More overseas investors in city
Aberdeen ‘recovering from worst of energy market’
Aberdeen’s slow recovery from the oil slump is showing signs of gathering pace and interest from overseas investors has increased, according to the latest data.
Savills Aberdeen Offices Spotlight, shows the office leasing market picking up in the first quarter of 2017 with take-up reaching 181,000 sq ft (16,815 sq m).
This is the strongest quarter recorded since Q3 2013 and not far short of total take-up volumes for the whole of 2016 (183,000 sq ft / 17,000 sq m)
Key deals include Subsea 7’s 108,000 sq ft (10,033 sq m) assignation to Total at Arnhall Business Park and Marathon Oil taking 31,668 sq ft (2,942 sq m) from Kennedy Wilson at the Hill of Rubislaw in Q1 2017.
Dan Smith, director in the business space team at Savills Aberdeen, comments: “We believe that the worst of the energy market downturn is behind us, and occupier confidence is slowly but surely returning to the market.
“With several active office requirements in excess of 30,000 sq ft, 2017 could see office take-up reach 350,000 sq ft by the end of the year.”
Savills says despite wider market availability reaching a record level of 2.1 million sq ft (195,090 sq m), there remains a shortage of Grade A office space in the Aberdeen market, which currently stands at 750,000 sq ft (69,675 sq m) representing approximately just 2.1 years of supply at current take up rates.
Consequently top rents remain stable at £32 per sq ft (£344 per sq m) in Aberdeen city centre, according to the Savills Spotlight, although with attractive rent free periods for the best space reducing net effective rents.
The firm suggests that with much of the 1.3 million sq ft (120,770 sq m) of available Grade B/C office space located on business parks, landlords will have to realistically appraise all available options until out of town requirements pick up.
Sentiment towards Aberdeen’s investment market has also picked up in the first quarter of the year, according to the report, after a quiet 2016 when £30 million of office assets traded.
Savills research shows office investment reached £49 million between January and March this year, boosted by LCN Capital Partners’ £43 million purchase of Lloyd’s Register. The firm states office yields remain attractive at 6.75%, above the UK regional average of 5.25%.
Simpson Buglass, head of the Aberdeen office and director at Savills, says: “Historically, Aberdeen’s exposure to overseas investment has been lower than other UK cities which should help to stabilise yields during 2017.
“Interestingly, enquiries from overseas investors has picked up and with Aberdeen yields remaining attractive relative to the rest of UK, the most prime assets will continue to be in demand as investors continue to look for long term income on a strong covenant.”
> A report from GVA says the tech, media and telecommunications (TMT) sector continues to be a driving force in Edinburgh’s office market.
Almost a third of all office-take up in the capital during Q1 of 2017 was in the TMT sector.
Figures from GVA show that 34 deals above 1,000 sq. ft. completed in the first quarter of the year, with 30% involving lets to TMT businesses. The city’s biggest deal saw Cirrus Logic let 22,572 sq. ft. at Quartermile Four. FanDuel initially planned to move into the offices but sub-let the floorspace following its merger announcement with DraftKings.
Total take-up in Scotland’s capital was 194,225 sq. ft. with 116,833 sq. ft. in the city centre and 77,322 sq. ft. out-of-town.
Peter Fraser, an associate director at GVA, said: “It’s no secret that the TMT sector has become more and more active in Edinburgh. The wider office market has performed well considering the ongoing political uncertainty. When you discount that Napier University took 107,000 sq. ft. of space in Q1 2016, there has been a higher-take up in the first quarter of this year despite the Brexit vote happening in between.
“We’ve also seen a higher quantity of deals complete compared with this time last year and the market for sub 2,000 sq. ft. lets in the city centre has been particularly active, whilst about a quarter of the total number deals in Q1 were for Grade A space.
“However, with robust levels of demand in Edinburgh and diminishing supply with options scarce, occupiers who need to move may be forced to just take what they can.”
The Glasgow market enjoyed a resilient quarter. City-centre take up was 103,322 sq. ft. and the two most significant deals of the quarter both saw occupiers move in to the Abstract building on St. Vincent’s Plaza. Mott McDonald let 34,500 sq. ft. and Wood Group’s leading renewable energy consultants, Sgurr Energy, took 17,249 sq. ft. of space.
Paul Broad, director of business space for GVA, said: “Glasgow’s office market displayed typical resilience in the first three months of the year. The continued lack of supply of Grade A means we expect that there will be a greater focus on Grade B stock throughout the rest of the year.
“Occupiers will need to consider taking ‘first mover advantage’ and secure preferred options well ahead of lease breaks, or look ahead to secure pre-commitments on options within the new Grade A pipeline.”
GVA also predicted there will be lease event spikes in both Glasgow and Edinburgh occurring in the year ahead, so the fundamentals of supply and demand in both cities remain strong.