Soar away Aberdeen

As long as the oil price remains high, so the office market in Aberdeen is designed to set the pace in Scotland.

That is the message from the first half when take up soared to 38,535 sq.metres (414,804 sq.ft.), substantially exceeding the total for each of the previous two years. Added to this, rents sit at £333.68 a sq.metre (£31 a sq.ft.), which is above that for all UK regional cities.

As an indicator of future growth, only 8% of the 77,315 sq.metres (832,242 sq.ft.) of available stock is newly completed Grade A. The clear message is that if you want new space, then go for a pre let.

Mark McQueen of CBRE said: “The office market is in extremely good shape at the moment due to some significant transactions in the first quarter. It is very encouraging (that 2010 figures were exceeded in the first half) in the light of the challenges of recent years.

The market will remain buoyant for the remainder of the year.” The industrial market is also buoyant. Allied International, a distributor and stock manager of fittings, has leased a 1,342 sq.metres (14,446 sq.ft.) unit with head tenant Iron Mountain on the Altens Industrial Estate, Minto Avenue, Dyce.

Craig Watson of Jones Lang LaSalle, who acted for Iron Mountain together with FG Burnett commented: “It is clear that supply is tight in Aberdeen and occupiers have limited choice. This sub letting was achieved early on in the marketing process at the passing rent, helping Iron Mountain to significantly reduce their ongoing liabilities as part of their relocation to the north of the city.”

Also in Aberdeen, MWB Group Holdings, has done a sale and leaseback deal on its Malmaison hotel development for £16.1 million. The property has been sold and will be leased back from CIP Property on behalf of Citibank International as trustees for Aviva Investors Property Trust. Malmaison will run the hotel on a 35 year lease.

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Attractive Aberdeen

An example of the attractions of Aberdeen is that, for its first investment in Scotland, Arium, the fund manager, is poised to buy the recently completed 11,613sq.metres (125,000 sq.ft.) IQ building on Justice Mill Lane, which brought a yield of 6.5%.

The attraction is that the property was quickly let to two energy companies, Centrica and Wood Group. It underlines the status of Aberdeen as a top regional city since there is so little empty space available. Another significant transaction is the sale of the 9,290 sq.metres (100,000 sq.ft.) former warehouse of Diamond Envelopes at Dyce (now occupied by oil and gas supplier Petrowell) for £6.7 million to Highcross. The yield is 9%.

Chris Grinyer of J&E Shepherd, who acted for Diamond, said: “The sizeable sale is one of the largest industrial buildings sold in Aberdeen in recent years.”

Minting it at Minto

The pace of new development in Aberdeen has been maintained and has generally surpassed other parts of Scotland.

For example, Knight Property Group has now completed the second phase of the 11 acre Minto Commercial Park, Altens scheme and will move onto the final phase on Site 6. So far, Knight has invested £20 million over a three year period in Minto. Knight’s Howard Crawshaw said: “Being involved in a regeneration project such as this has been extremely satisfying.”

Elsewhere at Minto, Brinker Technology (represented by J&E Sheppard) has leased the 1,115 sq.metres (12,000 sq.ft.) Renewable Energy Centre, a warehouse and office property. Graham & Sibbald acted for the landlord.

Also being developed is Stockland Muir’s Aberdeen Gateway Business Park as part of a 45 acre mixed use scheme of industrial units and offices. Stockland Muir commented: “We will capitalise on a strong occupational market and an apparent shortage of good quality industrial stock. As the oil price has risen above $100 a barrel our marketing agents have experienced a significant increase in enquiries for properties in the 929-1,394 sq.metres (10,000-15,000 sq.ft.) range.

The geographical spread of developments around Aberdeen is impressive with a speculative scheme for houses, a waste recycling centre, technology units and business centre at Alford, a village outside the city. Also, ten miles from the city centre, two new detached office pavilions have been completed on the Kingseat Business Park and are being marketed through Knight Frank and DM Hall.

Positive monitor

While the recovery in the UK economy may be creaking, the outlook for property appears to be improving.

The latest ICAEW/Grant Thornton confidence monitor found that in the second quarter 57% of professionals in the property sector are more confident about economic prospects for the next 12 months compared with the past year. Only 12% are less confident. Interestingly, the monitor records that the drivers of increased business confidence are manufacturing and property. Specifically on property, the confidence index was 24.5 points compared with only 2.9 points in the first quarter of 2011. Clare Hartnell of Grant Thornton said: “The days of pre-recession growth may now be in the past, but the rise in confidence points to the sector taking assertive steps to a more prosperous era.”

These general findings are broadly experienced in Scotland where Aberdeen continues to perform strongly while both Edinburgh and Glasgow are coming up against a shortage of Grade A office space which is limiting choice and will act on take up. The shortage also extends to industrial property, notably at the smaller end where there remains an appetite for buying freeholds.

But there are plenty of positive events throughout the country, such as the refinancing of Maxim Office Park, a major Canadian investment in Edinburgh and new schemes in Inverness.

According to Knight Frank, high oil prices drove the Aberdeen office market in 2010 with an increase of a third to 32,329 sq.metres (348,400 sq.ft.) take up. This trend has continued into 2011 with take up already matching the whole of last year. Rents are the highest of any UK regional city at £333.56 a sq.metre (£31 a sq.ft.) paid by Centrica at IQ and incentives are also considerably below those prevailing in the rest of the country.

Knight Frank’s Katherine Monro said: “With oil prices well in excess of $100 a barrel, activity is expected to remain healthy in 2011.” achieved before then because Pace is apparently negotiating for floor by floor lettings. In any case there are potential occupiers seeking new space, such as the law firm Mills & Reeve.