An overview of the commercial property market in Aberdeen

During the past few decades, the commercial property market in Aberdeen has been marked by exceptional growth levels, which were mostly driven by the oil and gas industry. Since the local market was so dependent on this particular industry sector, many analysts expected that the global decline in oil prices would cause the commercial property market to plummet. However, and despite significant job losses and generally lower consumer confidence levels, the commercial property market in Aberdeen on the whole has proven to be resilient: in August 2015, the Scottish Property Federation revealed that activity levels in this market were at a record high, as the total value of the transactions carried out in the city in Q2 2015 alone amounted to £201 million. The best performing sectors were office and retail, although it is expected that in the medium term, the industrial property will experience a boost thanks to a large city deal.

Office space in Aberdeen

Market analysts at Cushman & Wakefield have summarised the key trends currently affecting the Aberdeen office property market:

• Long leases with built-in rental value increases seem to be norm across the city. This trend has helped protect the city's office market from drastic declines in average asking prices.
• Despite slower demand, the supply of office properties has remained rather stable thanks to the tendency to sign long leases when acquiring new office properties.
• Increasing demand from the professional services sector (in particular from the legal and accountancy sub-sectors) may help counter the downsizing trend now affecting office properties occupied by firms involved in oil and gas activities. Construction and engineering firms are also behind an increasing number of transactions in the city.
• Recent take-up levels mainly involved Grade A office space, although the amount of Grade B space being transacted has been steadily growing since Q4 2013.

Overall, headline rents for office properties in Aberdeen remain high, and at an average of £32 / square foot they are in fact among the highest in the country. Occupation applications for the Capitol office development began to be received in January 2016, helping Aberdeen's city centre solidify its position as one of the most in-demand areas as far as office space is involved. The new Capitol building will offer more than 74,000 square feet of premium and energy-efficient office space, with floor plates starting at 2,600 sq ft. This office development is expected to be completed by the end of Q1 this year.

Retail space in Aberdeen

Aberdeen's retail sector continues to perform well. The city's retail property market has been recently described as buoyant, particularly with regards to city centre properties, which are in high demand. Three large retail deals were closed during the first 2 months of 2016, involving properties in Union Street and Holburn Street. Occupiers are showing a preference for long lease terms of 10 years and above, which evidences generalised optimism levels.

Property costs (as well as demand and return rates) are higher for premium properties, located along Union Street and the Bon Accord & St Nichola's shopping centre. Retail firms (mainly leisure and hospitality companies) are also showing high levels of interest in the Marischal Square development, which is expected to be delivered in Q3 2017. Rental costs for prime retail properties range between £50,000 p/a for small units and £290,000 p/a for retail space of up to 4,000 square feet.

Other Commercial Properties in Aberdeen

Although on the whole the city's commercial property market seems to be weathering the storm caused by low oil prices, certain sub-markets have evidenced performance levels that were below average. This is the case of the hotel sector in Aberdeen, which mirroring its performance in other parts of the UK, has been affected by the slowdown of the oil and gas sector, resulting in low occupancy rates of just over 62 per cent and decreased revenue rates that averaged £52 / night. As a result, activity levels and investment enquiries remain for this type of commercial remain rather subdued.

On the other hand, in an attempt to counter the negative effects of declining oil prices, local authorities and the UK government recently agreed to invest £500 million in the city's commercial infrastructure. This investment will be put to use to create new industrial space in the harbour area, as well an innovation centre, which is a welcome move given the ever-shrinking availability rates for industrial units in Aberdeen.