Aberdeen’s capacity for learning from past experience is key to it shaking off the challenges of the current oil and gas downturn, a new report from commercial property firm Knight Frank says.
The firm today unveils its latest Aberdeen Office Market Activity Report, which highlights how commercial property prospects in the Granite City are directly linked to the fortunes of the energy industry.
It shows Europe’s energy capital recorded its highest ever annual take-up of office space last year, with transactions totalling more than 1million square feet and a new prime headline rent of £32 per sq ft also achieved.
Investment deals were also at record level, reaching £641million in overall value – half of Scotland’s total for the year.
Significant milestones in the year included Scotland’s largest ever single office letting transaction, with Aker Solutions securing tenancy of its new headquarters at Aberdeen International Business Park. The 335,000sq ft property is at the heart of Abstract’s development of the Dyce park.
The decline in oil prices and a severe tightening of belts in the oil and gas industry is already impacting on office requirements, and Knight Frank is predicting significant change in local market conditions.
Katherine Monro, a partner in the firm’s Aberdeen office, said: “After years of restricted supply, Aberdeen now has a substantial development pipeline.
“Many of these projects are being built speculatively, potentially bringing record levels of available space.
“This is unusual for Aberdeen, which has always suffered from a lack of supply.
“Coupled with subdued demand due to the low oil price, we would anticipate incentives and more attractive terms being available to prospective tenants.”
She added: “We have experienced the cyclical nature of the oil and gas industry before and that teaches us that previous recovery periods have taken between 18 and 24 months.
“We have to be prepared for that and to weather what we expect to be a perfect storm of low demand and high supply in the current cycle.
“Our advice to occupier clients is that this is probably the optimum time to be considering moving offices as the deals available will be the best in a decade.”
Knight Frank’s report – launched at a business breakfast in the city this morning – estimates the total available office space in Aberdeen is currently 1.3million sq ft, comprising new stock and existing secondary office accommodation.
Eric Shearer, the partner specialising in investment in the Aberdeen office of Knight Frank, said: “From the earliest indicators of falling oil prices, we were prepared for decision-making to be influenced, particularly in the investment market, and we are seeing that now.
“For many investors, there is a wait-and-see approach, although others will consider this an opportune time to invest when there is less competition.
“There is still huge value available for pension funds investing in Aberdeen.
“You can get a 20% higher return here than you can in other regional cities such as Manchester, plus great tenants and 20-year leases.”