Spotlight - Winter 2018

SPOTLIGHT and North Savills Research East Property Market

Residential market outlook Developer survey findings Commercial and Rural update Overview Aberdeen and North East Residential

14% reduction in available Aberdeen area house prices to prime stock above grow by 4% over the next five years £400,000 since 2016

Introduction New build market Angus leads the stimulating overall recovery reflected in improved transactional wider North East Four years on since the oil The recovering new build market is activity in some areas. Whilst just over Whilst the overall number of price crash, the Aberdeen stimulating the second hand market in half of the overall stock has been unsold transactions in the North East locations area residential market has some parts of the city. These include the for a number of years, there are now outside the Aberdeen area slightly undergone a period of severe traditional hotspots of , Cults more realistically-priced mainstream dropped during the year ending adjustment. From peak to and , where a 34% annual properties being launched. September 2018, Angus bucked the trend, trough, the annual number of increase in new build transactions Properties offered to the market in good witnessing a 3% increase. Meanwhile, residential transactions fell supported a 4% increase in second condition and correctly priced continue prices, particularly in Dundee and Moray, by 31% and the average hand transactions. The area to attract strong interest. However, the continue to grow, supported by more house price in Aberdeen City in the south of the city, where new market remains challenging for remote higher value activity. dropped by 20%. build transactions almost doubled, also houses in poor condition. For these The market in Angus has grown mainly There are signs of cautious witnessed a modest recovery in second properties, significant price adjustments up to £500,000 with improved second optimism. An increase in the hand activity. or upgrading will be a necessity. hand activity in Brechin and around the price of oil has supported a In , the strongest growth periphery of Dundee, and also more new stable residential market for in transactions last year took place in Outlook for prices build activity in Arbroath. much of 2018. With hopes of The market is locations that are within easy reach of High stock levels have impacted house Transactional activity in Dundee moderate economic growth Aberdeen, particularly those with train price performance in the Aberdeen area. City fell annually by 2% over the last over the next few years, the ripe for recovery connections and amenities. These include However, prices are beginning to find 12 months, mainly due to constrained market is ripe for recovery. Alford, Inverurie and the their level, with the monthly average in supply below £300,000. Above this Aberdeen faces a huge There is more optimism as property prices hotspot of . Aberdeen City and Aberdeenshire staying level, transactions increased from 103 challenge to diversify its and transaction numbers continue to stabilise around the £160,000 and £190,000 level during the year ending September 2017 economy and reduce its Stock levels beginning respectively for most of 2018, according to 122 during the year ending September reliance on the oil and gas The Aberdeen area was not immune from the While the overall market remains challenging, to peak to the UK House Price Index. But prices 2018, which led to a 3% annual increase sector. But there are already effects of the extreme weather across some sections are seeing more activity. Second The high level of available stock remains are currently around 4% lower than 2017. in average prices over the same period. signs of more activity in the earlier this year. There was an 11% drop in hand transactions above £500,000 in Aberdeen a key barrier to Aberdeen’s long term Therefore, an expected overall annual A similar trend was witnessed local development market, transactions, from 3,819 during the first six City during the year ending September 2018 were market recovery. The number increased by drop of 4.5% in Aberdeen area prices at the in Moray, where transactional activity with months of 2017 when market recovery commenced, on a par with the number during the year ending 12%, from 5,016 in November 2017 to 5,627 end of 2018 should not come as a surprise. fell annually by 7%, due to constrained implementing the majority of compared to 3,400 during the same period in 2018. September 2017. in November 2018. But the number has We expect price drops easing in 2019, mainstream supply. Above £300,000, our recommendations in the However, activity has picked up again in the In Aberdeenshire, the second hand market slightly dropped since July this year, when subject to a further reduction in stock transactions increased from 72 during Savills City Living report. second half of 2018 and average prices have between £300,000 and £500,000 and also above 5,674 were available. With the exception of levels. This will enable a recovery from the year ending September 2017 to 90 Moreover, Aberdeen’s remained stable in recent months. Despite the £700,000 witnessed a modest recovery over the the market up to £100,000, all other bands 2020. Prices will follow a similar trend to during the year ending September 2018, commercial property market stability, the overall market will remain fragile same period. Transactional activity across all price have seen stock levels beginning to ease. the rest of Scotland from 2020 onwards, which led to a 4% annual increase in continues its road to until we see a sustained period of stable transaction bands in Aberdeen City’s new build market also Supply is less saturated above with 4% growth over the five-year period average prices over the same period. recovery, with the supply of and pricing levels. improved, supported by incentives. £400,000 in particular, and this is being between 2019 and 2023. high quality accommodation remaining constrained. Residential values annual change forecasts Annual number of residential transactions (year to September) Aberdeen should take We expect price drops in Aberdeen easing in 2019, subject to a further The market is buoyant in traditional hotspots and locations that are heart from the fact that the reduction in stock levels within easy reach of Aberdeen rest of Scotland’s residential 5-year 2019 2020 2021 2022 2023 compound 350 market is enjoying its growth ■ 2017 ■ 2018 strongest conditions in a 306 300 decade. Now is the time for 283 14.8% 270 262 UK mainstream 1.5% 4.0% 3.0% 2.5% 3.0% 256 Aberdeen to catch up and 250 238 shine again. Scotland 195 18.2% 200 184 mainstream 2.5% 5.0% 3.5% 2.5% 3.5% 150 Aberdeen area 4.0% 107 mainstream -1.0% 2.5% 1.5% 0.0% 1.0% 100 93

Source Savills Research Simpson Buglass 50

Head of Aberdeen Office transactions Number of residential 0 01224 971 133 Properties offered to the market in good condition Inverurie Stonehaven Cove Bay Bieldside, Cults Alford [email protected] and correctly priced continue to attract strong interest and Milltimber

Source Savills Research

2 3 The Rest of Scotland Aberdeen Residential Development Survey

At 6.5%, annual prime value growth in Edinburgh was the highest in the UK during 2018Q3 Room for further growth Sentiment is everything Short supply in popular, well-connected neighbourhoods Following a period of inactivity within the Aberdeen Housing Market Area, is driving up prices is sentiment within the development sector improving?

Across Scotland, transactional growth is catching up with the other prime Country locations Savills prepared an anonymous survey Looking forward over the next six Part Exchange and Help to Buy being in the higher price bands continues to lift University cities around the UK. Scotland’s country locations, including to gauge the level of market appetite and months, 64% of our audience are of the the three most prevalent incentives. prices, with the average reaching £177,519 Market strength from Edinburgh the Heartland, the Highlands, Borders, gain a better understanding of the key opinion that the market will remain cool Despite this, purchasers are still during the year ending September 2018; continues to spread out to the Argyll and Dumfries & Galloway are challenges affecting house building in while 20% think the market is going to motivated by the location and an annual increase of 4%, compared to surrounding Lothians, where prime performing well despite the political the local market. Our survey attracted get warmer. Interestingly, those active specification rather than incentives the year ending September 2017. transactions above £400,000 increased uncertainty surrounding Brexit. The answers from niche developers to in the market were more optimistic than on offer. Positively, sites are attracting The prime market above £400,000 annually by 25% during the year ending oversupply of houses has reduced and large housebuilders including those those not. a range of purchasers including first led transactional activity, with the number September 2018. there is now a shortage in sought after currently active in the market and those Of those actively developing in the area time buyers, families and downsizers. growing by 8%, from 4,696 during the towns and villages. expressing an interest. and those considering it, uncertainty, year ending September 2017 to 5,070 Greater Glasgow The market below £1 million has been market conditions and profit margin were Business appetite during the year ending September 2018. Prime activity across Greater Glasgow less affected by LBTT. The market above Performance & forecast rated as very important factors when Encouragingly, of those businesses Meanwhile, the number of transactions reached 1,240 during the year ending £1 million experienced an increase in 60% of our audience rated the existing considering development opportunities, active within Aberdeen, the majority above £1 million reached 197 during September 2018, an annual increase sales but continues to be fickle and Aberdeen development market to with technical issues, build cost and plan to scale up their operations in the year ending September 2018, up of 15% compared to the year ending more expensive houses can take longer be either cool or freezing, with 36% planning issues not far behind. the next few years with 50% looking 15% from the 172 during the year ending September 2017. to sell. Some sellers have had to accept thinking it was neutral and only 4% for new sites. Of those not active, September 2017. More higher value activity resulted discounted prices. thinking it was warm. This sentiment Buyers & incentives many expressed an interest should in 5% annual growth in the overall is undoubtedly driven by performance, Active housebuilders confirmed that market conditions improve. This Edinburgh & Lothians average transaction price during the Outlook with 89% of active sites performing as or more than 50% of sales were reliant suggests a more positive outlook in Edinburgh currently has the fastest year ending September 2018. Prime We expect Scottish house prices to worse than expected. on incentives with payment of LBTT, the medium term. growing prime market in the UK, transactions in the city area of Glasgow perform ahead of the UK average, with annual price growth of 6.5% were led by the hotspots of West End, growing by 18.2% over the next five years. Asking prices for available new build properties during 2018Q3, according to the Savills Park, Partick and Jordanhill. Much like the rest of the UK, growth will Average price Average price Area prime index. Meanwhile, the prime market in the be tempered by political uncertainty with per square foot per square metre The average prime values in cities hotspots of Bearsden and Milngavie was Brexit negotiations in 2019, a UK general such as Cambridge, Oxford and Bath have led by a strong second hand market and election in 2022, and the additional factor Aberdeen City £279 £3,000 grown since 2008 by 30% over the last more new build sales above £400,000. of Scottish elections in 2021. Yet, Scotland Aberdeenshire £216 £2,325 decade, while the figure in Edinburgh A similar trend was also witnessed in still has room for growth, particularly in Angus £216 £2,330 has just reached the level before the the sought-after locations of Clarkston, popular, well-connected neighbourhoods. housing market downturn. With a Giffnock and Newton Mearns, where the In many of these markets, supply falls Dundee City £224 £2,413 thriving financial sector and being a prime market was supported by a strong well short of demand, so competition will Moray £181 £1,951 globally recognised tech hub, the market second hand and new build market. drive up values. Source Savills Research

Aberdeen City Living Breathing new life into the high street Ties between private and public sector stakeholders need to strengthen to increase understanding of each party’s role, needs and goals

Savills was commissioned by Aberdeen as part of a global trend, with urban living of mixed tenure residential units, allowing support, feed and grow the retail and housing contribution obligations, with starting to react positively. City Council to provide a strategy to and lifestyles increasingly popular among for a full suite of spending power and age leisure offerings. immediate effect. This bold initiative Creating a regeneration team within support the effort to revitalise Union young professional workers, families and groups that would in turn create a greater We proposed that developers will help to bridge the viability gap other local authorities, focusing on city Street and Aberdeen’s city centre. This downsizers. This trend is creating new vibrancy and stronger night-time economy should be offered support to encourage that currently exists in the market. It centre development, has been effective was in the context of the council’s City opportunities for property investors and with more sustainable support of retail, residential conversions of old buildings will act as a stimulus, driving private in towns and cities around the UK Centre Masterplan aspiration to attract developers, so long as the appropriate leisure and cultural facilities. in the city centre, because of their sector investment and bringing forward to identify potential opportunities 3,000 more residents into the city centre product can be delivered at the right price. If more people live in the centre challenging nature and higher costs. development. The time-limited horizon and provide direct contacts for the over the next 20 or so years. This is particularly pertinent in Aberdeen. and more work in the centre then the We are encouraged that the council is likely to create a sense of urgency to development industry. With the Savills identified that demand for city The future of Aberdeen’s city centre combination of the two is going to has voted in favour of our key proposal, encourage delivery: indeed there are establishment of its new City Living Team, centre housing in the UK is on the increase needs to be based on boosting the number introduce new spending power that will for a time-limited freeze on affordable already some signs that the market is Aberdeen is set to do the same.

4 5

Commercial Rural

Confidence returns to Awaiting Scottish values are Commercial trading at a 15% discount & Rural view the commercial market opportunities south of the border. Is the worst of the downturn over due to Demand for farms with a variety of income streams increased stability in the oil and gas sector? will continue, which in turn will support values

The effects of the low oil price environment since during the first three quarters of 2018 is on target to The UK Government’s recently increase of 32% across England for the Demand going forward Commercial market mid-2014 continue to be felt in Aberdeen’s commercial match the 600,000 sq ft figure from 2017. In a similar published Agriculture Bill sets out same period. Scotland accounted for Looking ahead, amenity farms and on the road to recovery property market. The majority of oil companies and trend to the office market, the majority of demand is major post-Brexit policy. But this Bill 24% of farmland marketed in Britain and those with a variety of income streams 2018 has seen the Aberdeen service companies have rationalised their cost bases at the smaller end of the market. Deals done on larger will not be enacted in Scotland, as rural the North East of Scotland represented will continue to be in demand. In commercial property market considerably in order to realign their overheads with buildings of high quality are at rents close to the level affairs are devolved. Nonetheless, the almost a third of this at 13,500 acres, with contrast, commercial units in need continue on the road to reduced activity and turnover. experienced prior to the market downturn, albeit House of Commons Scottish Affairs the majority located in Aberdeenshire. of investment, without the scope to recovery. This year’s figures The market has slightly improved, with both office heavily incentivised. Overall, we are finding that those Committee has launched an inquiry diversify, are more likely to come under have been characterised by and industrial take up this year matching last year’s occupiers with lease events in 2019/2020 are shopping to investigate how any post-Brexit Values remain stable pressure, unless there are neighbouring a larger number of smaller performance. The modest recovery has led a growing early for space in order to secure a good deal now. agricultural system could meet the needs Average farmland values in Scotland farms looking to expand. lettings, and a continuation number of analysts to suggest that the worst of the The industrial market is also dominated by of Scottish farmers and crofters. As we have been relatively stable for the past of the ‘flight to quality’ which downturn now appears to be over. occupiers with connections to the North Sea oil and await announcements to understand to five years whereas those in England Savills identified in 2016. gas exploration and production sectors. However, what extent policy will be influenced peaked in 2015. Although there has An increase in the number Office take up remains steady it has not witnessed the same levels of oversupply by Westminster, opportunities will been some correction in England, of lettings would generally The first three quarters of 2018 witnessed around as the office market. Industrial accommodation has undoubtedly surface, coupled with the average Scottish values are currently tend to point to a less volatile 270,000 sq ft of office take up in Aberdeen. The mostly been retained in order to enable continued pace of change for Land Reform. trading at a 15% discount to those south market, and one which is not level by the end of the year is expected to match functionality of the operational side of the businesses. Meanwhile, the resilience of farms of the border. as susceptible to significant the 405,000 sq ft take up during 2017. Take up Nonetheless, supply has increased over the last two and rural estates will be tested, The Savills Farmland Value Survey fluctuation. this year has included a large number of smaller years, reaching around 2.2m sq ft. However, as with particularly those that are heavily records average prime arable land, transactions, which portrays a more healthy market the office sector, it is important to note that there are exposed to farming and especially in the excluding fixed equipment, in Scotland at that is less susceptible to fluctuation. However, we only a handful of high quality industrial buildings red meat sector. £7,640 per acre. Average grassland is just are unlikely to see a sizeable increase of take up in the across the city available for immediate occupation. under £3,000 per acre. However, there medium term, due to the reduced presence of larger Farmland supply rises were a wide range of prices achieved with 41,200 A settling rural market office requirements. Outlook Across Scotland, 41,200 acres of grassland farms exceeding £5,000 per acres publicly marketed in The Scottish farmland market 2018 compared with There is significant oversupply across the city, Looking ahead, the market remains weighted farmland were publicly marketed acre and the best arable farms making 35,600 acres in the same is going through a period of extending to around 2.8m sq ft. This is a legacy of the heavily in favour of the occupiers, who are most during the first nine months of this more than £10,000 per acre. Indeed, period of 2017, up 16% settlement following considerable amount of new build and existing office likely to utilise existing space prior to going to the year compared with 35,600 acres in the value can vary by over £10,000 per acre immense growth in values space that was introduced to the market in 2015/2016, wider market with any new requirements. Moreover, same period of 2017, an increase of 16%. within 40 miles, depending on quality, between 2003 and 2013. just as demand from oil and gas sector occupiers there remains an oversupply of available commercial This compares with a corresponding location and local demand. Market supply is being tailed off, following the oil price drop. property of all size, use and specification. But outweighed by demand from this includes a number of dated buildings that are Farmland market activity across North East Scotland (January to September) all corners of the world as Industrial market functionally obsolete and unlikely to be reoccupied. Supply has caught-up, following a slow first half in 2018 affected by the weather Scottish land and estates are There is relatively more confidence in Aberdeen’s The supply of high quality accommodation remains currently deemed to be good industrial market. At around 548,000 sq ft, take up constrained. ■ 2014 ■ 2015 ■ 2016 ■ 2017 ■ 2 0 1 8 value for money. Yet with many unanswered Aberdeen commercial property take up (sq ft) The market in 2018 is on 12,000 questions such as potential target to match the previous year, with more demand from smaller occupiers threats associated with 1,400,000 Brexit, the possibility of a ■ Office■ Industrial 10,000 1,200,000 second Scottish referendum, likely interest rate increases 1,000,000 8,000 and record levels of farming debt, the future is far from 800,000 6,000 certain and a full review of all rural assets is advised. 600,000 Number of acres 4,000 400,000 Take up sq ft up sq ft Take

200,000 2,000

0 0 Aberdeenshire Angus Moray 2011 2017 2012 2015 2013 2018 2016 2014 2010 2007 2008 2009 2005 2006 (Q1-Q3) Source Savills Research Source Savills Research 6 7 Please contact us for further information

Faisal Choudhry Head of Scotland Residential Research 0141 222 5880 [email protected]

Simpson Buglass Head of Aberdeen Office 01224 971 133 [email protected]

Ruaraidh Ogilvie Head of North East Residential 01356 628 628 [email protected]

Fiona Gormley Savills Research Head of Aberdeen We’re a dedicated team with an unrivalled reputation for producing well-informed and Residential accurate analysis, research and commentary across all sectors of the UK property market. 01224 971 122 [email protected] Please contact us for further information

Graham Reid Faisal Choudhry Simpson Buglass Dan Smith Claire Herriot Rory Galloway Head of Aberdeen Head of Scotland Head of Aberdeen Director Associate Head of Aberdeen Development Residential Research Office Office Agency Industrial Agency Rural 01224 971 132 0141 222 5880 01224 971 133 01224 971 134 01224 971 139 01224 971 118 [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]

Rory Galloway Ruaraidh Ogilvie Fiona Gormley Laura Totten Graham Reid Claire Crawford Head of Aberdeen Rural Head of North East Head of Aberdeen Aberdeen Head of Aberdeen Associate 01224 971 118 Residential Residential Residential Development Development [email protected] 01356 628 628 01224 971 122 01224 971 125 01224 971 132 01224 971 131 [email protected] [email protected] [email protected] [email protected] [email protected]

Savills plc is a global real estate services provider listed on the London Stock Exchange. We have an international network of more than 600 offices and associates throughout the Americas, UK, Europe, Asia Pacific, Africa and the Middle East, offering a broad range of specialist advisory, management and transactional services to clients all over the world.

This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. Whilst every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research.