Northern lights shine on city's office market

Published on 23/02/2009 22:50

ABERDEEN is set to outperform the Scottish economy this year – and will rebound from the recession a lot quicker than the rest of Scotland, according to the latest office market activity report from Knight Frank.

The report says that Aberdeen's occupational market experienced strong letting activity in 2008, primarily driven by the energy sector, although the traditional professional and financial sectors within the city and the West End also performed strongly.

The city recorded the strongest growth in prime headline rents of any major regional centre for the second year running and office take-up in the city reached a cycle-high last year, totalling 550,000sq ft, up 25 per cent on the 2007 level.

Katherine Monro, a partner at Knight Frank in Aberdeen, said: "In spite of the economic downturn, Aberdeen's occupational market has performed remarkably well. This trend is set to continue throughout 2009 with Aberdeen's economy forecast to grow faster than the rest of Scotland.

"Despite this positive outlook, the recession will undoubtedly lead to a reduction in demand over the next 18 months. However, in contrast with the majority of the UK's key markets, we expect headline quoting rents for Aberdeen to remain at their current level rather than fall. This is partly due to the undersupply of Grade A office space in the city centre.

"We anticipate that landlords will act much more aggressively to attract and retain tenants by increasing incentives and offering more flexible terms. In particular, we expect that landlords in out-of-town locations will require more generous incentives in light of anticipated supply, while city-centre locations may fare better."

And Aberdeen is singled out as a top performer in another report just out, this one by CB Richard Ellis (Scotland), which says the city had a record office take-up last year while Glasgow and Edinburgh suffered a slowdown.

In Aberdeen, rental values increased substantially by 6 per sq ft to 30 per sq ft by the end of 2008 in response to exceptionally strong take-up, while in Glasgow there was only a small increase. The prime rent in Edinburgh remained unchanged from the end of 2007, stabilising at 28.50 per sq ft. However, tenant incentives increased substantially, particularly during the second half of last year.

Office investment activity was subdued during 2008 as the adverse economic conditions continued to impact upon the capital markets. In Glasgow, investment activity reached 62 million in 2008, down from 194m in 2007. A total of 226m was invested in Edinburgh in 2008, compared with 310m in 2007. In Aberdeen investment was 82m in 2008, down from 128m in 2007.

Miller Mathieson, senior director of Investment at CBRE, said: "Although investment activity across Scotland slowed during 2008, in line with the rest of the UK, we are already experiencing a rise in the number of enquiries from equity backed investors who see long-term value in the Scottish office market. 2009 will be a year of opportunity for investors with cash or low levels of gearing."

While Atisreal in its latest economic forecast says it will be 2012 before the Scottish property market bounces back, the head of its Edinburgh office, Andrew Cartmail, says that positive signs of activity within the banks are starting to be seen.

He goes on: "We are also starting to see signs that there is an increasing number of potential purchasers preparing to dip their toes back into the market, as demonstrated by the number of well- secured prime investments that have been sold. These are only initial signs but they do represent a desire to start doing business again."