OFFPLAN NEWS

(04.06.2007 )
Property Scotland Scotland: Aberdeen Experiences Office Property Market Growth

As Aberdeen’s economy is set to increase by 2.1 per cent this year, its office market is expected to follow suit, underlying the city’s position as a major regional office location, according to international and Scottish properties consultancy, Knight Frank, as it launches its annual Aberdeen Office Market Activity Report 2007 today.  

Excluding the enormous impact of Aberdeen’s oil and gas industries, the projected growth for the city’s local economy will be driven by the communications, banking and insurance sectors, with banking and insurance already demonstrating an impressive 7.7 per cent increase in 2006.  The approval for plans to extend and improve Aberdeen airport will have positive knock-on effects in terms of job creation, rising passenger numbers and the impact on the economy, which will all set the scene for strong growth in the property market.
 
As the largest commercial centre in the Grampian region, Aberdeen is regarded as the centre of Europe’s oil and gas industry.  The report indicates that rising oil prices has continued to impact positively on the local economy, with a number of major oil and services companies committing to new-build developments for 2007, bringing renewed confidence to the market.  Akeler is undertaking the largest single new construction at Stoneywood, Dyce for BP’s HQ for its exploration and production activities, and Shell has committed to a ten-year lease on the Phase VI extension to their Tullos HQ, totalling 129,000 sq ft.
 
The performance of Aberdeen’s property market has been particularly buoyant during 2006, with take-up in excess of 300,000 sq ft, which was particularly boosted by the Petrofac Ltd pre-let at Consort House, totalling 78,000 sq ft.
 
The report predicts that the key driver of rental growth in 2007 will continue to be strong demand combined with a lack of good quality accommodation, particularly stock which offers ample car parking.  The Knight Frank report notes that occupiers in Aberdeen currently regard a parking ratio of 1:750 sq ft as a minimum requirement and buildings that are highly specified, offering ample parking will help boost rental levels within the city during 2007.  Knight Frank forecast rents to rise to £23.50 per sq ft by the end of 2007 due to renewed market confidence and the projected delivery of new accommodation in the city.
 
With the scarcity of Grade A accommodation in excess of 10,000 sq ft in the city centre, increasing demand for quality accommodation is putting life back into office buildings in more peripheral locations that have been lying vacant for a number of years.  Offices such as Silverburn House and the Excel Centre at Bridge of Don have generated considerable interest, as well as the remaining pavilions at Morley’s Aberdeen Business Park.
 
The investment market in Aberdeen has also witnessed several large transactions during 2006 with investors willing to pay a premium for Grade A accommodation in prime city locations, such as the sale of King’s Close in Huntly Street at a yield of 5.93 per cent compared to a yield of 6.76 per cent in 2005 and the purchase of 2-8 Albyn Place by Deedream Ltd for £5.3 million reflecting a net initial yield of 5.25 per cent. 
 
As a result of the competitive market, Aberdeen prime yields have hardened from 6.00 per cent to 5.25 per cent within 12 months and this competition has been primarily driven by property companies.  Activity in these areas has continued into 2007, with a number of large transactions currently under offer.
 
As Aberdeen’s stable economy continues to attract strong investment demand Knight Frank predict that transaction size will decrease in line with the size of new lettings (approximately 10,000 sq ft).  The report also forecasts that new-build Grade A space will continue to attract premiums of 0.5 to 1 per cent over traditional property. 

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