The surprising answer, according to new research by property advisers Cushman & Wakefield, is no. The study argues that office rents have not fallen during three previous oil price slumps in 1998, 2001 and 2009, and will not do so this time round.
One reason for this is that most new buildings in the city have traditionally been pre-let by tenants, so there has been no oversupply when demand slows. This continues in the present day, with the new buildings at Prime Four Business Park at Kingswells signed up in advance by Nexus, Apache, Transocean, Premier Oil and others.
Furthermore, most tenants have agreed long leases to enable development to take place, often with minimum uplifts at rent review time, ensuring built-in rental growth rather than the usual fall you might expect in other cities. The report predicts oil price improvement through 2015 and 2016 and, on past evidence, the price change tends to move faster and more aggressively than experts predict.
There are some negative signals around at this time. Dandara ditched plans for its office scheme at Triple Kirks, opting instead for student accommodation – but this may have been sensible faced with competition from three fully funded rivals.
Knight Property Group’s office scheme The Capitol and Titan Investors’ Silver Fin, both in Union Street, together with Muse’s Marischal Square, will bring 379,000 sq ft of new Grade A space over the next two years, in a significant flow of speculative development in the city centre.
Another downer is that Aker, who recently occupied a 335,000 sq ft HQ near the airport, have offered 75,000 of it back for lease as oil-related firms cut costs.
But Cushman argue that while there will undoubtedly be job losses as oil and gas firms cut back, Aberdeen’s stock of offices is poor relative to other UK regional centres and the new high quality supply will be welcomed by local office tenants. Professional firms like lawyers and accountants, in particular, are currently operating out of outdated, unattractive and inefficient offices compared to central belt colleagues.
David Davidson, the firm’s managing director for Scotland, said: “The current low oil price is giving oil and gas companies a chance to reorganise and restructure on a more sustainable basis. It is creating an opportunity for businesses in Aberdeen to draw breath and review property requirements.
“Aberdeen has suffered three downturns during my career and rents have not dropped. This is in contrast to Glasgow and Edinburgh. The impact on property has just started to be felt. Rent free periods for leases of 10 to 20 years have started to increase – albeit from a very low base, typically three months (two years in Edinburgh and Glasgow).
“We are seeing a number of professional firms relocating in UK cities to upgrade the quality of their premises, taking not necessarily more space but certainly more efficient, and all prepared to pay headline rents of £28 to £30 per sq ft.
“Aberdeen has just gone through a unique period of growth, which has stretched the city. This is most felt in the housing market where it is difficult for young people to locate when property costs are so high. It also suffers from congestion but the biggest problem is attracting a sufficient labour force and rising employment costs.”
Davidson was backed by one of the elder statesmen of Aberdeen’s real estate market, Angus MacCuish, managing director of advisers F G Burnett. He said there was stability in the market, with a better balance between developer and occupier.
“The hyperbole in relation to the potential demise of the city of Aberdeen is reaching fever pitch and I feel it only right to offer my take on what is really happening,” he said.
“The adjustment in the oil price should not be regarded as a surprise. After all, we have been here several times before. I can recall sub $10 a barrel in 1986, but we all weathered the storm.
“With the benefit of our experience, we can state with confidence that historically a fall in oil price has little or no effect on prices or rents within the city, albeit I acknowledge that take-up rates slow down.
“A record million sq ft of offices were filled in 2014, demonstrating continued commitment to the oil capital of Europe. The cyclical nature of oil and gas markets is nothing new for this area, and the recent budget laid strong foundations for regeneration of the North Sea.
“It is unrealistic to consider the boom of 2012 to 2014 as the norm, and, following an exceptionally busy period, 2015/16 will, in my opinion, return to a more ‘normal’ level of activity.”
The respected market expert said the developers and investors were continuing to commit to the city, evidenced by this week’s award of a construction contract to Sir Robert McAlpine to build the 132,000 sq ft Silver Fin office development.
“There is no big black cloud hanging over the Granite City’s streets,” stressed MacCuish.