Incentives for occupiers in the Aberdeen office market have hit record levels as the city’s commercial property sector faces a perfect storm.
That is according to property firm Knight Frank, whose latest Aberdeen Office Market Activity Report has its launch before developers, solicitors and other key industry figures early today.
The document gathers data from last year and looks at the prospects for 2016, revealing some sorry statistics for the Granite City’s office market.
Despite significant deals such as those for Annan House in the city centre, headline figures include a 61% fall in take-up and an 82% drop in investment volumes year-on -year.
In the face of declining oil prices and swingeing cuts across the oil and gas industry, demand for office accommodation tumbled just as supply levels climbed towards their highest ever levels.
Knight Frank partner Eric Shearer, who is presenting the findings at today’s report launch, said: “In any market a fall in demand coupled with an increase in supply represents a significant hurdle and that is exactly what we faced in Aberdeen in 2015.
“That will continue in 2016 and it would be remiss to attempt to put any gloss on the data our research team has published today – the figures speak for themselves.
“The most important thing is to use the information to focus minds.”
He added: “All statistics have to be taken in context and while we have seen significant drops across the board, when compared to what was a record-breaking year in 2014, the take-up levels have dropped to around those we had in 2010 – so to suggest it is a complete collapse of the market would be wrong.
“That said, nobody is burying their head in the sand. This is an incredibly tough time.
“Where there are challenges there are always opportunities and at present these are falling at the feet of occupiers who can take advantage of incentives at levels which have never been seen before in this region.
“We expect those incentives to continue moving in favour of occupiers this year and because of that there will continue to be transactions in the months ahead, albeit not as frequent as in the years prior to 2015.”
The contraction of the energy industry has had a major impact on Aberdeen’s relative performance in UK-wide regional office markets.
Granite City take-up is down by 30% on the 10-year average of 583,500sq ft, against a near-50% increase in star performer Sheffield.
Bristol and Aberdeen were the only cities to record negative figures.
Aberdeen’s office take-up last year totalled just 401,000sq ft.
Katherine Monro, a partner in the Granite City office of Knight Frank, said: “With available space sitting at over 2million sq ft, it is clear supply does and will continue to outstrip demand.
“In recent weeks, Knight Frank has concluded two lettings at the AB1 complex in the city centre to public sector organisations. This type of diversification is important in the current conditions.”
Knight Frank says prime rents in Aberdeen were static at £32 per sq ft in 2015, although this does not take into account incentives – meaning rents have effectively fallen and are likely to continue to drop.
