Aberdeen Real Estate: The Next Investment Hotspot?

According to research published by PKF Accountants earlier this month, Aberdeen is one of the few UK hotel markets that experienced an increase in revenue and occupancy rates during July this year...

While the tough economic climate in the UK and elsewhere around the world has understandably resulted in investors targeting core locations - like London - for property investment, there are signs that certain regional markets are becoming more appealing. Aberdeen is a classic example, particularly regarding real estate assets in its hospitality sector.

According to research published by PKF Accountants earlier this month, Aberdeen is one of the few UK hotel markets that experienced an increase in revenue and occupancy rates during July this year. The firm revealed occupancy rates hit 81.1 per cent, up by 11.1 per cent compared to a year earlier, while revenue grew by 21.3 per cent in this period. The organisation's Alastair Rae stated that the city has been "bolstered, and [is] even thriving, due to the buoyant oil and gas sector".

The PKF study revealed that other Scottish markets - such as Edinburgh and Glasgow - did not perform so well, with both these cities posting falls in revenue and occupancy rates. Across Scotland as a whole, hotels reported a 2.8 per cent rise in vacancy levels and a 2.1 per cent decline in sales. It appears that Aberdeen's strong performance has been recognised by those in the hospitality investment sector, with Charlotte Harrington, senior associate with law firm Baker & McKenzie telling the Hotel Investment Conference Europe that the city is one of the destinations her clients are planning to focus on in the coming months.

Hotel News Now reported her as citing Aberdeen alongside Oxford, Coventry and Manchester as markets to watch going forward. At the same event, Robert Cook, chief executive officer of De Vere Hotels and Village Urban Resorts, agreed that the Scottish destination is worth keeping an eye on, stating: "Aberdeen is still underhoteled."

Another factor that could boost Aberdeen's hospitality sector is the development going on at its airport. In June this year, Scottish Development International (SDI) announced that GBP 100 million will be ploughed into the transport hub over the coming 30 years to revamp its terminal building and other facilities. There are also plans to increase the number of passengers who pass through the airport by 40 per cent during the same timeframe, which could have a positive knock-on effect for the tourism industry.

Earlier this year, SDI also highlighted the need for more high-end hotel developments in Scotland, with head of tourism at the organisation Kenneth Clark asserting that demand for four and five-star establishments currently outstrips supply. "We believe that the Scottish hotel industry has the potential to generate one of the highest returns in Europe with an increase in investment in the luxury-end of the market," he concluded.

While there is plenty of evidence to support the promising outlook for Aberdeen's hotel and hospitality sector, there is also research that suggests other parts of the city's commercial property investment market could pick up. According to Knight Frank's Aberdeen office market update for the second quarter of 2012, take-up of this type of space reached record levels of 547,926 sq ft in the three months from April to June this year.

The firm pointed out that the activity in the market has largely been a result of a series of deals within the oil and gas sector reaching completion. Transocean, Nexus and Bibby Offshore were among the companies that agreed pre-lets in this period. Looking ahead, Knight Frank estimated that headline rents for office space in Aberdeen would stand at GBP 32 per sq ft by the close of 2012, partially driven by the lack of new developments coming on to the market in the near term. The only other UK location to come close to this figure for headline rents is Manchester, although Aberdeen stands out because its net effective rent is very close to this level, unlike in many other British cities.

Lewis Anderson, from the infrastructure team at Scottish Enterprise, also stressed that limited development activity will help bolster rents in Aberdeen. However, he is confident that more stock will be delivered on to the market in the future. Mr Anderson stated: "The recent announcement that the Aberdeen Western Peripheral route will go ahead should accelerate the development of sites in Aberdeen." He added that the strength of the energy sector means there is a need for more high-quality space. "Any speculative development in the city centre would likely be rewarded with high demand from numerous blue chip covenants who are currently unable to procure existing stock," he concluded.

- Monday 29 October 2012

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