Mongodb is best choice for this Geo spatial kind of operations using the same technique geohashing. But it is not supported for AppEngine. better go for Google Compute Engine. Create a Mongodb cluster. It is efficient way than using appengine both in terms of money, performance and development time.
I tried very hard to implement cost effective solution with optimized performance for my App backend on AppEngine. But it is not possible with it. I find It is good for static web pages and applications which don't include much data processing and analysis.
If you stick to geo model and app engine... get ready for the surprise of billing. Datastore indexing would explode because geomodel creates a ListProperty of geohashes and index it, with this if you want to include tags (ListProperty) for an entity. its indexing will burst. it includes huge writes for updating/crating an entity.
Save your time with my experience for Geo based applications.