With total annual office take-up in Aberdeen in 2017 surpassing 400,000 sq ft (37,160 sq m) to double 2016 volumes, Savills anticipates 2018 leasing activity in the city will be driven by: infrastructure delivery; improved optimism in the local economy generally; and continued M&A; activity in the oil & gas sector.
Activity in 2017 was largely led by occupiers opting to move to quality, open plan offices and with the recent completion of Grade A offers at Marischal Square and Silver Fin, Savills expects this ‘migration to quality’ will continue. The reality, says the firm, 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.
Simpson Buglass, head of Savills Aberdeen, comments: “The movement of occupiers from poorer to better offices will free up tired buildings for alternative use. Of the 2.6 million sq ft of Aberdeen offices currently vacant, very little is Grade A and a significant element is now functionally or economically obsolete. If we can encourage change of use there is potential to significantly change the occupier and use matrix of Aberdeen’s city centre. We are already seeing increased interest in residential conversion potential in 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, says Savills, as it shrinks travel times across and around the city and opens up new pockets for commercial use. Savills points out a further £4 billion 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, Savills says 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’s 48,000 sq ft office letting at The Capitol, Marathon Oil’s 32,000 sq ft new lease on Hill of Rubislaw and Total Oil’s 128,000 sq ft letting of West Campus, Westhill.
Corporate activity in the last 12 months has seen $17 billion of North Sea assets acquired collectively by Chrysaor; WorleyParsons; Neptune; Enquest; Wood Group; Total and Ineos. It is anticipated all of these operators will be looking to maximise output on each of these assets that Savills says 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.
Simpson concludes: “Oxford Economics has predicted that Aberdeen is set to grow 7.4% 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 impacting on the property market from next year onwards.”