RESEARCH

THE REPORT SPRING 2019 ABERDEEN 2019 RESEARCH

CONTENTS FOREWORD

2-3 Foreword

4-5 Aberdeen’s economy

JOCK GARDINER 6-7 Offices occupier market PRIVATE EQUITY INVESTOR

8-9 Industrial occupier market I consider myself very fortunate having lived, studied and worked in the Granite 10-11 Aberdeen investment market City since 1983 to be an adopted The economic diversification Aberdonian. The city has always been challenge for the region 12-13 Land market synonymous for an entrepreneurial, remains but significant industrious and resilient approach to progress is being made 14-15 Forward Thinking business and it would be fair to say that these characteristics have been put with a glut of major 16 Key contacts to the test in recent years. North East infrastructure projects ’s dependency on the oil and completed or in progress. gas industry has been highlighted by the length of the recent downturn in this vital sector and the impact that has had on business and employment prospects but development which will bring both new the green shoots of recovery and more leisure and industrial opportunities. diverse economic development activity are now increasingly evident. The leisure and tourism sectors will benefit from the new 12,500 seat state Investment and major new gas of the art TECA Exhibition Centre and discoveries in the UKCS continues and the myriad of recent hotel developments the emergence of a new breed of oil and in the airport and Woolmanhill areas. gas E&P companies is encouraging as The City Deal and public investment is the development of new technologies programmes for the Music Hall and Art and smarter ways of operating within Gallery alongside innovative cultural the energy service sector. Private equity events such as the acclaimed NUART and property investors who continue to festival help create a feel-good factor invest wisely through the oil cycles will for Aberdeen complementing the recent undoubtedly harvest their rewards in the new office developments that result in an years to come. ever-evolving city skyline.

The economic diversification challenge for And finally, thirty-five years after the region remains but significant progress “Gothenburg” isn’t it marvellous to see is being made with a glut of major Aberdeen Football Club’s new state infrastructure projects completed or in of the art training facility taking shape progress. Transport connectivity by road, adjacent to the new city by-pass. air and sea to North East Scotland is being Hopefully the refurbished Town House transformed with the opening of AWPR, will be the scene of another victory expansion of Aberdeen International parade down Union Street in the very Airport and the South Harbour near future !

2 3 ABERDEEN 2019 RESEARCH

Dundee at £53,500 and at £47,250, but lower than at FIGURE 2 £68,150. Aberdeen’s figure also beats ABERDEEN’S Bristol (£59,750), Manchester (£50,450) and Leeds (£51,250). This bodes well for long-term prospects for economic growth ECONOMY and investment. This summer will see the opening of The Event Complex Aberdeen (TECA), a new Recovery for the energy sector is supporting steady growth. conference and exhibition centre, located near the airport, which incorporates two hotels and an energy centre. The As Europe’s energy capital, Aberdeen’s January 2019 to establish an autonomous main 12,500 seat arena will provide a economic performance typically reflects underwater vehicles business in the city. world-class venue for trade shows and the oil price. An extended rally for Brent entertainment events. This will improve Providing further evidence of more Crude, from under $30 a barrel in January the city’s leisure and business services activity for the energy sector was the 6% 2016 to over $80 in September 2018, has facilities, offering direct and indirect year-on-year increase in offshore supply resulted in a period of economic recovery benefits to the local economy. vessel tonnage using Aberdeen Harbour for the city. in 2018. The South Harbour development The city should benefit from lower The final months of 2018 saw the price is expected to complete in 2020, which traffic congestion, following the opening SEP Oil and Gas UK warns weaken to $54 by late December, will enhance the port’s ability to serve in February of the final section of the that a no-deal Breit as global economic growth slowed. offshore industries in the future. Aberdeen Western Peripheral Route. $. could risk labour However, a new rally began in early shortages within the Overall, Aberdeen remains one of the North Sea oil gas 2019, with Brent Crude at around the However, much will depend on how well UK’s more successful and productive city industry. EU workers $65 mark at the time of writing. The the UK and global economy performs in make up 5- of the economies, which continues to develop North Sea oil fields were producing just 2019, with the risk of a hard Brexit as a oil gas workforce. as a centre for energy industry expertise. over 1 million barrels per day in October concern. While supporters of a no deal New infrastructure and amenities will 2018, up from 914,000 a year earlier, Brexit in the Westminster Parliament North Sea investment help to future proof its growth, including OCT according to the Oil & Gas Authority, a are a minority, it could still happen by reached 3-year high, the harbour expansion and the new $. totalling 3bn in 2018 UK government agency. A rising oil price default unless a consensus can emerge conference and leisure facilities at TECA. and the highest level and increasing production levels bodes around either the government’s deal or since 2015. Brexit is a potential risk, although it well for economic growth prospects in an alternative option. remains to be seen whether a no deal Aberdeen this year. Data from the Office for National Statistics NOV Ainor Catalyst scenario will occur. discovers oil reserves Aberdeen is also benefiting from and Centre for Cities showed that $. estimated at around expansion by industries that provide output per worker is higher in Aberdeen 15-50 million barrels of recoverable resources in services and equipment to the energy compared to most UK cities. Workers in the Northern North Sea. sector. This was demonstrated by Aberdeen averaged output of £62,200 Kawasaki Heavy Industries’ decision in per annum, which is well ahead of DEC Shell approves a revamp of the Shearwater $. platform to the east of FIGURE 1 Aberdeen. Shell’s Overall, Aberdeen remains partners in Shearwater UK Annual GDP growth are BP and EonMobil. one of the UK’s more 4% successful and productive 3% city economies, which JAN Chinese state-owned company CNOOC 2% continues to develop as $. made a gas discovery 1% a centre for energy euivalent to 250 million barrels of oil in its 0% industry expertise. Glengorm proect, east of Aberdeen. -1%

-2% FEB Ineos plans to pump -3% 500m into key North Sea pipeline. -4% $.

-5% 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 JAMES ROBERTS, CHIEF ECONOMIST Source: ONS Footnote: Brent Crude

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OFFICES 2019 will see greater interest in high quality new build or OCCUPIER MARKET refurbished space within the city centre. Sentiment in office market sector improves with rising oil prices.

The Aberdeen office market has In total there were 95 transactions experienced a marked imbalance recorded throughout 2018, an increase between supply and demand. There is of 38% compared to 2017. The increase evidence that the worst is behind us, in the number of office deals transacted aided by the higher oil price helping over the year shows greater stability in MATTHEW PARK, to improve sentiment in the Oil & Gas the office market; meaning less reliance ASSOCIATE OFFICE sector to which the Aberdeen market is on the large single lets that have been a AGENCY intrinsically linked. Demand is gradually mainstay of the Aberdeen office market, improving, with evidence of new entrants in the period up to the oil crash in 2014. investing in the North Sea. Whilst there has been an attempt to Landlords are willing to sub-divide to diversify away from the energy sector the vast majority (22) of these were for adapt to a demand profile that is led by since the oil crash, the reliance on the sub 5,000 sq ft. We have, however, sub 5,000 sq ft requirements. Oil & Gas sector still remains strong. As seen a small number of larger with previous cycles once the oil price requirements of 10,000 sq ft and above Take-up starts to increase, take up also improves as projects are reviewed and contracts return to the market following recent Total take-up for 2018 reached 388,227 awarded, leading to new employment positive announcements from operators sq ft, well below the 10-year average and demand requirements for new space. in the Oil & Gas sector regarding of approximately 540,000 sq ft. This is contract wins and new exploration. also below the overall take-up of over 400,000 sq ft in 2017, although the 2017 Key transactions Headline rent & incentives total was underpinned by the letting KMD Business Centre (33,079 sq ft), of Subsea 7’s office HQ in Westhill sold prior to auction for continued office 2018 set a new record headline rent of (138,000 sq ft) by Total. use, was the largest transacted deal of £32.50 per sq ft in Aberdeen, which was The 2018 figure, however, does not 2018. Serviced office provider Spaces achieved at The Silver Fin Building and include the sale of Silverburn House, who acquired 26,300 sq ft in 1MSq at is expected to be maintained in future totalling 141,000 sq ft. The former Office Marischal Square, was the largest deal transactions during 2019. However, in within the city core. Also in Marsichal general, lease terms have shortened, HQ facility was sold at auction and is Aberdeen International Business Park expected to go for alternative use. Square, Aberdeen Journals leased 18,936 headline rents have reduced (for all but the newest City Centre stock) and sq ft, NHS took 9,975 sq ft, with global landlords choosing to demolish incentives have increased dramatically. oil and gas supply company Tenaris FIGURE 3 obsolete stock in order to mitigate high Office city centre take-up (sq ft) KEY OFFICE TRANSACTIONS IN 2018 securing 8,452 sq ft. business rates liabilities. Redevelopment Looking forward BW Offshore leased over 10,000 sq ft 1,200,000 and alternative use is expected for ADDRESS TENANT SIZE RENT Early indications for 2019 are SQ FT (£ PER SQ FT) in Horizons House at Waterloo Quay 1,100,000 some properties. encouraging with many occupiers adjacent to Aberdeen Harbour which 1,000,000 Wellington Circle, Altens KMD Business centre 33,079 Sold for £400,000 Take up throughout 2018 has generally seeing the current imbalance of supply along with new lettings at the Exchange 900,000 been dominated by energy sector over demand being a great relocation Management 800,000 Marischal Square Spaces 26,300 showed continued demand for offices Agreement companies taking advantage of market opportunity. Trend for the year is likely with harbour views. 700,000 conditions to move to higher quality Marischal Square Aberdeen Journals 18,936 Withheld 600,000 to be a continued interest by occupiers The most notable out of town deal was buildings in more desirable locations. 500,000 in new build or refurbished space ABZ Business Park, Nobile Drilling 16,951 £18.00 Noble Drilling acquiring 16,591 sq ft at We are also witnessing traditional west 400,000 within the city centre. ABZ Business Park, in Dyce. end occupiers migrating to the city Horizons House, Waterloo Quay BW Offshore 10,325 £26.50 300,000 Office buildings that are considered centre, leaving many vacant west end 200,000 functionally obsolete or poorly located Marischal Square NHS 9,975 Withheld offices that will likely be converted to Supply & demand 100,000 within industrial estates will likely be 0 residential use in the coming years. Marischal Square Tenaris 8,452 Withheld Office availability currently stands in demolished or go to alternative use

excess of 2.7m sq ft, although around a 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 The number of active requirements at which will help decrease the over

Source: Knight Frank Research third of supply is poor quality, with some the end of 2018 stood at 36, although supply of office stock. Source: Knight Frank Research

6 7 ABERDEEN 2019 RESEARCH INDUSTRIAL OCCUPIER MARKET Take-up remains stable but occupier demand is on the up.

Take-up 2018. In total there were 26 transactions Occupiers are now recorded, double the number recorded demanding properties Aberdeen’s industrial market is dominated during 2017. in good condition and with by the energy sector. Unsurprisingly confidence has returned to the sector on a high specification. the back of an improving oil price. Key transactions

Industrial take-up reached just under Westhill proved to be popular for 640,000 sq ft for 2018, a total only occupiers with large industrial marginally better than recorded in 2017 requirements. The largest letting of the where industrial take-up amounted to year saw Proserv occupy 59,762 sq ft 630,000 sq ft. The interesting statistic to of industrial space on Enterprise Drive, note is that although only 10,000 sq ft Westhill in September 2018, which more was transacted year-on-year, there SCOTT HOGAN, was the only letting above 40,000 sq ft. SURVEYOR were 14 more transactions. Technip also extended their footprint INDUSTRIAL AGENCY The majority of demand is for properties within Westhill by agreeing to a new Supply & demand This is evidenced by the success at both FIGURE 4 sub 10,000 sq ft, which is consistent lease of 34,233 sq ft of refurbished stock Wellheads Industrial Estate, Dyce and Industrial take-up (sq ft) In terms of supply, levels remain at with the 2018 average transaction size on Enterprise Drive, which sits adjacent Altens Lorry Park, to the south of the over 2 million sq ft. 70% of total supply of 8,510 sq ft. Interestingly, take up for to their office HQ. city throughout 2018. Developers have 1,400,000 is located within Dyce and South of properties between 5,000 and 10,000 sq ft also been active speculatively building at Other large transactions included both Dee. Although supply remains at such was greater than for units sub 5,000 sq ft. Kingshill and City South. Power Jacks and Texo Group moving a high level it should be noted that a This is perhaps an indication of occupiers to newly built properties within Kingshill proportion of this stock is no longer fit The fact that occupiers are now looking at growth and taking advantage of 1,200,000 Commercial Park, Westhill, developed for occupation in its current state. demanding properties of good condition “the tenant friendly” market conditions. by Knight Property Group. Power Jacks The condition of properties is a factor and a high specification should come and Texo Group leased 22,300 sq ft and Industrial properties between 5,000 and that is being carefully considered by as no real surprise. Pragmatic landlords 10,000 sq ft proved to be the most sought 15,500 sq ft of accommodation, with 1,000,000 landlords, as tenants continue to “shop that have already refurbished their after size bracket by occupiers during associated yards, respectively. with their eyes”. With a number of new buildings are reaping the rewards and it builds and refurbished properties coming is a strategy that will continue throughout to the market, occupiers can now be 2019. This will ultimately lead to a better Unit 8 Minto Commercial Park 800,000 more selective and demand a higher quality of properties across all sizes in specification than previously available. the market.

600,000 TABLE 2 KEY INDUSTRIAL TRANSACTION

ADDRESS SIZE (SQ FT) 400,000 TENANT

Buildings 1 & 2 Enterprise Drive, Westhill Proserv 59,762

Phase 1 & 2 Enterprise Drive, Westhill Technip 34,233 200,000

Unit 8 Miller Street, Harbour/Beach MKM Building Supplies 26,829

Unit 7 Minto Commercial Park, Altens Control Valve Solutions 23,981 0 Unit 7 Kingshill Business Park, Westhill Power Jacks 22,300 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: Knight Frank Research Source: Knight Frank Research

8 9 ABERDEEN 2019 RESEARCH

TABLE 4 INDUSTRIAL INVESTMENT TRANSACTIONS IN 2018

ABERDEEN PROPERTY SIZE (SQ FT) PRICE NET INITIAL YIELD PURCHASER

NOV Facility, Tofthills Avenue, Midmill Business Park, Kintore 213,762 £31.25m 6.31% BP Pension Fund INVESTMENT MARKET Jablite, Craigshaw Road 55,652 £2.258m 11.50% Waterhill Property Group Investor interest in Aberdeen continued to improve during 2018, Odfjell Drilling, Crawpeel Road, Altens 53,963 £3.11m 10.85% Waterhill Property Group particularly for industrial stock. Lombard Centre, Kirkhill Place 30,381 £3.25m 8.15% Stenprop

Barclayhill Place, Industrial Estate 22,532 £1.585m 8.00% M7 Real Estate

Halliburton, Peregrine Road, Westhill 20,764 £2.633m 9.49% CCLA noteworthy because it was purchased by Overview 5B International View, ABZ Business Park 19,275 £3.115m 7.00% Private Investor LCN Capital Partners who were making FIGURE 5 The first half of 2018 in particular Annual investment volumes (£m) their second largest acquisition in the city 7B International View, ABZ Business Park 18,499 £3.45m 7.00% Grayling Capital. registered a notable improvement in following that of Lloyds Register, Prime investor sentiment in the city when 600 5A International View, ABZ Business Park 16,130 £3.318m 7.00% Palmer Capital Four in 2017. O ces Industrial compared with 2017. Renewed investor In 2019 we have already seen AB1, 4 International Drive, ABZ Business Park 15,702 £2.90m 7.35% Lightstone Property interest was undoubtedly increased by 500 Street (£13.495m/7.85%) and sentiment towards the improving energy Units 2/3 & 4, Hareness Circle 14,924 £1.125m 9.65% Drumcarron Property Group sector on the back of a higher oil price. Atmosphere 1, Prospect Park, Westhill (£13.325m/8.68%) both sold to overseas 400 Interest was further fuelled by yield Bruce Building, Kirkhill Place 12,500 £1.050m 9.05% Private Investor investors, with the added advantage of compression of the UK’s other regional a currency play on top of the attractive 300 Online Electronics, Blackburn Industrial Estate 11,810 £0.935m 9.65% Private Investor cities including Scotland’s central belt yields on offer supporting the purchase. where yields are at an all-time record low, 16-18 St Machar Road 8,538 £0.775m 8.84% Danube Properties This shows that despite economic pushing investors to look elsewhere for 200 uncertainty deals are still being done. Units 1-4 Novar Place 8,011 £0.835m 8.79% Gilcomston Investments greater value. There has been improvement to 100 TOTAL £61.59m Offices sentiment, but pricing is expected to Source: Knight Frank Research remain largely stable in the coming 12 0 Although the headline figure of investment months. While not immune to the general 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 volumes shows an increase from just political uncertainty, Aberdeen is an to secure covenants selling for yields of of national CVA’s and store closures under £100m to £145m, there were only economy that has a niche for often being Source: Knight Frank Research between 7.0%-7.35%. which has predictably seen yields push three office investment transactions. The cyclical to the rest of the UK as the oil out significantly as investors exercise 2018 and transaction numbers and Multi-Let Estates (MLE’s) at Portlethen increase in volume was due to the sale price will have an equal or greater impact greater caution. At least at a local level volumes were close to 10-year averages Industrial Estate and Lombard Centre of the Aker UK Campus by L&G in March on its fortunes over the next few years. there are positive discussions and with 15 transactions totalling £62m with were purchased by sector heavy weights 2018 for £112.5m reflecting a yield of decisions being taken to try to enhance Industrial an average yield of 8.58%. The increase M7 Real Estate and Stenprop respectively 6.92%. The remaining lease term to Aker Aberdeen’s retail thoroughfare via the City in demand saw sales for a variety of for yields of 8.0%-8.15%. The Portlethen Solutions ASA was c.17.5 years. Other Investor interest in Aberdeen’s industrial Centre Masterplan, City Living Team and investments from long lease income, Industrial Estate received nine offers at than the lot size, this transaction was market improved significantly during Vanguard series. There is an expectation multi-let industrial estates and value add a closing date showing the interest in that the city’s short term opportunities, subject to realistic pricing. this sub-sector and lot size. Stenprop’s Alternative investment opportunities that investment prospects TABLE 3 benefit from the key fundamentals of long The standout deal in the sector was purchase of Lombard Centre also followed OFFICE INVESTMENT TRANSACTIONS IN 2018 leases, index-linked reviews to strong will be as much driven by the sale of National Oilwell Varco’s their purchase of Souterhead Industrial Estate in Q4 2017, which showed their covenants continue to attract strong the oil price as political Facility, Midmill Business Park, Kintore PROPERTY SIZE PRICE NET INITIAL PURCHASER confidence in the improving occupational interest with record low yields being uncertainty. (SQ FT) YIELD comprising 213,762 sq ft, selling for market and favourable yields on offer. paid. By way of example, Knight Frank Aker UK Campus, £31.25m equating to a yield of 6.31%. 336,367 £112.50m 6.92% LCN Capital Partners Indeed this market demand has seen Investment Management purchased the Aberdeen Business Park The bespoke facility had a remaining developers take notice with new MLE’s NCP Car Park, Shiprow for a yield of Thermopylae & Teekay lease term of 19 years with five yearly 46,863 £13.30m 7.58% Sydney & London being constructed and discussed in all the 4.75% in July 2018. The car park was let House, Westhill indexation linked uplifts demonstrating prime industrial locations in the city. to NCP with a remaining term of the continued demand for long leased Statoil (Equinor), Prime 45,797 £18.70m 6.14% Golden Globe 27.5 years. Convenience stores and drive Four Business Park assets to strong covenants. Alternative thru investments are generally highly TOTAL £144.5m Other notable activity saw four sales sought after by private individuals as CHRIS ION at ABZ Business Park, all single let The third traditional property sector, part of property portfolios or SIPP’s with PARTNER CAPITAL MARKETS Source: Knight Frank Research properties with 10 year plus incomes retail, has had a torrid time with a raft closing dates often being set.

10 11 ABERDEEN 2019 RESEARCH

LAND MARKET Market overview which not only reduces demand but house values the effect on residential land in the value of the finished house. This will surface in the event that an occupier is also increases supply as those people values is magnified by a factor of at least therefore means that the plot value is willing to agree a pre-let and has a space It is now over four years since the oil migrate to other locations to find work. three to four times. In fact, we have seen now £50,000 per detached house, which requirement that cannot be fulfilled by price crash and a lot of water has flowed Add to that a distinct lack of confidence cases where residential land values have equates to a 41% drop in land value. existing stock. under the bridge in that time. Every in job security, stagnation in the sector is fallen by 70%. element of Aberdeen’s local economy It is very difficult for landowners to get In terms of supply, Aberdeen has the result. Thankfully, Aberdeen is now in the northeast has suffered badly to a For example their heads around this fact and what we hundreds of acres of consented seeing the green shoots of recovery. It Aberdeen should be viewed greater or lesser extent (mostly greater!). are seeing is that many previously agreed employment land, hence it is not scarce. has been reported that residential values, If a £350,000 detached home in Bridge option agreements are being either re- Real estate, both commercial and What is, however, peculiar to Aberdeen as a buying opportunity. on average have fallen by around 20% of Don has fallen in value by 10% that negotiated or dropped. residential, has been severely affected by and crucially the volume of transactions means that the return to the developer is that most of this land is in the hands the downturn. In simple terms, the city collapsed by over 30%. has fallen by £35,000. Construction In the residential land sector we are of developers and investors who are not has lost tens of thousands of jobs from costs have not however reduced (and in already seeing increased demand distressed and are prepared to wait it out. Encouragingly local solicitors are reporting the oil sector and supporting industries, many cases increased because of higher where successful and well-funded Hence why Aberdeen is not seeing forced an increase of around 10% in transaction with almost every job lost negatively environmental standards) so the only housebuilders are actively looking for sales in this sector. impacting the property industry. volumes in the last quarter of 2018 and place to claw back this £35,000 will be in “oven ready” sites of between 50 and It is fair to say that there has been a there is a cautious optimism in the sector. the price paid for the land. 200 units. Our view is that residential land “Perfect Storm” in the commercial sector Residential land values are at the bottom of the curve and ERIC SHEARER During the last four years we have seen In this case, if the land value had been in the North East. Whilst average fall PARTNER that the better “oven ready” sites will see Less people means fewer homebuyers massive falls in residential land values. In £85,000 per detached unit this would in values may be in the order of 25% DEVELOPMENT modest increases in value this year. As and tenants in the residential sector, simple terms for every 10% reduction in now need to reduce by the £35,000 fall for the large “Master Planned” sites, we properties, usually offices, transact at still fear that the significant (multimillion values, which show up to 90% reductions Whiterashes pound) costs of servicing these sites in what had been paid for those same will hinder their delivery. Where ‘Big was properties in the period 2010-2014. Menie House Beautiful’ 10 years ago, it is now more a Port 1 Kinmuck case of ‘Medium is Marvellous’ or ‘Small Burnhervie Elphinstone Buying opportunity Whitecairns is Sweet’. Blairdaff Thainstone Fetternear Our “House View” at Knight Frank is House A96 Pitfichie Hatton of Fintray that Aberdeen should now be seen as a Kintore Employment land buying opportunity. Monymusk A90 Blackdog Like residential land, the value of 2 3 Kinellar employment land is determined by the Why? Blackburn Dyce Tillyfourie TABLE 4 A90 value of the completed building, which A96 Owners are now more realistic Ordhead Sauchen Achath Clinterty COMMERCIAL AND RESIDENTIAL LAND will hopefully be leased on a long lease 1 Lyne of Skene to a good tenant. Unfortunately, over about the value of their property Dunecht NO LOCATION RESIDENTIAL LAND EMPLOYMENT LAND and buyers can now buy at prices Kirton SUPPLY (supply plots) SUPPLY (acres) the last four years there have been Midmar of Skene Kingwells 9 where they have the opportunity to Westhill A90 few tenants to fill new schemes. With Elrick Aberdeen 4 1 Inverurie / Kintore 2,400 130 rents falling and yields rising (investors make profit. Tornaveen Echt Garlogie perceiving Aberdeen to be higher risk) we 2 Dyce area 3,200 100 2 Buyers (many from outwith 5 have falling capital values and therefore Benthoul Aberdeen) are looking at the Oil Price Contlaw Cults 6 Cullerie 3 Bridge of Don area 5,250 260 less profit in such schemes. The Birks recovery and flagging Aberdeen as Devenick 4 Western Corridor 2,250 80 Petercuiter At the peak, employment land for a recovery situation and assuming A90 industrial use was trading at over that with oil price increase comes Glassel Kirkton of 5 Western Suburbs 3,600 0 Brathens £640,000 per acre (at D2 Business Park property price recovery. 6 South of Dee 1,950 100 Findon in Dyce). Since then, there have been Inchmario Crathes 7 Portlethen few land sales and we are now seeing 3 Recent sales like Salvesen Tower Banchory Muirskie 7 Portlethen 11,900 90 Durris (£20,000); Silverburn House (£1 fully serviced and platformed sites being 8 300 28 offered for between £300,000-£350,000 million); KDM Office (£400,000) Invery House Netherley A90 9 Aberdeen 2,000 0 per acre. This represents a 45% fall – all prior or at Auction. This has Strachan in value. highlighted Aberdeen as a bargain Bridge of Bogendreip buy city. Source: Knight Frank Research In the case of land, which only has a Class 4 (Office) consent, the view is that many of Mowtie In the Investment market we offer 8 these sites currently have little or no value 4 Redcloak longer leases than Glasgow and Cowie as the residual development appraisal House Edinburgh, plus 2%-3% higher Bridge of Dye Stonehaven will show insufficient developer return to Tewel yield for your pound. justify paying anything. Exceptions to this

12 13 ABERDEEN 2019 RESEARCH

FORWARD THINKING Aberdeen must continue to adapt to a rapidly The pace of change in Aberdeen is accelerating creating an unprecedented array of challenges changing marketplace. and opportunities for both businesses and the city. ERIC SHEARER, OFFICE HEAD, KNIGHT FRANK ABERDEEN

A changing city and drink. With initiatives like North East added attractiveness of having first mover are entering the market, indicating a 250, the Dolphin Centre and festivals advantage in competitive property natural evolution of this sector. Aberdeen has never experienced the including the hugely popular Nuart. markets. Any way of “greening” property Diversification is to be In particular, Spaces have taken a lease scale and pace of change as it is currently. Aberdeen is set to receive a further shot is only positive, and electric charging welcomed to Aberdeen’s within the new Marischal Square Three topics that will shape Aberdeen’s in the arm with the completion of TECA – points will soon become an essential economy. development, joining the ranks of Orega future are explored below: Aberdeen’s new state of the art rather than a ‘nice-to-have.’ in Silver Fin, Citibase on Queen’s Road entertainment complex and the South and Centrum Offices on Union Street. Diversification Harbour development, which will allow A number of Funds and Property Aberdeen to cater for larger cruise liners Offices – serviced Aberdeen is well regarded as the Oil of the BHS/indoor market site. The Companies have re-purposed space upon completion in 2020 with bookings and hybrid Capital of Europe and, up until recently, within existing offices to provide already confirmed. addition of the Sandman Hotel and probably not a lot else (maybe the proposed ‘second Scotsman Hotel’ and The serviced office market is very much a serviced offerings – Capsule at L&G’s growth sector across the UK and has European Cup win in 1983 by a certain City Centre Masterplan apartments for the former Woolmanhill Union Plaza, Agile at Kennedy Wilson’s Sir Alex Ferguson). This, however, is Hospital are hugely encouraging for the evolved to meet the needs of modern Charter building, Hill of and changing. As a consequence of the last oil With the opening of Marischal Square rejuvenation of the city centre. The occupiers. Some of the benefits to Hive at 1-3 Albyn Place. The WeWork price downturn Aberdeen’s public and in the east end of the city centre the city redevelopment of the Triple Kirks/The occupiers include building environmental concept, which provides shared private stakeholders have joined together has seen new interest in this area from Point is well underway and with a accreditation, concierge services, workspaces for start-ups, small to regenerate and promote the city as one developers, investors and occupiers. successful application to allow lettings to occupier well-being (café bars, gym, businesses and larger enterprises, are at with a more diversified economy. Tourism This trend is set to continue as further non-students, it could provide a catalyst creche, cycle stores/showers etc.) and the pinnacle of this evolution. Whilst and leisure has been identified as a occupiers are secured; a potential for further major residential or mixed use flexible workspaces. The CityFibre project they do not yet have a presence in primary focus. Aberdeen has so much to investor /JV partner is secured for the developments backed by the Council’s installing Gigabit-capable full fibre Aberdeen, it will only be a matter of time offer from castles to coastlines, golf redevelopment of the Queen Street City Centre Masterplan and City Centre broadband networks in Aberdeen further before they break into the market. courses, architecture and fantastic food Quarter and the proposed redevelopment Living Strategy. enhance the capabilities and appeal of Expectations are that the range of flexible The UK government has already outlined this ‘Plug and Play’ offering. workspace offerings will continue to Cityfibre a plan to ban new sales of petrol and Aberdeen has always had a number of develop in the market as occupiers, diesel cars and vans from 2040. Plug-in Probably the least known but the one national (Regus) and local serviced including energy companies, seek to hybrids, hybrids and electric vehicles will future attribute that could have the biggest office operators (BlueSky, Aspire and reduce occupational costs and better be long-term replacements, although to Cromdale), but a number of new entrants quality flexible space. impact – Aberdeen is set to become a date take-up has been disappointing with forerunner for digital transformation in only 5.5% of new vehicles’ sales being an Scotland with the installation of Gigabit- electric or hybrid vehicle. A large part of capable full fibre broadband network this is due to the lack of forward planning under the Vodafone and CityFibre in installing charging points, which is a UK (Fibre-to-the-Premises) programme. The wide problem, although highlighted more Vodafone and CityFibre partnership will in Aberdeen due to the above average mean that Aberdeen becomes Scotland’s vehicle ownership. first city in which nearly every home and business will have access to gigabit- The property industry is in a unique speed broadband. In a global commodity position where it can become an early market like oil this could have a major adopter in this regard by speculatively installing car charging points onto influence on where companies locate property or within car parks. The obvious given requirements will continue to grow easy win is for installations at industrial for greater and faster quantities of data. properties where most already have three-phase power. Electric charging stations As we witnessed with the influx of solar When looking forward to future trends panels within the residential market, it is within the property industry, electric our view that those early adopters will vehicles and charging points may not be receive the greater grants. They will not the first thing to spring to mind. only benefit financially, but also from the

14 15 COMMERCIAL RESEARCH Will Matthews Partner, Head of Commercial Research +44(0) 20 3909 6842 [email protected]

Darren Mansfield Associate +44(0) 20 7861 1246 [email protected]

AGENCY Development Eric Shearer Office Head +44 1224 415 948 [email protected]

Office Agency Matthew Park Associate +44 1224 415 951 [email protected]

Industrial Agency Scott Hogan Surveyor +44 1224 415 956 [email protected] Knight Frank Research provides strategic advice, consultancy services and forecasting to a wide range of clients worldwide including developers, investors, funding organisations, corporate CAPITAL MARKETS institutions and the public sector. All our clients recognise the need for expert independent advice Chris Ion customised to their specific needs. Partner +44 1224 415 969 RECENT MARKET-LEADING RESEARCH PUBLICATIONS [email protected]

1ST EDITION THE LONDON REPORT 2019 THE LONDON ) )

CLASH OF THE TITANS

Next wave technology and the productive workplace

MAKING THE GLOBAL RIGHT IMPACT Lessons from OUTLOOK Bloomberg’s new European HQ 2019

SPACE SUPPORTING STRATEGY

Findings from Knight Frank’s Global Occupier Survey

FORECASTS FOR REAL ESTATE IN THE WORLD’S LEADING CITIES.

(Y)our Space 2018 The Wealth Report Global Outlook 2019 The London Report – 2019 2019

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