The announcement of a snap General Election has upset the political landscape and predictions are rife over how it could affect the markets. In Scotland we are also dealing with the spectre of a second independence referendum which continues to have a negative impact on property investment and market confidence amongst some investors and developers.
By contrast, in Aberdeen, where the atmosphere for the past two years has been largely driven by the fortunes of the oil and gas industry, the signs from the sector are now largely positive. This isn’t to say the wider political backdrop is of no concern, but the UK’s vote to leave the EU immediately benefited Aberdeen's oil and gas economy. North Sea producers have profited from production costs being incurred in a depreciated sterling relative to a product sold in US dollars, as have local service companies pitching for business around the world conducted in a largely dollar-denominated market. There is a growing confidence in the local air which is now measurably expressing itself in our property market.
The office sector was most impacted by the energy industries' fluctuating fortunes between 2013 and 2015 and yet the best quality space has maintained headline rents and interest from occupiers despite carrying a record level of voids. However, it must be said that much of the remaining stock has seen its day, being functionally or economically challenged or located on peripheral estates which have long been a unique feature of Aberdeen’s property supply.
In comparison, Aberdeen’s industrial market has held up reasonably well. During 2016, take-up was in line with the 10-year average with rents generally remaining stable although supply of second-hand stock has increased.
Investor appetite for Aberdeen is beginning to show signs of increasing. A North American investor, for example, acquired the Lloyd's Register building in Prime Four Business Park for £41 million in February, pushing Q1 office investment levels to £49 million, more than the total volume recorded during 2016. Investors are seeking a 'flight to quality', looking for well let assets in the city, which may offer more attractive yields than elsewhere in the UK.
The good news is that office lettings in Q1 2017 were 181,000 sq ft (16,815 sq m), the highest quarterly take-up since Q3 2013. This clearly indicates that the local mood has moved up a gear, in part reflected by oil companies Total and Marathon committing to new leases and a number of large requirements circulating.
Further positive news comes with Hurricane Energy announcing a new find west of Shetland with estimated recoverable reserves of a billion barrels and small local independent Chrysoar announcing a $3 billion acquisition from Shell comprising 10 separate assets in the UK continental shelf with funding from US private equity firm EIG Partners.
The smart money is clearly backing a more positive future for Aberdeen and the property market is starting to reflect this.
Read more: Savills Spotlight Aberdeen Offices