A shortage of Grade A office space in Aberdeen is likely to worsen, according to a leading real estate firm.
Availability of Grade A offices continues to fall below 2% in the Granite City, with more take-up and change of use for existing stock.
Meanwhile, no new speculative development has further diminished supply.
Reports from Savills and Knight Frank show availability for best-in-class office accommodation in Aberdeen has remained at low levels since the start of the year.
Shortage of Aberdeen’s Grade A office space
Savills Aberdeen director Dan Smith says there is a similar shortage of Grade A office space in Edinburgh and Glasgow, but with different dynamics at play.
“There is very, very little Grade A space available in Aberdeen across the city at the moment,” he said. “We expect that to continue to get worse over the next little while.
“Everyone thinks with the Aberdeen market there is a massive oversupply.
“But if you go and look at the availability in the market and you actually go round some of these buildings, a lot of them are not fit for purpose.”
Mr Smith said some of the bigger, poor quality buildings in Aberdeen have been demolished.
“Because of the rates liabilities attached to buildings, it made more sense to demolish them than to have extensive holding costs for a vacant building that you had very little confidence of reletting,” he explained.
The Savills boss said the majority of companies seeking offices in Aberdeen now want better quality Grade A space.
Typically this means a new-build with air conditioning, raised floors, suspended ceilings, LED lighting and top-notch amenities. A good location, close to transport links is also important.
Viability is a real challenge
“Pretty much 95% of the requirements we are dealing with now are centred around good quality space with high energy performance ratings,” said Mr Smith.
“Whether that be to tick boxes from an ESG or sustainability perspective or to try and encourage staff to come back into the office.”
Meanwhile, with rising construction costs and more stringent regulatory requirements, there are few new commercial developments on the horizon.
“The whole development and viability piece is a real challenge for us,” he said.
“Aberdeen being Aberdeen… a developer looking at building anything would be looking at their exit and how that looks before they go and stick a spade in the ground.
“The way these properties are valued, we have seen the yields shift out pretty considerably over the last couple of years and at the same time as build costs have gone up.”
Lack of top quality stock
The current supply of Grade A office space is the lowest Savills has reported since opening its branch in Aberdeen 10 years ago.
With a lack of speculative build going on, Mr Smith doesn’t expect to see this change in the near future.
“The result is you are left in a situation where the good quality, existing stock is where all the demand is,” he added.
“The poor quality, older, dated office buildings are continuing to be repurposed.”
Ultimately, he expects the overall size of the office market will continue to shrink.
“That’s the reality. Hybrid working is not going to go away and the way in which people work is far more mobile,” he said.
“Obviously in Aberdeen you have got the downturn in the oil and gas sector.
“Renewable sector requirements tend not to be as people hungry as oil and gas organisations have been in the past.”
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