High cost Aberdeen

Lack of quality office supply addressed as demand pushes up prime office rents in Aberdeen market

The development of over one million sq ft of office space in Aberdeen this year will alleviate the increasing shortage of good quality offices and underpin rental growth, claims Knight Frank in its annual Aberdeen Office Market Activity Report launched recently.

The escalating problem of demand outstripping supply has led to an unprecedented level of development including, for the first time in many years, a number of speculative schemes in the city and surrounding areas.
Key completions this year in the city centre will be augmented by a number of office developments in the pipeline such as New Horizons House at the harbour, Phase 1 of Rockwater at Stoneywood Park, Dyce and Stockland Halladale Muir’s HQ building at Aberdeen Gateway Business Park, Cove, which will undoubtedly help to ease demand for prime Grade A office space.

In light of the strength of demand from office occupiers, Aberdeen’s commercial property market performed strongly during 2007 and Knight Frank projections indicate a prosperous year ahead, with prime office rents predicted to reach £28 per sq ft for new developments.

The success of Aberdeen’s commercial property sector has been supported by stable economic growth in 2007 with the Aberdeen City and Shire region totalling a 2.5 percent increase, even despite economists’ exclusion of the significant contribution of the oil industry, slightly behind the national average of 3.1 percent. Current forecasts for 2008 indicate total output growth will be a robust 2.0 percent and more in line with projected UK growth of 2.2 percent. The report indicates that business services and other (largely private) services will be key growth sectors for the region during 2008, with growth of 5.5 percent and 5.3 percent respectively, with projected growth of 4.0 percent in the banking & insurance sector.

Aberdeen’s investment market witnessed a surge of investment transactions in the first half of 2007 but slowed during the end of the year following the impact on investment activity associated with the global squeeze in the credit markets. However, compared with other markets such as London and the South East, Aberdeen enjoyed record levels of rental growth in 2007 due to positive developments in the oil industry.

Highlights of the report include: