Aberdeen Industrial Q+A- Chris Ion, Partner, Aberdeen

What are you seeing in the industrial market in Aberdeen at present?

The word in the Aberdeen Industrial Market is “compromise”.  For occupiers seeking modern detached facilities with dedicated yards and car parking of any size, there will almost certainly have to be an element of compromise in the decision-making process. Be it warehouse to office ratios, internal configuration or site layout, specification or rent.

There does continue to be a ready supply of traditional industrial terraced stock, which has seen differing levels of refurbishment. Those refurbished terraced units that can offer some form of yard space will often let reasonably quickly but those that don’t, it can be a case of time and a place for the right occupier.

Why is there a lack of modern detached industrial units?

Strong take-up in 2022 (926,000 sq. ft) and 2023 (839,000 sq. ft) driven largely by the local energy industry, off the back of a relatively stable oil price in excess of $70 per barrel, saw good demand for the best-in-class industrial units. Coupled with almost a complete lack of new build development due to challenging economic feasibility, has led to a number of unsatisfied requirements in the market at present. Indeed, the take-up for 2024 is likely to be significantly lower than the previous two years because of the right product just simply not being available.

What challenges do you foresee ahead for occupiers in the market?

Occupiers will continue to have to compromise on what they are seeking. As a result, some will be forced to stay in their current properties, and this in turn will benefit their landlords with longer leases and/or higher rents being secured. Incentive periods have already reduced across the market over the past two years and rents are beginning to move upwards, a first in more than 10+ years for the Aberdeen market.

With decreasing levels of supply, it is even more important occupiers take professional advice early in the process and this goes for whether they wish to remain in their current premises beyond lease expiry or seeking to relocate.

Graham + Sibbald recently acted for an occupier client in securing a 28,647 sq. ft refurbished industrial unit – the largest industrial letting of 2024 thus far.

What are the opportunities and challenges for developers/investors in the market?

With the costs of construction remaining stubbornly high in the North East, feasibility of new build projects will only be viable where there is confidence in achieving significantly higher rents to strong covenants. This will restrict speculative and design and build projects but with an increased importance by occupiers on green credentials and ESG features, this adds another factor to increasingly favouring new build development.

Graham + Sibbald are currently marketing the only speculative new build industrial unit in the market at present in Westhill, Aberdeenshire which comprises 4,400 sq. ft with dedicated yard/parking and an EPC ‘A’ rating.

The second-hand refurbishment market is seen as a real opportunity for developers to capitalise upon. Although these refurbishment costs are still significant, they can provide much needed good quality industrial space to the market with the added benefit of removing the need for demolition.

Graham + Sibbald recently acted for a client in advising on the acquisition, refurbishment and marketing of a terrace of eight industrial units with dedicated yard / parking space in Dyce and with joint agents have occupiers secured for all units within four months of practical completion.

Graham + Sibbald have an experienced commercial Agency Team providing advice and representation on all issues relating to commercial property acquisitions for occupiers, landlords and developers/investors.

Exciting Times Ahead in Ayrshire- Fraser H Lang, Partner, Ayr/Kilmarnock

The commercial property market has experienced one of the strongest performing periods in a number of years despite economic uncertainty, interest rate changes and cost of living and doing business increases, with strong demand for all sectors throughout Ayrshire.

Modern industrial units of all sizes are currently in low supply, with a strong level of demand throughout all areas of Ayrshire. Graham + Sibbald have successfully completed the letting of a number of industrial units ranging in size and location for new-start businesses to long-established international companies. We anticipate this level of demand to hold strong and are currently advising clients in the development of new-build accommodation to satisfy the ongoing demand.

The office sector has seen the greatest change in recent years as a result of a shift in working patterns following the Covid-19 pandemic. This has resulted in increased demand for modern flexible office accommodation from small business centre suites to large open plan floorplates and pavilion style offices. Many companies and individuals have adopted a hybrid working style seeking flexible space providing collaboration and meeting space rather than traditional high density office accommodation.

Fraser H Lang, Partner and Head of Ayrshire at Graham + Sibbald comments, “The new-build office space currently available within Ayrshire includes market leading, energy efficient and flexible accommodation at Annickbank Innovation Campus, Irvine and the HALO Enterprise & Innovation Centre, Kilmarnock, the quality of which is normally only available within large city centres. Rents are available at a fraction of city centre costs whilst benefitting from all that Ayrshire has to offer.”

“We are also excited to be instructed by North Ayrshire Council in the marketing of new build state of the art Advanced Manufacturing unit at i3 Riverside Business Park, Irvine extending to 18,180 sqft with 8m eaves heigh, which offers unrivalled quality accommodation rarely created upon bespoke basis.”

The retail sector is also slowly recovering throughout Ayrshire, with a resurgence in demand from small local independent retailers, providing boutique-style individual offerings.

Graham + Sibbald offers a high level of personal service, specialist skills and local knowledge from the largest multi-disciplined team of property professionals within Ayrshire, providing a full range of commercial and residential property services from their offices in Ayr and Kilmarnock.

Highland and Islands Industrial Property Overview – Kenny McKenzie, Associate, Inverness

Graham + Sibbald are extremely active in the Highlands & Islands, disposing and acquiring all styles and type of commercial property.

For the purposes of this article, the subject is industrial property and particularly why it is such a strong asset class.

The Longman Industrial Estate is the premier business address for Class 4, 5 & 6 (and some retail) operators within Inverness and it serves the local population of upwards of 60,000 people.  It is also the focal point for business for the wider Highlands & Islands which has an estimated population of in excess of 250,000.

Within the Inverness area, there is a limited supply of development land and therefore the Longman (out with the established areas of the Carse Industrial area and Dalcross/Inverness Airport Business Park) experiences very little competition from other locations.  As such, local occupiers and existing businesses will seek to secure accommodation within the Longman Industrial Estate to serve the established customer base. There is very limited supply of new build industrial accommodation within Inverness and the Longman in particular due to the lack of available land.  Because of the occupier demand, older units tend to be refurbished, upgraded and extended to meet the requirements of occupiers and businesses as they grow.  There is not enough development to cater for the demand from occupiers and that underpins the Longman as the premier business address within Inverness. The Longman cannot naturally extend because it is bordered by the Moray Firth, A9 trunk road and Inverness city centre.  The combination of active occupier requirements and lack of new product means that there is significant pressure on rental and land values remain strong, despite the recent economic uncertainty and interest rate rises.

We have seen significant rental growth over the past 18-24 months and void periods for units are often practically nil.  Because of this demand, the quality of units when compared to new build is often secondary.

Headline rental levels for prime properties are now well in excess of £10 per sq ft, void periods are practically nil and it is possible to secure long term leases. Land values are also protected by this depth of demand where established businesses prefer to purchase rather than lease.

Given the difficulties in acquiring industrial property in the Highlands, Graham + Sibbald we can offer to act on your behalf. At the outset, once your requirements are understood, we would provide a report highlighting suitable options in the market. Given our expert knowledge, we can provide ideas and opportunities that are not actively marketed. In the majority of cases, the property which is ‘off market’ is the right one.

Using Graham + Sibbald for the acquisition of your property can help avoid any surprises and minimise the risks of buying / leasing in a complex and very active market.

Edinburgh General Market Overview- Murdo McAndrew, Senior Surveyor, Edinburgh

The Scottish Property Market has long been a dynamic and evolving landscape and 2024 has certainly been no exception. This year has experienced unprecedented economic factors which have drastically impacted the market, most notably the cost of living crisis, stabilisation of interest rates and the costs of doing business. The political landscape has also changed significantly with Labour winning the general election in July 2024, which in turn has influenced the Scottish Property Market through its broader economic policies, housing initiatives, and regulatory approaches. However, despite these challenges it can be argued that Edinburgh’s property market in 2024 has so far been impressively resilient, with the city continuing to attract buyers/occupiers and development due to its cultural appeal and economic opportunities.  From a commercial agency perspective, transactions are completing, both on a freehold and leasehold basis, which is a good sign! From industrial units in Newbridge, retail units on Leith Walk to Grade A offices in Edinburgh’s West End, deals are occurring.

As is stands, the Edinburgh Property Market in general terms is continuing to remain strong given the long list of macro and micro economic factors conspiring against it. Occupational demand in retail locations throughout the city remains mostly resilient. Most notably, popular secondary retail locations such as Stockbridge, Bruntsfield, Elm Row and Morningside all perform extremely well with high quality tenants being active and present in these locations. Furthermore, the mixture of national occupiers and local businesses appears to be well balanced, which is a sign of a healthy high street. Vacancy rates and void periods also remain very low in these destinations.

Higher end ‘prime’ city centre shopping destinations in Edinburgh city centre (Princes Street, George Street and adjoining streets) have a slower uptake but vacancies are decreasing despite the competition and appetite for occupiers to take on space within the St James development. A stroll along Princes Street, Edinburgh’s former no.1 shopping destination, highlights this point perfectly with the decline in quality occupiers easy to see, as well as multiple to let boards on the street which used to be a rarity.

The office market in Edinburgh city centre is buoyant with many high profile deals happening within the Grade A market. Grade A office space in the city centre has seen a rental increase with gross headline rents pushing in excess of £45 per sq ft. However, where the Edinburgh office market does struggle is the 1,500-3,000 sq ft floorplate size, whereby the types of occupiers for these size of offices are still riding the wave of hybrid working models, and adjusting to the constant changing business environment which ultimately creates uncertainty for businesses of that size who are arguably at a higher risk of changing business environments.

The industrial market has performed strong since the start of 2024. Occupational demand has been encouraging in most industrial locations around Edinburgh and the Lothians. Investor confidence appears to be high, with an abundance of active buyers in the market (albeit a significant lack stock), however, there are some exciting developments happening in popular industrial locations around the city and along the M8 corridor which connects Edinburgh with West Lothian and Glasgow. Overall, there has been an increased activity within the industrial sector with lots of lettings deals taking place, however, in terms of sales, there is a lack of stock currently available to purchase.

Therefore, overall occupational (tenant) demand for all sectors (offices, retail, industrial, land) is reasonably strong despite the constant challenges of the current climate. Tenants are predominantly still signing (on average) c10 years leases with breaks at 5, with incentives being consistent with previous years.

Rents are holding firm across all sectors, but the most notable increase in rents are prime / Grade A office accommodation and new build modern industrial units. The main reason for this rental growth is that the development pipeline lags, and there is a lack of prime stock being constructed. It is hopeful that once construction costs decrease, growth in supply will be seen with more transactions taking place as a result.

In respect of residential land values, the PLC house builders are having to deal with the perfect storm due to continued supply chain issues, labour costs remaining high, high finance charges and build costs which are expected to continue given the government’s rhetoric to create more sustainable carbon neutral homes. Sales rates have slowed, all of which are putting pressure on profit margins. Furthermore, Edinburgh has a land shortage especially in the city centre which is driven by its historic preservation efforts, competing residential needs and high land prices.  These factors limit opportunities for new commercial projects, pushing developers to look outside the city centre or repurpose existing buildings.

In short, it is difficult to accurately appraise and summarise how each sector and their individual nuances within various sub sectors are performing, however, we are seeing the following in Edinburgh and the surrounds:

• Local retail rents – generally increasing.
• Office rents – generally increasing with grade A rents in Edinburgh now £45 sqft+.
• Industrial rents – stabilising following their sharp rise in the last 36 months.
• Land values – short term land decreasing, strategic land generally remaining firm.

 

On the sales side, things are noticeably slower as active buyers are remaining patient due to the uncertain business environment.  The rise in interest rates throughout 2023 and into 2024 has significantly increased the cost of borrowing money and this has undoubtedly led to less sale transactions.  Consequently, lenders are more cautious when it comes to commercial real estate, particularly in uncertain economic conditions. This has led to stricter lending criteria, making it harder for businesses to secure financing for property purchases.  Higher deposits and more scrutiny of business plans are now required. The knock on effect of this is that vendors see offers subject to finance as too much of a risk.

One must also consider that there are now more aggressive holding costs for commercial property owners. Firstly, the guidance on business rates is constantly changing and there are now stricter regulations on energy efficiency and sustainability in commercial buildings, which can add significant costs for property owners. For example, investors may have had to incur some heavy expense when retrofitting properties to meet new environmental standards, such as improved insulation, renewable energy systems, and energy-efficient heating and cooling.  Investors and businesses are increasingly focused on ESG standards, and properties that do not meet these criteria are becoming less attractive.

It can be argued that one of the biggest influences on sales transactions is Edinburgh’s housing shortage.  There is a shortage of high-quality commercial stock available on the market. In certain sectors demand far outstrips supply, leading to intense competition for available properties. This results in properties often selling quickly, off market or above the asking price, or in “closing date” scenarios, where multiple bids are submitted at once. This in turn can deter buyers from exploring opportunities.

In conclusion, Edinburgh’s property market, like many cities in the UK is facing many threats from multiple directions. However, it is evident that Edinburgh remains a highly attractive place to invest in property due to its robust economy, resilient sectors, strong rental demand and long-term price growth potential. The city’s status as a cultural, educational, and financial hub, combined with its desirable quality of life and ongoing infrastructure developments, ensures strong demand for commercial properties across all sectors.

Graham + Sibbald is one of the UK’s leading property consultancy services.  Starting in Dundee, Scotland in 1959, the firm has continued to expand with a total compliment of 21 office from London to Inverness, over 250 staff and offering over 20 different service lines. We may have grown, however, our knowledge is still unrivalled – we are nationwide but local-wise.

Please contact our Agent Murdo McAndrew (murdo.mcandrew@g-s.co.uk) for more information on the Commercial Property Sector in Edinburgh or visit our website: www.g-s.co.uk

You can see all of Graham + Sibbald’s commercial property listings on NovaLoca here.

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