a billboard company leasing the air space above the building for $45,000 a year,” Aylward says. “You have a right to it, so you can lease it, assign or sell it. The air above your building or land has the potential to generate significant profit.”
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Redefining places
At Melbourne’s Sky Garden, Jeff Xu, managing director and founder of developer Golden Age, says the right to air space above commercially-zoned The Glen has allowed for a residential development with access to 4,000 square metres of landscaped open space, “previously unseen in traditional vertical developments.”
“Air rights have proved an effective tool in combating the urban sprawl of cities while also providing more competitively priced dwellings for buyers who want and need to be close to urban centres,” Xu says.
Air rights as a means to protect heritage
Development rights is also captured under the broad concept of air rights. Under this scheme, in cities including New York and Sydney, developers can purchase the ‘floor space’ of heritage buildings. Since heritage buildings cannot be redeveloped, the development rights can be banked and used to scale up developers’ properties elsewhere in the city. Meanwhile, the money raised generally funds the conservation of the heritage site.
At the Gallipoli Memorial Club, a heritage-listed building in Sydney, the unused development potential was purchased by AMP Capital in return for planning approval of its 200 metre-high Quay Quarter Tower, within the same precinct.
The modern arrangement of transferable heritage floor space supports Sydney’s global ambitions, says Richard Lawrie, Head of Office Valuations, Australia at JLL.
“Corporates are demanding buildings with large floorplates such as Quay Quarter Tower because it supports staff interaction and workspace efficiencies,” says Lawrie. “But under Sydney’s planning rules, these buildings cannot be developed to their highest and best use without an allocation of heritage floor space. It’s a system that helps the city maintain global standards while also unlocking revenue for heritage-listed buildings.”
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