Commercial property markets across the UK are booming – except in Aberdeen where sentiment about the local economy and the future of the energy market continued to give investors pause in the first half of the year.
Investment in Scottish commercial property increased by more than one-third (35%) compared to the same period last year during the first six months of 2021 as the market continued its recovery from the pandemic, according to analysis from Knight Frank.
However, Eric Shearer, partner with the property agency, said that sentiment about the Aberdeen market has been discouraging investment in the city. However, this is just starting to turn around, he said, as occupiers in the renewables sector and resurgent oil and gas prices start to affect the flow of property deals.
The first half of the year saw the £15million-plus sale of Neptune Energy’s Aberdeen headquarters in May – the biggest investment deal in the city since the pandemic began.
Mr Shearer admitted that despite the positive attributes of the building – a “good income stream, nice building, great tenant”, he said – completion had still been “difficult”.
“This is simply because the perception of Aberdeen outside of Aberdeen is still pretty horrible,” he said.
“The reality is across the whole of the UK, the property investment market has been incredibly resilient and to some extent booming, a bit like the residential market – apart from Aberdeen.
“We need an improvement of the view on Aberdeen as an economy.”
Nevertheless, he has seen a pick up particularly in demand for workshops and warehouses.
“It’s been a tough five years but we are certainly a lot busier that we have been,” he said.
Renewables will work. Carbon capture will be enormous. Peterhead is going to boom.”
And while demand for property among clients in the renewables sector “hasn’t really hit the commercial property sector”, he expects this to change soon – albeit demand will be different from that of the more traditional oil and gas companies.
“I have taken the first renewables property requirements in 43 years as a surveyor. Oil and gas isn’t gone, I think people are starting to realise that,” he said.
“Renewables will work. Carbon capture will be enormous. Peterhead is going to boom.”
Across Scotland, Knight Frank found there were £688m worth of deals between January and June 2021, compared to £510m during the first half of 2020 – the height of the UK’s first lockdown.
‘Flurry of deals’ on the way after the summer
Overseas investors have remained the biggest buyers of Scottish commercial property so far in 2021, making acquisitions totalling more than £300 million. Privately held property companies were involved in £115 million of deals, while UK institutions accounted for another £60 million.
Alternatives and mixed-use schemes were the most popular asset classes in terms of investment volumes, followed by offices and industrials. Knight Frank predicted that, with a range of high-quality stock still being marketed, a flurry of deals could complete after the summer.
Alasdair Steele, head of Scotland commercial at Knight Frank, said: “Scotland’s commercial property investment market is still recovering from the effects of the pandemic, but there are signs we are heading in the right direction as the economy re-opens.
“The biggest investment transaction in Aberdeen since the pandemic began is indicative of the fact that significant deals are beginning to conclude and, all things being equal, we should see more after the summer break.
“While alternatives and mixed-use schemes has been an active sector over the past year or so – particularly in the build-to-rent market – another notable trend has been the hardening of yields for retail warehousing.
“With more investors looking for exposure to these assets, we expect the trend for good quality retail warehousing to continue, while offices should gain momentum in the second half of the year as the occupier market recovers and overseas inspections are allowed once again.
“There is a great deal of interest in what Scotland has to offer, with comparatively strong fundamentals.
“Commercial property remains an attractive source of secure long-term income, which is still a precious commodity for investors.”