Oil price ‘trauma’ subsiding for property market

Eric Shearer at Knight Frank in Aberdeen
Eric Shearer at Knight Frank in Aberdeen
Eric Shearer
Opinion by Eric ShearerPartner at Knight Frank

North-east property markets pretty much follow the rise and fall of the oil price, whether industrial, land or residential.

They have recently suffered their most extreme correction in more than 30 years. Demand evaporated just as the supply of every type of property reached an all-time high.

In addition to the trauma of oil prices collapsing, the commercial market has suffered the brunt of a ridiculous broken rating system.

At a time when rental values were collapsing – down anything from 15% for industrial to some office space falling 80% – rateable values increased by an average 23% and in some well-documented cases by more than 200%.

This double whammy resulted in perfectly serviceable office buildings being demolished to avoid punitive rating charges, and we will see many more bulldozed.

Businesses can now secure deals on new or Grade-A office space at the price they were paying for old low-specification buildings four years ago. In many cases, they will pay no rent for a number of years.

Another quirk of the barmy rating system is that if you lease a newly built office building, you pay no rates for 12 months. This is another reason bulldozers are circling older buildings.

If there is a positive to be taken from all this, it has to be that over the next four years Aberdeen will see the average quality of its office stock improve and developers will have an opportunity to find alternative uses for cleared sites.

We believe we’ve reached the bottom of the current market cycle, and it is probably the last chance for savvy shoppers to secure a bargain.