Knight Frank report puts Aberdeen office market in the spotlight

Commercial property specialist Knight Frank believes learning from the experience of previous downward trends in the sector will be key to Aberdeen’s success in meeting the challenges of changing market conditions.

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The firm published its annual Aberdeen Office Market Activity Report today (Thursday, March 12) and highlighted the market’s direct correlation with the oil and gas industry in the north-east.

The study reveals the city recorded its highest ever annual take-up of office space, with transactions in 2014 totalling more than 1million sq ft and a new prime headline rent of £32 per sq ft also achieved. Investment deals were also at record levels and reached £641m, which accounted for 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 HQ building at Aberdeen International Business Park. The 335,000 sq ft property is at the heart of Abstract’s development of the Dyce park.

The decline in the oil price and tightening of belts within the energy sector is already impacting on requirements and Knight Frank is predicting significant change in 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 and therefore, coupled with subdued demand due to the low oil price, we would anticipate incentives and more attractive terms being available to prospective tenants.

“As a team, 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.”

The Knight Frank report estimates the total available office space at present in Aberdeen is 1.3m sq ft, comprising new stock and existing secondary office accommodation.

Eric Shearer, the partner specialising in investment within 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.

“I believe there is still huge value available for pension funds investing in Aberdeen. The city has for the last 20 years through three oil price crashes provided solid growth and exceptional returns. In very simple terms, you can now get a 20% higher return in Aberdeen than you can in other regional cities such as Manchester – plus great tenants and 20 year leases.”

Knight Frank has a full service offering in Aberdeen, with its agency team complementing the firm’s building consultancy, valuation and planning specialists.

Katherine Monro added: “Despite the concerns around supply and demand in Aberdeen in the current climate, there will still be movement. 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.

“The usual lease events and ongoing commercial requirements will continue to be a factor and that will ensure a flow of transactions. At Knight Frank we have strengthened our own team to meet the challenges head on.”

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