The last three years have seen significant further investment in Aberdeen announced by a number of oil majors, averaging around £12- 14 billion per annum, to facilitate recovery of remaining reserves and development of new fields in deeper water. This is extremely good news for Aberdeen. The current and anticipated high oil prices will also underpin significant investment in other parts of the world, a lot of which will be serviced from Aberdeen.
How do these high oil prices and increased investment levels translate to commercial property activity?
After 2009 we saw a steady rise in both oil prices (to its current plateau level of over $100) and in office take up to a record level in the year to March 2014 of 96,000 sq m (1,035,000 sq ft). It is worth noting that office take up levels across Scotland’s three main cities is also running at record levels with over 281,600 sq m (3.03 million sq ft) having been taken up in the year to March 2014.
This is the highest annual figure we have recorded since we started to monitor these markets 40 years ago for our annual Scottish Property Review, which means it is probably the highest figure ever achieved. The picture in Industrial is fairly similar with rising demand and diminishing supply but unlike the office sector this area is not yet attracting the same number of developers (or funders) prepared to speculate.
This increasing demand and diminishing supply leads us to increasing rents and little in the way of incentives available to tenants. The absence of Grade A office space over 2,000 sq m (20,000 sq ft) and any real speculative industrial provision has meant larger requirements could only be satisfied through pre-let agreements. Although this may change with the speculative office schemes underway nevertheless these are still ideal conditions for new development.
There are a number of potential constraints; availability of funding, conditionality and pricing are still high on the list. The availability of serviced land in a choice of locations is also normally a factor, although I think this has largely been addressed in Aberdeen over recent years.
I believe the recession has helped to highlight the strength of the Aberdeen economy which is now attracting strong investment interest from the UK and abroad. Real opportunities exist across all of the development sectors, although offices already have significant speculative schemes in play.
Co-operation is needed from both public and private sectors to ensure the investment we need to secure the Oil & Gas industry here for the long term will occur, and notwithstanding its obvious dependence on the energy sector, Aberdeen should still be viewed as an attractive and safe place for property investment. After all, there are few other cities in the UK (or beyond) that can confidently see a secure economic future for at least 25 years.