28th March 2016 back to news

Commercial Property Monthly: Oil and Gas Sector

Commercial Property Monthly: Oil and Gas Sector


In this month's Commercial Property Monthly, Andrew Dandie and Bruce Murdoch were both mentioned in articles regarding the Oil and Gas Sector.


Angus - A Cost Effective Alternative

As Aberdeen continues to feel the effects of the fall in the global oil price are there now signs that Angues is beginning to be considered as a cost effective destintion for the oil and gas sector? Reports Andrew Dandie, Partner Graham & Sibbald.

Angus has always had a number of national, regional and locally based businesses with a focus on the oil and gas sector operating from towns such as Montrose and Arbroath. While there has undoubtedly been a slowdown in the sector as a whole and unfortunately, not an insignificant number of job losses in Angus, there are positivie enquires for commercial space and while there has yet to be a rush down the A90 from Abdereen, there are certainly a number of parties who are looking to locate in Angus to serve the Aberdeen market from a more economic cost base compared to Aberdeen and its immediately surrounding areas.

Montrose, with the resurgent port has enjoyed a boom in demand with occupiers such as GE Oil and Gas continuing with an impressive expansion on both of their sites lying to the north of the town centre.

Graham + Sibbald acted for the landlord of the old Stagecoach Bus Depot on Rossie Island Road which has lain unoccupied for a number of years. The building was successfully let to the growing global subsea group Harkland as a base to serve the north sea via Montrose port. The unit was refurbished to a specification agreed with the ingoing tenant and during negotiations it was clear that companies in this sector expect a high standard of accommodation and are preparted to pay for it, albeit on terms that are substantially below those demanded in Aberdeen to the north.

If quality space, be it new, second hand or refurbished is made available then there are occupiers out there who would pay a new economic rent, both from landlord and occupier point of view but the landlord has to be willing to work with the tenant to meet their specific requirements.

The developer of the Rossie Island Road unit in Montrose, JJKS Estates Limited have now turned their attention to their most recent acquisition ex John M Henderson Building in Kirkton Industrial Estate, Arbroath. The buildings situated on a 6 acre secure site provide a mix of manufacturing, warehousing and office accommodation extending over 90,000 sq.ft. The buildings have impressive eaves heigh and facilities such as overhead cranage already in place. One specific building on the site, Bay 5, has an eaves height of 11 metres, overhead cranage totalling 50 tonnes and a 4 metre inspection pit all of whivh make it a unique facility ideally suited for the oil and gas sector.

The landlord has already commenced work on the site to bring the buildings up to an acceptable standard with recladding work and a full refurbishment taking place. The property is available as a whole or can be sub-divided to meet specific occupiers demand and all enquiries should be made to Graham + Sibbald ho are the sole letting agent via their Dundee and Aberdeen offices.

As the existing stock is taken up by both occupiers and incoming tenants, local and national, then there is the distinct possiblity that there will be a shortage of suitable properties available both to purchase and lease. Any development undertaken in the last 5 years or so has generally been for a specific end user, more than likely, an owner occupiers and with these buildings unlikely to be available certainly in the short term there is a danger that there will be no available stock as speculative development has been non existent since the banking crisis and subsequent recession.


Aberdeen... Where Are We Now And What next?

With the collapse in the Brent Crude oil price in June 2014 from the dizzy heights of $115 to the low of $28 seen in January this year the Aberdeen property market continues to be impacted by the oil downturn in the Oil & Gas sector and the prospect of any meaningful recovery in the short term seems remote. The majority of businesses are looking to "batten down the hatches" and reduce overheads at every opportunity. Whilst there is activity in the lease renwal/ extension market(s) the transactional market is seeing minimal activity. Whilst no sector is immune it is clearly the office market that has borne the brunt of the downturn. The industrial market has shown greater signs of resilience but it did not face the perfect storm experienced by the office market which experienced a significant increase in supply due to the high level of new development of new space predominantly off the back of pre-lets agreed in 2012 to 2014 meeting the fall in demand from late 2014.

Discretionary spend in the city has also fallen which has affected the leisure sector and demand for hotel accommodation has dropped dramatically with significantly lower occupancy levels and room rates. Similar to the office sector, hotels also saw an increase in development activity triggered by the previously buoyant market.

It is widely acknowledged that the amount of available office accommodation on the market is now in excess of 2million sq.ft. which is approximately three times the pre-downturn level of availability and excludes space not being actively marketed by occupiers, who are under occupying their accommodation and see little merit in space planning to relase surplus space.

Aberdeen has a reputation for being contra-cynical which can be on of its appeals to investors..! It has been said that Aberdeen is currently experiencing its own recession that the rest of Scotland (.. and the world..) endured, for very different reasons, in the period 2009 to 2013.

Whilst United Kingdom Continental Shelf (UKCS) is one of the most expensive locations on the planet to produce oil and gas the positive outcome of the current downturn will see the oil and gas sector tackle the previously escalating costs of production which will enhance the future viabilityof the region. It should also be borne in the mind that prior to 2014 only 48% of the oil and gas activity in Aberdeen was connected with UKS and 52% supported the activity in the rest of the world. With current reduction in investment in UKCS there will be an even greater level of overseas activity supported out of Aberdeen.

The current depressed level of the oil price has been caused by the well documented over supply in the market however it is not always appreciated that the demand for oil has also increased in recent years. Clearly before there is the recovery in the oil price the fall needs to be arrested and a period of stability achieved. Over the past month the price of Brent Crude has risen from by over 32% from $28 to $37 which an Aberdeen perspective is encouraging and whilst it is early days to predict the start of the recovery in our property market the Aberdeen market will be ready to provide the market with required space... and an early Date of Entry..!