Aberdeen is well-placed to recover when the economy emerges from the extraordinary impact of the coronavirus and recent oil price crash which has delivered a double whammy for the commercial property market, according to global property consultancy Knight Frank.
Senior partner and head of Knight Frank’s Aberdeen office, Eric Shearer, said: “Heading into the second quarter of 2020, we have seen material impacts to global markets following the COVID-19 pandemic. Combining this with the oil price conflict between Saudi Arabia and Russia has resulted in a turbulent oil and gas market resulting in oil prices in March almost half what they were the previous month.
“This will clearly have an adverse impact on the local economy in the north east of Scotland and we have already seen an impact on decision making for commercial property in the region.”
However, Knight Frank Aberdeen expects, when the current crisis is behind us, that there will be pent-up demand for commercial property across all sectors, from both occupiers and investors. Prior to Covid19, they had recorded a steady increase in deals and enquiries across the market
Knight Frank Aberdeen launched its annual Commercial Property Market Report today (Thursday, April 2), looking back on what was an encouraging 2019, with strong occupational demand and an improving investment market following the election result.
Mr Shearer added: “Our latest report reflects the positive sentiment within the commercial property market prior to the outbreak. Whilst there is uncertainty in the market now, both oil and property markets have learned to innovate and adapt. “
“With a number of exciting public and private sector projects proceeding and an improving working environment, this should ensure that Aberdeen and Aberdeenshire’s commercial property market remains in shape.”
The annual market activity report highlights an increase in investor interest in the Aberdeen market which was showing encouraging signs of recovery from the last oil price crash in 2014.
Last year investment levels for the office and industrial sectors in Aberdeen held up. The total volume of transaction for the combined office and industrial sectors in 2019 was £185million, compared with £206million in 2018 across a similar number of transactions. The largest transactions in each sector occurred in the quarter four. LCN Capital Partners purchased Sir Ian Wood House and Aberdeen Standard Investments purchased Badentoy North at Portlethen, its first purchase in the Aberdeen area since the oil crash in 2014.
Total supply of office space in Aberdeen is currently sitting at 2.5million sq ft with the majority (44%) located in the city centre. Further speculative development was expected in 2020 prior to the coronavirus outbreak and it remains to be seen what the medium-term affect will be.
A key theme of last year in Aberdeen, and Scotland as a whole, was the large proportion of overseas buyers, with more than half of investment coming from international sources with particular interest in Aberdeen from the Middle East.
Despite the majority of demand for industrial space for sub-10,000sq ft properties, there were a number of larger transactions spread across Aberdeen’s industrial estates at Dyce, Altens, Bridge of Don and Westhill. Easier access in and out of the city via the new Western Peripheral Route has meant greater choice for occupiers. The main consideration derived from key transactions was that occupiers were prepared to pay for quality, choosing to occupy the best space, despite potential increases in cost.
Key deals in the past year have included Oceaneering committing to a sub-lease of 51,356sq ft from Aker Solutions at Aberdeen International Business Park in Dyce and oil producer TAQA taking 76,620sq ft at Prime Four Business Park in Kingswells.
The recovery of the occupational market continued in 2019. A total of 513,525sq ft of office space transacted during the year, an increase of 32% since 2018 and the highest annual take up since the oil crash of 2014.
Mr Shearer said: “Significantly, 2019 recorded the least volatility in oil prices for six years, meaning occupier’s having the confidence to make the moves that they needed to do. Clearly, since early March 2020 we have entered a period of crisis and uncertainty that no-one could have foreseen.
“It would be immensely helpful if Government was to extend the Business Rates holiday to all businesses, including office and industrial property occupiers, as they are also suffering significant falls in income.”