Building Near King Salman International Airport: Timing a Logistics Investment

An illustrative calculation for a warehouse built ahead of a new airport, showing how a slower ramp-up changes income, debt cover and the case for building early.

King Salman International Airport is a new airport being developed in Riyadh by a PIF-owned company, planned to become a major aviation and logistics hub for the city. Logistics and industrial land around it is attractive, but an asset built early has to carry its costs until the airport and its business activity ramp up. The illustrative example below shows how much the timing of that ramp-up matters.

The situation

An investor is considering building a logistics warehouse on land near the planned airport now, before operations are established, and wants to compare the income if demand arrives on time with the income if it arrives two years late.

Assumptions (illustrative)

• Assumed total development cost: SAR 20,000,000.
• Assumed rent at full occupancy: SAR 2,400,000 per year.
• Assumed operating costs not recovered from tenants: SAR 300,000 per year.
• Assumed on-time case: 40% occupancy in years 1 and 2, then 90% in years 3 to 5.
• Assumed late case: 40% occupancy in years 1 to 4, then 90% in year 5.
• Assumed debt: 60% of cost at 6% interest only, so SAR 12,000,000 borrowed.

Step 1: Net income at low occupancy

SAR 2,400,000 multiplied by 0.4 equals SAR 960,000; minus SAR 300,000 equals SAR 660,000 per year.

This is the income while the airport area is still building up.

Step 2: Net income at stabilised occupancy

SAR 2,400,000 multiplied by 0.9 equals SAR 2,160,000; minus SAR 300,000 equals SAR 1,860,000 per year.

This is the income the investment case is really built on.

Step 3: Five-year income, on-time case

SAR 660,000 multiplied by 2 equals SAR 1,320,000; SAR 1,860,000 multiplied by 3 equals SAR 5,580,000; total SAR 6,900,000.

If demand arrives when expected, early construction captures three stabilised years.

Step 4: Five-year income, late case

SAR 660,000 multiplied by 4 equals SAR 2,640,000; plus SAR 1,860,000 for year 5 equals SAR 4,500,000.

A two-year delay removes SAR 2,400,000, about 35% of the five-year income.

Step 5: Interest cover in the low years

SAR 12,000,000 multiplied by 0.06 equals SAR 720,000 of interest; SAR 660,000 minus SAR 720,000 equals a shortfall of SAR 60,000 a year.

At low occupancy, the building does not cover its interest, so the investor must fund the gap from other sources.

Step 6: Yield on cost

Low occupancy: SAR 660,000 divided by SAR 20,000,000 equals 3.3%. Stabilised: SAR 1,860,000 divided by SAR 20,000,000 equals 9.3%.

The stabilised yield looks strong, but the investor lives with 3.3% until demand arrives.

What changes the answer

• Pre-letting half the warehouse before construction would raise early occupancy and could remove the interest shortfall.
• Lower debt, for example 40% of cost, cuts interest to SAR 480,000 and leaves a surplus of SAR 180,000 even at low occupancy.
• Building in phases lets the second phase wait for evidence of demand.
• Holding the land and building later avoids the shortfall but risks losing tenants to earlier competitors.

What the numbers tell you

• Building ahead of a new airport is a bet on timing as much as on location.
• The early years must be financed on low-occupancy income, not on the stabilised yield.
• Pre-lets and phased construction reduce the cost of being early.
• Track the airport's official progress and tenant enquiries before committing each phase.

Limits of this example

Every figure above is an illustrative assumption used to show the method, not a quote, valuation or market rate. Costs, rates, fees and regulations change and must be confirmed with the relevant authority, lender or supplier before you commit.

If a Vision 2030 programme or market trend is shaping your investment case, Domira can test it against real land, construction costs and local demand in the city you are considering before you commit capital.