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Aberdeen - Still Alive and Kicking

2nd April 2015

The slide of worldwide oil prices since last summer cannot have escaped the attention of many, with ample headline coverage in the papers, television and the internet. For the general public, cheaper fuel and energy costs which the price drop brings is welcome, although inevitably the majority of the population of Aberdeen don't see it that way. Europe's energy capital has a lot more at stake!

From some of the press and industry comments reported in recent months it would be easy to conclude that Aberdeen is about to close down. Nothing could be further from the truth and thankfully some of the industry's most prominent and respected leaders have quite rightly rounded on the doomsayers.

Inevitably, reports of an industry recession and predictions of a slow price recovery have done nothing to improve property investor sentiment at a time when a boost was needed after the Scottish independence referendum. Sadly, it seems all too easy for some investors and fund managers to automatically adopt an ultra-defensive brace position by declaring themselves out of the market, when a tightening of the seatbelt would be the appropriate action during this period of industry turbulence. This behaviour demonstrates a lack of understanding of Aberdeen's resilience and powers of recovery. Of course, if investors are looking to make a quick buck, now is probably not the best time, although for those able to take a longer term view, good opportunities remain and may even provide better value than what has recently been on offer.

There is no hard evidence yet of a significant softening of yields, in fact the last major investment sale of 2014 provided evidence to the contrary. The marketing of the fully let Hareness Park industrial estate created very strong interest between funds and when the sale to Aberdeen Asset Management concluded in December, the price of £14m, reflected a record low yield for an industrial estate at 6.25%. Transaction levels for Q1 of 2015 are down overall as investors adjust to the market, although deals are still happening. March has seen some quality stock coming available and these opportunities are attracting interest and at encouraging pricing levels.

Furthermore, the letting sector was also active in the last quarter of 2014 demonstrating that oil companies still have confidence and the visibility to look beyond the present downturn. Over 250,000 sq ft of office space was pre-let in the final months of the year in four deals, where the lease commitments were all either 15 or 20 years. Examples include Lloyds Register (100,000 sq ft) at Prime Four and KCA Deutag Drilling (70,000 sq ft) at City South.

Of course, the current oil industry downturn is by no means the first - in the 35 years since Ryden opened in Aberdeen there has been three other challenging periods for oil and gas and on each occasion the city has bounced back to full recovery. This will take time, although arguably the corrective actions which are now being implemented to reduce costs are overdue for an industry which had raced ahead of itself. The government too are playing their part in the recovery having introduced fiscal measures at the recent budget which will improve profitability for companies operating in the UK Continental Shelf.

There is no doubt that 2015 will be a challenging year for Aberdeen but the city has much to look forward to. This year will see construction of the long awaited Aberdeen Western Peripheral Route start in earnest. Meantime, Aberdeen International Airport continues to flourish and is one of the fastest growing in the UK with passenger numbers consistently increasing every month. An investment of £15m is committed for a redevelopment of the terminal. There are also proposals for a new harbour and exhibition centre which will hopefully both come closer to fruition. Even in difficult times Aberdeen will remain a very active and vibrant city with strong economic fundamentals and much to offer for many years to come. Investors and Fund Managers should take note!

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Ken Shaw

Ken has over 28 years’ experience of commercial property and is Head of Ryden’s Investment & Finance Group. Prior to joining our Aberdeen office in 1991, Ken worked in Glasgow and London dealing with Agency, Professional and Project Co-ordination work.  In Aberdeen he has concentrated solely on transactional business, initially responsible for occupational agency. 

In 2001 he was promoted to Partner and the following year he moved to the Investment & Finance Group to develop the firm’s investment business in the North of Scotland.

To date, he has advised on over £1 billion of investment transactions.

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