Aberdeen’s transition from “North Sea oil town to global energy city” can help to offset the damaging impact of low crude prices on the Granite City, property giant CBRE says in a new report.
The document – Low Oil Prices and the Impacts on the Market in Aberdeen – follows a near halving of oil prices since June 2014.
According to CBRE, this is “potentially a positive situation” for many UK property markets but more challenging for Scotland’s third largest city after significant investment amid high oil prices from 2011 to 2014.
This period culminated in a record year of office take-up in Europe’s energy capital, with just over 1million square feet acquired for occupation during 2014.
CBRE says that while North Sea oil and gas production has been declining steadily in recent years, diversification continues to drive demand for commercial property.
Derren McRae, managing director of CBRE in Aberdeen, adds: “The previously high oil price has allowed the sector in Aberdeen to become more innovative, in particular with regard to the science and engineering required to explore and extract oil from harder to reach, deepwater reserves.
“This widening and enhancement of Aberdeen’s skills base has also allowed its oil sector to diversify beyond the immediate confines of the North Sea and provide world-class expertise for the sector, working on projects as far afield as west Africa and central Asia.
“In spite of a decline in indigenous production, the energy industry in Aberdeen has grown – leading to a surge in demand for office space and a rapid increase in prime rents.
“As a result of this shift in the status of Aberdeen from a North Sea oil town to a global energy city, it should be cushioned from some of the short-term impacts of a low oil price.”
Lower crude prices have only accelerated moves that were already under way to cut costs and overheads, Mr McRae says, adding: “This process began well before the price of oil began to fall.
“Current cost savings among occupiers follow many years of exuberance. Aberdeen’s position globally has changed and the sector locally has benefited from the diversification that has emerged.”
CBRE says Aberdeen had just over 540,000sq ft of available office space at the end of 2014 but only 27,000sq ft, or 5% of total availability, was new, ready-to-occupy Grade A accommodation.
The firm now expects “a more balanced market” to return following a spell of substantial under-supply, which drove up capital values and rents.
Mr McRae says: “Demand is likely to be driven by companies seeking to maximise the efficiency of the real estate they occupy, as well as mergers and acquisitions potentially triggering requirements.”