Occupational overview

During the first three quarters of 2019, Aberdeen saw total office take-up of 273,002 sq ft. There are obvious signs that Aberdeen’s office market is now entering recovery mode, experiencing the strongest second and third quarter demand since 2015. Savills expects 2019 will be Aberdeen’s strongest year since the 2014 oil price crash, forecasting end of year office take-up in excess of 450,000 sq ft.

As could be expected, Engineering and Extraction & Utilities have been the most active sectors, accounting for a combined 45% of total take-up. In 2019, key deals have included Oceaneering committing to a sublease of 51,356 sq ft from AKER Solutions at Aberdeen International Business Park in Dyce and Borr Drilling who signed for 15,394 sq ft at Westpoint Business Park in Westhill. There was further activity in the city centre, with lettings to EY and Chevron at Muse Developments/Aberdeen City Council’s prime Marischal Square development, further adding to the impressive tenant mix there.

Savills is aware of over 100,000 sq ft of deals which have completed within the first month of Q4, demonstrating that the strength in Aberdeen’s market is likely to continue into 2020. In addition to the Oceaneering letting, TAQA have now committed to c.75,000 sq ft at Prime Four Business Park (October 2019), meaning that the last three months have seen two of the largest lettings in the city since 2014.

Aberdeen continues to experience an over-supply of office accommodation with total availability in excess of 2.6 million sq ft. However, this number shows a reduction from the 2.8 million sq ft reported in 2018. Much of this space (c.1 million sq ft) remains effectively obsolete/redundant Grade C which will require to be repurposed or perhaps demolished. However, with the continued flight to quality, we are now seeing reducing Grade A supply (there has been a 34% decrease across the past two years).

There are only two newly built Grade A buildings in the city centre – Marischal Square and The Silver Fin Building. Marischal Square is currently subject of serious interest. The city centre development pipeline remains constrained, with the Merchant Building – Patrizia’s c.200,000 sq ft office-led redevelopment proposals for the Aberdeen Market – the only sizeable city centre development in the planning system. This scheme is likely to require a pre-let (at least in part) and so it appears a distinct possibility that the development time lag will create a dearth of new build supply in the city centre and going in to 2020/21, it is entirely feasible that we could start to see a shortage of Grade A supply in the city centre.

Investment overview

During the first three quarters of the year, Scotland has seen total commercial investment volumes of £1.9 billion an impressive £708 million was for office space, the most popular asset, accounting for 40% of volumes.

In Aberdeen, 2019 Q1–Q3 commercial investment volumes totalled £132 million, overseas investors have remained the most active investor type, accounting for 46% of Aberdeen’s commercial investment volumes thus far.

Offices have been the asset of choice throughout the year, which has been typical in Aberdeen since 2009, accounting for 38% of volumes. Totalling at £50 million, with almost all capital coming from overseas investors (98%).

Key deals have included Technip Atmosphere One on Prospect Park which sold for £13.3 million reflecting a 9.7% yield and AB1 Huntly Street which sold to a Far Eastern investor £13.5 million with a 7.8% yield (Savills advised).

Traditionally, Aberdeen has seen office investment from a variety of investor types, however, in 2018 and 2019 overseas investors have accounted for almost all investment. In 2018, 89% of Aberdeen’s office investment volumes came from Middle Eastern and American investors, but this year Aberdeen has seen an influx of Far Eastern investment – demonstrating strong international confidence in Aberdeen’s economy.

Prime yield in Aberdeen currently sits at 6.5% having remained stable throughout the year.

What drives Aberdeen's growth

There has been £2.86 billion invested into occupiers headquartered in Aberdeen across 63 companies from 2018 onwards, with over £1 billion of this occurring since the end of Q2 2019. The largest deal was a £635 million investment into the oil firm Petrogas NEO UK. Other notable deals that will have a significant impact on the Aberdeen market, although not headquartered there, include Chrysaor’s purchase of ConocoPillips North Sea assets for £2 billion and the acquisition of Chevron’s UK North Sea business for £1.6 billion.

We expect that these occupiers will increase their headcount after receiving investment leading to future requirements for office space in the short to medium term. Petrogas have already confirmed that they are looking to increase their staff numbers, which is why they are opening an office in Aberdeen as well as London. Such investments not only boost Aberdeen’s economy but drive confidence amongst occupiers.

Aberdeen also benefits from a buoyant start-up scene linked to the oil and gas industry, which has recovered well since the 2014 oil price crash. However, it should be noted that Aberdeen’s economy is not solely reliant on the Oil & Gas industry and the Energy industry in the city has successfully diversified the products and services they offer.

Energy companies based in Aberdeen are undertaking more work in the renewable energy sector. The world’s most powerful wind turbines are located at the new European Offshore Wind Deployment Centre in Aberdeen Bay. These investments, alongside the changing market conditions, will continue to create opportunities for Aberdeen.