Property agent Ryden says the Aberdeen office market has “yet to see” how the energy industry will react to a hybrid model of working.
Office workers throughout the UK are returning to their desks, at least for part of the week, as Britain relaxes its pandemic restrictions.
But according to Ryden’s latest Scottish property review the performance of the Aberdeen office market “continues to be held back by the pandemic”.
Ryden added: “As more people are returning to their offices and occupiers are planning for future moves it does feel as if the situation is improving.
“However until there is a firm drive back into offices the market is likely to remain subdued.
“Restricted demand and take-up are thus still anticipated during the early stages of 2022 but, hopefully, this will improve as the year progresses.”
Ryden said higher oil prices – currently around $97 a barrel for global benchmark Brent crude – would under normal circumstances be “hugely positive” for the Granite City.
Energy sector uncertainty
But the firm added: “Uncertainty within the industry in terms of energy transition and the consenting of new exploration, allied to the pandemic, is resulting in a less buoyant market.
“Different sectors are reacting in different ways to remote working and the market has
yet to see how the energy industry will react to a hybrid model of working.
“This will clearly have an impact on spatial requirements moving forward but the hope is there will be a general move back into offices…which will help to bolster demand.”
Ryden’s review – the 87th in the quarterly series – highlighted the industrial market as the commercial property sector’s “star performer in Scotland, thanks to record levels of activity and demand outstripping supply in most areas.
Demand for development sites also comes from housebuilders looking at large and
peripheral locations to satisfy unit sales increases, Ryden said, adding: “This would normally push land values up, were it not for the significant increase in build costs.
“In our cities, the office property market in Glasgow and particularly in Edinburgh staged a recovery in 2021.
“Active occupiers are focused on top quality space with ESG (environment, social and governance) credentials and future flexibility, to attract staff back into the workplaces.
“This return of life to city centres is also important to retail and leisure occupiers who continue to struggle.”
Ryden managing partner and review editor Mark Robertson said: “Economic output appears to be reaching pre-pandemic levels but the societal and economic changes are still being felt through some property market sectors, with retail continuing to be hit while logistics reap the benefits.”
The review said 2021 was a “stop-start year” for the Scottish office market generally.
Standout deals in Aberdeen included Ithaca Energy (UK) buying the former Chevron House (41,367sq ft) at Hill of Rubislaw.
“The majority of office deals completed were smaller and only five exceeded 10,000sqft,” Ryden said.
Lower prime rents
Prime rents for Grade A office accommodation in Aberdeen have fallen to £30 per sq ft, from £32.50 in 2020, and generous rental incentives “remain prevalent” in the market, the firm added.
Uncertainty related to the offshore energy industry is also having a negative impact on investor confidence, the review said.
Ryden highlighted the sale of Neptune House, on North Esplanade West, to Glade Capital for £13.6 million, and of refurbished office space at 13 Queens Road, currently let to law firm Pinsent Masons, to an overseas investor for £5,1m as the top office investments in Aberdeen last year.
