Owners beating investors in battle for Aberdeen stock

By STEWART McINTOSH

DESPITE the credit crunch and the gloomy predictions of doomsayers, owner occupiers are slugging it out with investors for property in Aberdeen – and winning.

Aberdeen’s status as a global energy hub shelters it from most economic storms, and commercial property is enjoying a level of demand on a par with any period in the city’s history, according to David McLeod of the locally-based agent, FG Burnett.

He said: “Owner occupiers are willing to pay more for a vacant building than investors are for similar buildings with income streams. This appears to fly in the face of conventional valuation logic – the vacant possession value of a building is usually the lower value and when a tenant is secured and an income stream created this would usually create a higher value.”

FG Burnett recently sold two west end office suites, the first of which was subject to a lease with three years to expiry and was bought by an investor after a closing date against eight other offers. When a similar suite was sold with vacant possession 15 offers were received and the successful owner occupier paid a price per sq ft which was 45 per cent higher than the property sold subject to a lease.

Mr MacLeod added: “These figures are staggering and while not representative of the average ‘premium’ between

investment and vacant possession properties, they do clearly show that owner occupiers are willing to be very competitive to secure property.”

The limited supply of land and buildings in the Aberdeen area has seen rents and capital values rising quickly over the last 24 months. Business land values have more than doubled in that time with prime West End office rentals rising from £20 per sq ft to around £30. However, the investment sector has been going through a very quick correction since the summer of 2007 with values falling across the board.

Mr MacLeod said: “It’s fair to say that the investment market had started to fall before the start of the credit crunch, however the difficulty in securing debt and the price of securing that debt has undoubtedly accelerated the

Rents and capital values in Aberdeen have risen over the past 24 months

correction in the market.

“What is fascinating about the Aberdeen market is that the demand from the owner occupier market seems to be as strong as ever. Prices continue to increase and it will be interesting to see whether the level of demand from this sector is affected by the tightening in the credit markets.”

With most owner occupiers being debt buyers, he argues that prices could hit a plateau as the cost of credit rises. However, rents in some areas are still rising quickly – which could have a bearing on what owner occupiers are willing to pay.

"The fact that Aberdeen’s owner occupier market is dominated by locally based companies shows a high level of confidence in the local economy," he concluded.