Real estate expert Peter Smith takes a look at factors that may have an impact on the property market in Scotland’s north-east this year.
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It is difficult to make predictions so I will stick to the safer ground of giving a view on some of the key factors which may affect the north-east property market in 2023.
While we wait for more positive outcomes of the energy transition, for now, the economy of the north-east remains firmly linked to the fortunes of the oil and gas industry. The sustained upturn in the oil price over the last couple of years has given the local economy a welcome bounce, which, for the property sector, brought an increased demand, driving both activity and prices across all sectors.
Knowing where you are going starts with where you have come from.
Demand for different types of property in Aberdeen
Office: Last year office take-up in Aberdeen increased to double that of 2021 levels, increasing from 189,000 sqft to almost 400,000 sqft. The flight to prime grade A space continued with both The Capitol and Silver Fin reaching capacity and only limited space now remaining at Marishcal Square. The west-end office market also saw an uptick in activity particularly property closer to Union Street. This included some speculative refurbishment of existing vacant offices, signalling increased confidence in the office market.
Industrial: Demand for industrial units also increased in 2022 across all the city’s main industrial and distribution centres and like the office market, good quality stock was most sought after, although speculative development was thin on the ground due to the overhang of vacant space.
Residential: The figures released by the Aberdeen Solicitors Property Centre for Q3 of 2022 showed an annual increase in property prices of 3.2% and a modest five year increase of 0.4%. “Location, location, location” continued to ring true and in some of the more popular suburbs demand outstripped supply.
Key property market factors to watch
While the north-east may have a micro-economy which orbits the energy industry, it is still affected by national and global economic and political forces.
The north-east economy relies on a thriving energy sector, which needs investment. Investor confidence in the industry has been harmed by the windfall tax, the Scottish Government’s recently announced position of a presumption against future oil and gas exploration and the spectre of IndyRef2. While the industry confronts the push of these factors, there is at the same time the pull of energy security, the predictions from the International Energy Agency of a 2023 global supply shortage, further licensing rounds for exploration in the UKCS and the opportunities which will come from the energy transition. How investors and the industry respond will affect almost all aspects of the economy in the north-east, including the supply and demand of property.
Buyer confidence is a key factor for the residential market. Inflation and interest rates will have a bearing on both the affordability and availability of mortgages, which will influence demand. With these factors in view, added to rising construction costs, several national house builders have already this year announced a more cautious approach to activity in 2023. Rent caps in Scotland, short-term letting licences and higher rates of the Additional Dwelling Supplement component of Land and Buildings Transaction Tax, will also reduce demand amongst private landlord buyers, likely slowing the market and potentially reducing the supply of new build stock. However, time will tell how and to what extent these factors are felt locally.
That’s my outlook for 2023. I intend to keep a close eye on the factors mentioned and while optimistic about the potential of a just energy transition and the Scottish Government’s commitment to making Aberdeen the “Net Zero Capital of the World”, I will also continue to have an obsessive interest in the price of a barrel of Brent Crude!
For expert legal advice, visit Shepherd & Wedderburn’s website.