In tandem with a modest upturn within the energy sector, and a subsequent upturn in the housing market, it is encouraging to see residential development in Aberdeen now showing signs of improvement, with renewed interest from outside the city.
The Government’s latest projections reveal that the population of the Aberdeen region is expected to grow by 14 per cent over the next 20 years, compared with 5 per cent for Scotland as a whole. Substantial areas of land will therefore be required to accommodate new development to meet this growth.
Encouragingly, after a subdued period, a number of deals are taking place in Aberdeen’s peripheral locations, although prevailing caution will suppress value growth in the medium term. Meanwhile, there is a lack of supply of sites for new build apartment sites in the West End, where demand remains strong.
Recent edge-of-town deals signal an improving market
Significant deals at the edge of Aberdeen have recently completed or are under offer. This demonstrates a level of confidence in the strengthening market by both regional and national house builders.
There is an increased appetite from house builders and developers looking to expand their land holdings and number of outlets. However, house builders are continuing to appraise sites with an element of caution that will limit any growth in land values in the short term.
There is also renewed interest from companies outside Aberdeen, attracted by improving infrastructure, such as the Aberdeen Western Peripheral Route, and the opportunity to create value in the longer term.
Underlying fundamentals will support demand in established locations
While values have undoubtedly been affected by the subdued energy market, there remains active demand for West End sites in particular.
In general terms, even in a weak market, new build apartments in established locations of Aberdeen perform relatively well, largely due to a lack of supply and continued demand from the city’s affluent downsizer market, supported by high levels of equity over a sustained period.
Average new build asking prices per square foot in Aberdeen this year have ranged from £250 in peripheral locations to around £300 in central and western hotspots.
There is a lack of supply of quality centrally located development sites which is limiting activity. The City Council’s desire to attract more development, in particular through the Aberdeen City Centre Masterplan project on which Savills is advising is encouraging. Hence, there is potential for early mover advantage in this area.