Aberdeen office take-up

2017 Aberdeen office take-up already ahead of 2016 but challenges remain

Aberdeen’s office market has seen take-up in the first half of the year reach approximately 270,000 sq ft, making approximately a 17 per cent increase on total take-up for the whole of 2016 in which 231,000 sq ft of offices was taken. 

Key deals include Marathon Oil taking 31,668 sq ft from Kennedy Wilson at the Hill of Rubislaw, Total’s 108,000 sq ft assignation from Subsea 7 at Arnhall Business Park and leading local legal firm Stronachs lease of 13,683 sq ft at 28 Albyn Place. This 270,000 sq ft  figure also excludes the hugely significant 48,000 sq ft letting at Knight Property Group and M&G’s The Capitol to Chrysaor Energy which, despite having already been widely reported in the press, remains conditional upon approval from the Oil and Gas Authority. This deal is expected to conclude imminently, and will further boost the Q3 take-up stats.

The improvement in market sentiment and deal activity maintains the positive trajectory we predicted at the end of Q1 and we continue to see churn in the office market from both new and existing occupiers. The reason for the uptick in activity is largely a result of lease events, improving energy sector confidence and increased landlord flexibility relative to lease terms. Combined, these factors have allowed occupiers to upgrade their office space in a ‘flight to quality’ which was previously not possible because of the acute lack of stock between 2010 and 2014. At one point in 2013, there was only 10,000 sq ft of grade A office space available when active demand was in excess of 1 million sq ft.

This market imbalance resulted in the lifespan of many offices which were otherwise economically and/or functionally obsolete to be extended. Now that the market has softened, and the supply and  demand dynamic has completely changed, there is a notable increase in options for tenants. 

Total, LR Senergy and Chrysaor Energy are all recent examples of occupiers capitalising on softer market conditions to upgrade the quality of their offices. Total’s former HQ at Crawpeel Road is reportedly set for demolition and redevelopment to industrial use. Meanwhile, LR Senergy’s former home at Denburn House has been acquired by a Jersey-based hotel operator, who intends to put it to alternative use.

We anticipate that increases in local authority rates will exacerbate the liabilities on some offices and will lead to many more landlords of poorly specified, or poorly located, office buildings choosing demolition over the ongoing burden of paying vacant rates liabilities in an uncertain letting market. One notable example is the recent demolition of an office block in Dyce by local developer Malcolm Allan.

With the expected completion of Titan and BA Pension Funds’ Silver Fin Building (135,000 sq ft) and Muse and Aviva’s Marischal Square (175,000 sq ft) – both of which are due for practical completion later this month – we will see an unprecedented supply of quality space in Aberdeen city centre, further marginalising older stock.

Our prediction for total take-up in 2017 has now been revised up from 350,000 sq ft to 400,000 sq ft  which will be a roughly 70 per cent improvement on 2016. We also expect to witness reduction in the availability of grade A space and continued improvement of the supply to demand ratio. 

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Read more: 2017 set to be a positive year for Aberdeen's commercial market

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