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Black cloud lifts from the Granite City



The sparkle is returning to the granite city over which a giant black cloud descended with the oil price slump of 2014 which cost an estimated 180,000 jobs, more than 80,000 of them direct and indirect.

The property market plummeted, unemployment soared, and the north-east paid the penalty for decades of complacency during which opportunities to create a prosperous future were ignored in favour of easy profits during the boom.

Now, however, the results of a renaissance are clear to see, not least in the outstanding street art which is part of the drive to make Aberdeen a cultural hub.

“This is an exciting time to be doing business in the Aberdeen city region,” says Russell Borthwick, chief executive of Aberdeen & Grampian Chamber of Commerce.

“There has been a huge amount of work undertaken in the last few years by the various economic partners which is now yielding fruit. The city region deal, along with the new regional economic strategy, was a real catalyst for pulling together the organisations that needed to lead the change in the north-east.

 

“From that we’ve got four innovation hubs focused on life sciences, digital business, energy and the food and drink sector, the Oil & Gas Technology Centre is up and running – the pace of delivery has been really impressive.

“We also have the coming together of a large number of significant infrastructure projects. That includes the best part of a billion pounds spend on a road which is already transforming people’s journey times around the region; we’ve got the new Aberdeen South Harbour opening next year, capable of berthing some of the biggest cruise ships in the world; The Event Complex Aberdeen opening in August and a lot of cultural investment going on, all of which starts to tell a good story to future investors and the people we need to bring here to fill the jobs that are being created.

“The city centre masterplan is also creating an environment where developers are looking to come in. We’ve seen Grade A office space built at both ends of Union Street and that has brought in people who would never previously have touched the city centre even one day a week let alone five days.

“We have big ambitions. From increasing our tourism economy to £1bn by 2023 and giving our food and drink sector room to breathe, to building on our life sciences strengths and becoming the leaders of the energy transition agenda for the UK and Europe. Most importantly, people are beginning to feel that we can achieve them.”

Jennifer Craw, chief executive of Opportunity North East, the industry-led privately funded organisation accelerating growth and diversification, says that the long-term aim remained maximising economic recovery of United Kingdom Continental Shelf (UKCS) oil and gas and evolving to an energy capital, leading the transition to a low carbon economy with a globally active and diversified supply chain anchored in the north-east.

She adds: “Alongside this, we are building on our key sector strengths across digital, food, drink, agriculture, life sciences and tourism and investing in our entrepreneurial environment.

“Significant momentum is building across the sectors with transformational projects which will deliver regional and national impacts and are funded and in delivery, including the ONE Tech Hub for digital and the two sector innovation projects in the Aberdeen City Region Deal that ONE leads – Bio Hub and Food Hub.

“Our future matters because our enterprising businesses and global focus make us the best performing UK region outside London. With nine per cent of Scotland’s population we produce 21 per cent of Scotland’s export value and 18 per cent of business research and development investment.

“The focus on internationalisation resulted in new projects to support companies to identify their point of differentiation and customer base with a focus on high-value products and services to global markets.

“Transformational projects in development include an action plan for the seafood sector with potential to attract investment and funding for innovation, infrastructure and market development and the Extreme North project to develop the natural assets from mountain to coast to secure a bigger share of the fast-growing UK adventure tourism market.

“Digital is significant in all our programmes across all sectors and, this year, we will focus on work with larger businesses. Leadership and business growth, digital transformation, internationalisation, sector and industry development, and partnership working drive our activity.”

The property market has been one of the most visible victims of the slump and Dan Smith, director and head of office, business space, for Savills, Aberdeen, says he believes office supply is now at its peak and will begin to reduce over the next 12 months. However, he said there is about 2.8 million sq ft available compared to just 10,000 ft sq ft of Grade A office accommodation at the height of the market.

“We have a very strange market the moment,” he says. “We still have prime rents being set in the good quality new-build stock in the city centre like Marischal Square and Silver Fin but at the same time we are seeing the old functionally obsolete buildings trade for very little. We have a lot of interest in Marischal Square and if everything goes our way, we can see it all being let by the end of the year.”

With many occupiers now favouring modern new-build single floor space as opposed to cellular buildings over several floors there has been an impact on the former west end mansions which for so long have provided prestigious addresses and where rents rose the most in the five years prior to the downturn.

It is widely believed that many of the west end offices will eventually return to residential use as they have in other UK cities.

“At the height of the market, capital values were £400 plus per sq ft but in the most recent deals done they are back at £175 per sq ft which is a huge drop but is probably still slightly above where it needs to be to facilitate some of these buildings potentially going back to residential use,” says Smith.

 

Graeme Watt, director at FG Burnett, says industrial units of around 1,000 sq ft like Dandara’s at City South, Portlethen, were bucking the trend because they fall just under the rates threshold. These are for sale as well as lease and can prove attractive because of tax benefits for people using their SIP to buy them.

Fellow director Graeme Nisbet says larger properties to the north and south of Aberdeen are proving difficult to move but Westhill, where there is a concentration of subsea companies, continues to thrive.

However, the opening of the AWPR – the Aberdeen bypass – has made a significant difference to travel and there are already signs it may provide a boost for properties to the north and south.

The Balmoral Business Park backs that suggestion. “We see things picking up quite considerably in the city,” says Jim Milne, chairman and managing director of Balmoral Group.

“A good indicator of the local economy is that our business park on the south side of Aberdeen is practically fully occupied with just half of the remaining office pavilion available to let.”

Aberdeen Energy and Innovation Parks has also weathered the storm according to Mark Holmes, head of asset management with Moorfield Group.

“We have actively engaged with occupiers to help them through challenging times and have also invested significant capital for building refurbishments and park improvements.

“Occupier confidence has returned with major expansions at the Energy Park for award-winning Hydro Group and ICR Integrity. A range of office deals have also been concluded at the Enterprise Centre, with Genesis Personnel and Simblox both extending their lease terms.

“On the Innovation Park, there has been a spate of lettings.”

Perhaps a clear sign of the confidence returning is the fact that the Chester Hotel, Aberdeen’s only four silver star hotel, has just completed the first phase of a major extension with the opening of its new ballroom which has increased its capacity from 200 to 320. Work will be completed this year on doubling the size of the bar and adding 21 bedrooms.

Richard Noble, managing director at F G Burnett, says the retail market was doing badly in the high street and he anticipates more CVAs but suburban shopping and neighbourhood centres were doing better.

“We thought the independents might start taking up some of the space left behind but that hasn’t happened so far. We are not going to have traditional retail uses filling them up so we have to look at whether it’s food and drink or service occupiers or health-related – that kind of thing.”

He says one problem they are facing is that local authorities, in a bid to protect town centres, are refusing planning relaxations to allow big out-of-town operators to move into large vacant properties on the outskirts.

“That doesn’t add up because if you don’t give consent for big stores on the edge of town, the 1,500 sq ft and 2,000 sq ft properties up and down the high street don’t suddenly attract occupiers. There is a challenge there between what the market wants and where the market wants to be versus planning policy.

“The summary for retail is there is no suggestion or reason why it is not going to continue to be very challenging and only the best retailers will have a rosy future.”

There are encouraging signs in the domestic property market which has traditionally followed the fortunes of the oil and gas industry according to Bob Fraser, senior property partner with Aberdein Considine.

He says what he finds particularly encouraging is that people are once again upsizing in Aberdeen rather than selling to move away.

“There is certainly a lot more activity in the mid-range, £300,000 to £500,000 and we are seeing some activity in £500,000 and above which has been very limited over the last few years. A few sales have gone through up to the £1m mark and one or two of £1m plus and while we are talking about relatively small numbers it ties in with people making that high-level commitment to stay in Aberdeen.”

Clare Richardson, area director, SME Banking, Aberdeen and North East at Bank of Scotland, says: “Aberdeen and the north-east’s business community has shown great resilience amid evolving market conditions.

 

“Business leaders understand that, as the north-east’s economy evolves, there are significant opportunities for growth. The energy sector is responding particularly well to a new era of decommissioning, taking steps to diversify and embrace green technology. It’s an agenda we’re working hard to support as a part of our goal to help Scotland prosper.

“Transferring and adapting skills is essential if businesses want to embrace change and capitalise on the new opportunities it brings. This requires investment and Bank of Scotland recently committed to lend £1.6bn to help businesses both in the north-east, and across Scotland, drive growth and unlock the resources they need to meet their objectives.”

Keeping pace with the digital world is going to be vital for every sector and according to Allan McEwan, city manager at CityFibre, Aberdeen is on its way to becoming one of the best digitally connected cities in the world.

“As CityFibre invests £40m into expanding its open access full-fibre network to reach nearly every home and business in the city, this state-of-the-art digital infrastructure will transform the way we work, live and play. It is really exciting to see it brought to life as more homes, businesses and public sites connect and enjoy gigabit capable connectivity.

“Aberdeen was the first city in Scotland to benefit from this ‘fibre to the premises’ programme, delivered in partnership with Vodafone and the installation of full-fibre will have a colossal impact, unlocking an estimated £99m in productivity and innovation and driving £25m in direct economic growth over the next 15 years alone.”

In spite of diversification in the north-east economy the oil and gas sector will remain a key part of the economy for the future.

For example, Anderson Anderson & Brown’s strongest sector historically is oil services, particularly in Aberdeen but also with Houston-based international organisations.

“In recent years, with our renewed E&P focus and strategy – and a return to more stable industry conditions, we are experiencing significant growth opportunities in this sector,” says Alasdair Green, head of E&P Strategy at Anderson Anderson & Brown. “We are seeing growth not only within the firm, but also for our staff, our clients and for Aberdeen.”

Aberdeen remains the operational centre of the UK oil and gas industry. Green adds: “Much has been reported in the press about international majors selling assets and business units to new private equity funded players setting up businesses in the city.

“AAB is proud to play a role in many of these transactions and transition projects – and we are equally proud to support the next wave of entrepreneurial businesses, active in Aberdeen and hot on the heels of the bigger players.

“All of this activity together with a supportive Oil & Gas Authority and stable fiscal regime point to a positive and stable future for Aberdeen and the North Sea.”



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