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Tough times in Aberdeen: but just how tough?

Terry smilingAberdeen, a city whose prosperity was recently measured in the number of Bentleys leaving car showrooms and million pound homes in estate agents windows, now finds itself holding out the begging bowl. Once among the wealthiest cities per capita in Europe, it is relying on the sort of state handouts that would make a banker blush.

Stories abound of struggling businesses, from restaurants and hotels, to the bookies and even the discount stores. The 70% fall in the oil price over 18 months has ripped a massive hole in the economy and few cities as self-dependent as Aberdeen could expect to bear the downturn without substantial casualties. But just how tough has life become?

Aberdeen’s geography and focus on its biggest industry dictates that its businesses have tended to serve each other. Oil and gas is estimated to support, in one form or other, almost half the population. Oil money has traditionally circulated around the hundreds of companies in the supply network, making its way offshore to service the rigs, and back onshore to be spent by highly-remunerated executives on the housing stock and fast cars. During the good years the handful of six-figure cars bought in Scotland were almost always in the Aberdeen area, and it has been a rewarding existence for estate agents and house builders in the luxury homes bracket.

According to the shop workers, restaurateurs and property people, the city is now in a state of meltdown as thousands are laid off and even those left in a job have stopped spending. There is no doubting these horror stories, but there is a danger of over-doing the tales of woe.

One report this weekend gave an example of a “former high roller” turning up at a food bank in a Porsche clutching a welfare reform grant from the local authority. Seriously?  If the story is true, this guy had the temerity to drive to a food bank in a Porsche and expect a carrier bag of free groceries? Mmm… I’d like to have a word with him and find out how he could afford a Porsche – even if he does have to hand it back – but doesn’t have enough money in the bank from his high-earning days to feed himself and his family.

While the city is undoubtedly in the grip of a severe downturn, whose duration and full impact cannot be forecast with any accuracy, there is also an element of top-slicing going on. Yes, there are examples of hardship, but some are just less well-off than previously.

Anyone who loses their job deserves sympathy. But let’s consider a few other points. As the price of oil has tumbled, so have pay packages and incentives in the sector. In many cases this is part of the re-sizing of cost bases that any industry has to go through to adapt to the ‘new normal’, and the oil industry for years has been paying top dollar to attract workers in their thousands. Those days are over, at least for now.

It should not be overlooked that many of those who have lost jobs have been re-employed by small firms who were previously priced out of the labour market for skilled jobs because of the high rewards in the oil and gas sector. This has provided alternative jobs for displaced workers and eased a skills shortage in the SME sector.

According to some in the restaurant business, hardship means oil workers are buying cheaper wine or booking tables less frequently. Car dealers are selling more mid-range models. Hotel occupancy is down, but none has closed its doors.

Million pound propertiesA report published last week by real estate company ASPC and the University of Aberdeen cautioned against too much gloom.

In the last three months of last year, the average price of a home in Aberdeen against the same period in 2014 fell by 2.8% and 1.9% across Scotland.

There were also falls in the Aberdeenshire towns of Stonehaven and Inverurie – but Ellon bucked the trend by recording a rise of 1.8%.

Over five years prices in Aberdeen have risen 3.4%, so the downturn will have trimmed the profits that home owners have made in that time.

John MacRae, chairman of the board of directors of Aberdeen Solicitors’ Property Centre (ASPC), said the picture was not all bad news . He said: “2016 may well be a difficult year for some sellers but we should not get carried away with too much gloom as there are still good levels of activity in most sectors of the market.”

Mr MacRae also pointed out that price falls from the third to the fourth quarter in 2015 were less marked in Aberdeen than nationally. Aberdeen prices were down 2.5% against the third quarter but by 4% across Scotland.

Ed Castle 2 shop adAlso, the new land and buildings transaction tax has distorted the top end of the housing market. A tax band introduced last April prompted a number of deals in order to beat the deadline.

A Bank of Scotland report showed that eight million-pound-plus properties changed hands in Aberdeen in the first six months of 2015 – two more than in the same period in 2014. Since then the market has cooled, but this follows a trend across Scotland.

This also shows that in the first half of last year – when the oil price fall was beginning to hit – there were still buyers at the top end of the market.

Even so, the local economy is in for a long period of subdued and falling activity which is bound to have a psychological as well as monetary impact on the region. It now has to reshape itself for a future, at least in the short-to-medium term, without the crutch of a high-rewarding oil and gas sector.

What must not happen is that the government money provided last week by the Westminster and Scottish governments is frittered away on well-meaning, scattergun “initiatives”.

Diversity is clearly important, but it needs to be realistic. One suggestion, life sciences, does not create large numbers of jobs, and the industry, by its nature, is slow to build.

Nor should talk of boosting tourism be allowed to cloud the need to sustain the higher value manufacturing and technology jobs that the city has come to rely upon. It needs to look to a lower-costed oil sector and new opportunities in decommissioning.

Creating more part-time, low-paid hospitality jobs for a city with no money to spend in restaurants would be a gross waste of the half billion pounds now available to help revive its fortunes. Sadly, I fear this is just the sort of “strategy” we will get.

 



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