With the city of Aberdeen at the heart of the region with its oil connections, the commercial real estate sector in the region has always performed differently from the rest of Scotland. Now a new report from consultants and surveyors FG Burnett shows that demand for offices to rent and buy is still at a healthy level. Industrial property is also bearing up.
Landlords are having to be more flexible than they were 12 months ago and offering rent free periods, shorter leases and break options but significant deals are going through with more in the pipeline.
FG Burnett managing director Angus MacCuish said that there is mounting evidence that well-established food discount retail chains are being very aggressive in expansion terms as the current economic climate favours this particular business model and this will generate further activity.
'Demand for secondary retail is also encouraging and we have personal experience of this with a significant number of deals being concluded recently in Aberdeen and surrounding towns,' he said.
On the development front there is, however, very little activity, the consultants report. 'On the plus side there are signs that developers are starting to put their heads above the parapet again, although limitations on funding going forward will mean they will be more selective in their pursuit of sites, which has a consequential impact on prices,' said MacCuish.
There is some limited activity in the investment sector with cash rich individuals and companies still trying to decide if the market is at the bottom or not. 'I think the market has bottomed out, although the cost and availability of debt finance means that the market is not functioning properly,' added MacCuish.
Many clients are willing to buy shorter leases for higher income yields and that reflects their confidence in the local economy, according to the report. It is possible to acquire modern office buildings in Aberdeen at yields of around 8.75 to 9.0% on five year leases. The West End area of Aberdeen remains the favoured location for many office investors. Supply is very limited and as a consequence prices have remained strong.
'My view is that compared to what investors can earn on cash, commercial property remains a good bet and when UK plc starts to believe things are getting better, some of the current property investment opportunities are going to look very cheap indeed,' concluded MacCuish.
