The industrial property market in Aberdeen is dominated by the Oil & Gas sector, now rebranded as the Energy sector, and activity is driven by oil price confidence. 2020 provided a perfect storm of a collapse in oil price in March / April and lack of economic confidence as a result of Covid-19, which resulted in the market stalling. Despite this, overall performance remained broadly similar to 2019. Although, the oil price has made a good recovery to over $60/bbl, market dynamics remain largely unchanged from 2020.
2020 saw headline take up of 722,000 sq ft, which was just above the total figure of 719,000 sq ft recorded for 2019 and higher than the five-year average of c.650,000 sq ft. There was however a significant fall in the number of transactions concluded from 92 in 2019 down to 72 in 2020. A large part of this can be attributed to the strictest lockdown measures imposed during Q2 of 2020, where only 7 transactions were recorded. A usual quarter would typically have 20 – 25 transactions recorded.
Although the overall take up figure of 722,000 sq ft is a huge positive, this does not in our opinion accurately reflect the market. Firstly, included within this overall figure is 52,463 sq ft to Amazon, who have taken a ground lease of a 6.67-acre site and purpose built their own temporary warehouse.
Additionally, during 2020 there were a larger number of industrial properties sold at auction, usually due to a lack of interest from traditional marketing amongst other factors. The result of this was several properties being sold for record low capital values, due to several factors such as market demand, building configuration and condition. The take up of properties sold at auction totalled c.80,000 sq ft, selling to a mixture of owners, occupiers and investors planning to refurbish and remarket at a later date.
Take Up by size
2020 PROVIDED A PERFECT STORM OF A COLLAPSE IN OIL PRICE IN MARCH / APRIL AND LACK OF ECONOMIC CONFIDENCE AS A RESULT OF COVID-19, WHICH RESULTED IN THE MARKET STALLING.
SUPPLY AND DEMAND
In last year’s report, we suggested that there may be a shortage of industrial supply. Despite challenging market conditions and lack of demand for larger stock, we still believe this to be the case. Total industrial supply has increased to around 3 million sq ft from 2.85 million in 2019 and we expect this to rise further as larger energy companies look to consolidate operations.
Looking ahead, we believe 2021 will continue to be a challenging market with most significant activity taking place in the second half of the year, once restrictions have eased and confidence returns to the workplace. We do believe there will be an element of pent-up demand, particularly at the smaller end of the market as the economic landscape becomes clearer. The continued increase in the oil price with a pick up in drilling activity will help determine this. Our five predictions for the year ahead are:
- Speculative development from local developers will continue, albeit on a smaller scale, and continue to be successful.
- We will witness more demolition / reconfiguring of industrial property throughout the year, as owners become increasingly frustrated with the vacant holding costs. Up until this point it has mainly been office accommodation subject to demolition.
- Total take up in 2021 will fall under the six-year average of 650,000 sq ft.
- The number of transactions will increase with the average size of unit decreasing.
- There will be continued pressure on headline rents on second-hand properties, in some cases we believe headline rents will reduce slightly as a result of increased competition, particularly from new build properties.
(Beige indicates KF involvement)