Knight Frank report highlights Aberdeen office market challenges

Incentives for occupiers in the Aberdeen office market have hit record levels as the city’s commercial property sector faces a perfect storm, according to a newly published study by Knight Frank.

The Aberdeen Office Market Activity Report was launched this morning in front of an audience of developers, solicitors and other key industry figures.

The research collates data from 2015 and looks forward to the prospects of 2016 - with some stark statistics featuring in this year’s edition of the annual report.

Headline figures include a 61 per cent fall in the take-up of office space and an 82 per cent fall in investment volumes year on year.

In the face of declining oil prices and swingeing cuts across the oil and gas industry, demand for office accommodation tumbled in 2015 at the same time as supply levels in the north-east of Scotland climbed towards the highest ever levels.

Knight Frank partner Eric Shearer, who presented the findings on behalf of the firm, said: “In any market a fall in demand coupled with an increase in supply represents a significant hurdle and that is exactly what we faced in Aberdeen in 2015.

“That will continue in 2016 and it would be remiss to attempt to put any gloss on the data our research team has published today, the figures speak for themselves. The most important thing is to use the information to focus minds and ensure a positive response.

“Those of us involved in the Aberdeen market have been through difficult cycles in the past and at Knight Frank we are committed to working through this one on behalf of our clients.

“All statistics have to be taken in context and whilst we have seen significant drops across the board when compared to what was a record breaking year in 2014, the take-up levels have dropped to around those we had in 2010 – so to suggest it is a complete collapse of the market would be wrong. That said, nobody is burying their head in the sand and this is an incredibly tough time.

“Where there are challenges there are always opportunities and at present those are falling at the feet of occupiers, who can take advantage of incentives at levels which have never been seen before in this region. We expect those incentives to continue moving in favour of occupiers this year and because of that there will continue to be transactions in the months ahead, albeit not as frequent as in the years prior to 2015.”

The contraction of the energy industry has had a significant impact on Aberdeen’s performance in the UK-wide regional office markets, with take-up down 30% on the 10-year average (583,500 sq ft) – compared to a near 50% increase in Sheffield, the top performing regional city. Bristol and Aberdeen were the only cities to post negative figures in 2015.

Katherine Monro, a partner in the Aberdeen office of Knight Frank, said: “Office take-up in 2015 totalled just 401,000 sq ft and with available space sitting at over 2million sq ft it is clear that supply does, and will continue to, outstrip demand.

“In recent weeks Knight Frank has concluded two lettings at the AB1 complex in the city centre to public sector organisations and that type of diversification will be important in the current conditions.”

According to the newly published report prime rents in Aberdeen remained static at £32 per sq ft in 2015 – although that figure does not take into account incentives, meaning net effective rents have fallen and are expected to continue to fall.

The Aberdeen Office Market Activity Report can be downloaded at www.knightfrank.com/research.