Spotlight: North East Scotland

North East Scotland
 
Confidence slowly returns to the development market

15 November 2017, by Savills Research

The market is showing signs of improvement, with renewed interest from outside Aberdeen

 

The Aberdeen area population is expected to grow by 14% over the next 20 years, compared to 5% for Scotland as a whole, according to the Government’s population projections. Substantial areas of land will therefore be required to accommodate new development to meet this growth.

Encouragingly, a number of deals have taken place in Aberdeen’s peripheral locations, although prevailing caution will suppress value growth. Meanwhile, there is a lack of supply of apartment sites in the West End, where demand remains strong.

 

 
Savills has recently sold Banchory and Leggart Estate, strategically located to the south west of Aberdeen City

▲ Savills has recently sold Banchory and Leggart Estate, strategically located to the south west of Aberdeen City

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 improving 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

Notwithstanding the challenges to the wider housing market, there is currently a significant lack of new build West End apartments. While values have undoubtedly been affected by the subdued energy market, there remains active demand for such sites. 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 Aberdeen’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. Encouragingly, there is a desire for the City Council to attract more development, in particular through the Aberdeen City Centre Masterplan project on which Savills is advising. Hence, there is potential for early mover advantage in this area.

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