According to Savills Aberdeen Offices Spotlight, the Granite City’s office leasing market has gathered pace in the first quarter of 2017 with take-up reaching 181,000 sq ft (16,815 sq m), the strongest quarter recorded since Q3 2013 and not far short of total take-up volumes for the whole of 2016 (183,000 sq ft / 17,000 sq m).
Key deals include Subsea 7's 108,000 sq ft (10,033 sq m) assignation to Total at Arnhall Business Park and Marathon Oil taking 31,668 sq ft (2,942 sq m) from Kennedy Wilson at the Hill of Rubislaw in Q1 2017.
Dan Smith, director in the business space team at Savills Aberdeen, comments: “We believe that the worst of the energy market downturn is behind us, and occupier confidence is slowly but surely returning to the market. With several active office requirements in excess of 30,000 sq ft, 2017 could see office take-up reach 350,000 sq ft by the end of the year.”
Savills says despite wider market availability reaching a record level of 2.1 million sq ft (195,090 sq m), there remains a shortage of Grade A office space in the Aberdeen market, which currently stands at 750,000 sq ft (69,675 sq m) representing approximately just 2.1 years of supply at current take up rates.
Consequently top rents remain stable at £32 per sq ft (£344 per sq m) in Aberdeen city centre, according to the Savills Spotlight, although with attractive rent free periods for the best space reducing net effective rents. The firm suggests that with much of the 1.3 million sq ft (120,770 sq m) of available Grade B/C office space located on business parks, landlords will have to realistically appraise all available options until out of town requirements pick up.
Sentiment towards Aberdeen’s investment market has also picked up in the first quarter of the year, according to the report, after a quiet 2016 when £30 million of office assets traded. Savills research shows office investment reached £49 million between January and March this year, boosted by LCN Capital Partners' £43 million purchase of Lloyd's Register. The firm states office yields remain attractive at 6.75%, above the UK regional average of 5.25%.
Simpson Buglass, head of the Aberdeen office and director at Savills, says: “Historically, Aberdeen’s exposure to overseas investment has been lower than other UK cities which should help to stabilise yields during 2017. Interestingly enquiries from overseas investors has picked up and with Aberdeen yields remaining attractive relative to the rest of UK, the most prime assets will continue to be in demand as investors continue to look for long term income on a strong covenant.”