With total annual office take-up in Aberdeen in 2017 surpassing 400,000 sq ft, doubling 2016 volumes, we anticipate 2018 leasing activity in the city will be driven by three things: infrastructure delivery, improved optimism in the local economy generally, and continued M&A activity in the oil and gas sector.
Activity in 2017 was largely led by occupiers opting to move to good quality, open-plan offices and with the recent completion of Grade A offers at Marischal Square and Silver Fin it is expected this ‘migration to quality’ will continue.
Of the 2.6 million sq ft of Aberdeen offices currently vacant, very little is Grade A and a significant amount is now functionally or economically obsolete. The reality is that older properties, those in a poor location or those unable to accommodate an open-plan format will struggle to re-let and many should be found an alternative use, redeveloped or, in extreme cases, demolished.
If we can encourage change of use there is potential to significantly alter the occupier and use matrix of Aberdeen’s city centre. We are already seeing increased interest in residential conversions of period office buildings and there is potential for Aberdeen City Council to play a role in promoting this.
The completion of infrastructure in 2018, in particular Aberdeen Western Peripheral Route (AWPR), will boost leasing activity in Aberdeen across all business sectors as it shrinks travel times across and around the city and opens up new pockets for commercial use. A further £4 billion is being invested locally in infrastructure including a new outer harbour at Nigg Bay which will accommodate cruise liners; the new Aberdeen Exhibition and Conference Centre; and the European Offshore Wind Deployment Centre.
Further still, with Brent Crude oil having remained above $60 per barrel in recent months, market confidence has improved along with increased economic activity. This has translated into a number of new office lettings for occupiers within the oil and gas sector, demonstrated by Chrysaor, Marathon Oil and Total. Meanwhile corporate activity in the last 12 months has seen $17 billion of North Sea assets acquired collectively by Chrysaor, WorleyParsons, Neptune, Enquest, Wood Groupm Total and Ineos.
All of these operators will be looking to maximise output on each of these assets that could result in increased economic activity in the sector with a positive knock-on impact on the take-up of office space in the area. This will be in addition to an improvement in activity in the city amongst other sectors including workshops, warehouses and residential.
Oxford Economics has predicted that Aberdeen is set to grow 7.4 per cent over the next five years and, while challenges remain, along with the need for a clear vision of how to create opportunities from the offices that are vacant, generally we can expect that there will be some significant resurgence in economic activity within Aberdeen feeding through to the property market from next year onwards.
Read more: Scottish office market