A new report from CBRE has said the Aberdeen office market continues to be affected by the oil and gas downturn, but also that activity is stirring again after a couple of speculative developments in the city centre.
In its latest Office Market Review, the property consultant said office space take-up in Europe’s energy capital during the first half of 2016 totalled 88,570sq ft, up 3% on a year ago.
But the Granite City market remains “subdued”, CBRE said, adding this was despite a recent rise in the Brent crude oil price from a low of about $20 per barrel in January to around $50 in June.
Oil prices are still a lot lower than two years ago, and the knock-on effect is that energy companies are continuing to reduce their costs and headcounts.
But there is still life in the local office market and CBRE said the main drivers were a mix of professional companies and government bodies.
It highlighted the AB1 building in Huntly Street securing tenancies from both the Department of Energy and Climate Change and Crown Office, and The Capitol’s top floor letting to PwC completing.
In another major boost for the sector, Aberdeen Journals – publisher of the P&J and Evening Express – has unveiled plans to move into the top floor of the £107million Marischal Square office development in Broad Street when it opens next year.
Derren McRae, managing director of CBRE in Aberdeen, said: “There has been steady recovery in oil price from the start of the year, however, the current pricing remains at a level where it is necessary for energy sector companies to continue to implement cost-cutting measures and reduce headcount.
“The office market has certainly shifted in the favour of the tenant but it is particularly encouraging to see activity in the new speculative city centre developments, with PwC committing to The Capitol and Aberdeen Journals announcing its intention to relocate operations to Marischal Square.”
CBRE said office availability increased to 2.25million sq ft during the first half of the year.
More than three-quarters (78%) of this was second-hand Grade B stock, with about 500,000sq ft of newly completed or under construction space also available.
“No further speculative office development will take place in the city until there is a positive upturn in the energy sector,” CBRE added.
It said prime rents in the city had remained at £32 per sq ft and headline rents were likely to stay at this level.
The firm also said rents were likely to fall in peripheral locations, while it expected incentive levels to increase across all office space as a result of “current office dynamics”.
CBRE said activity in the Aberdeen investment market slowed significantly in the first half of the year.
It added: “As well as the impact of lower oil prices, the market also faces challenges of weaker demand following the EU referendum, as well as concerns amongst some investors of the prospect of a second referendum on Scotland’s independence.
“Despite the clear headwinds, CBRE believes Aberdeen to be one of the only regional cities that can offer long-term income deals.”
The report said Granite City investors would continue to benefit from “guaranteed uplifts” throughout a spell of discounted pricing.
Elsewhere in Scotland, CBRE said first half office take-up in Edinburgh was up by 9.4%, compared with a year ago, at 451,390sq ft, while Glasgow enjoyed an “exceptional” 75% increase to 431,982sq ft.