FG Burnett - General - North East Scotland

Date: 28 May 2009

The commercial property market in north east Scotland has bottomed out, according to leading surveyors and property consultants FG Burnett.

FG Burnett managing director Angus MacCuish believes the local market is proving to be more resilient than other regions in Scotland and the UK.

Demand for offices, both from a leasing and purchase perspective, is still at a healthy level with headline rental levels being maintained and it's a similar story with industrial property, with rents also holding up.

Landlords however, are having to more flexible in negotiation with tenants than was the case 12 months ago, with tenants securing greater concessions on 'softer' elements of deals such as rent free periods, contribution to fit-out, break options and shorter leases.

FG Burnett say there is mounting evidence that well-established food discount retail chains are being very aggressive in expansion terms - the current economic climate favours this particular business model - and this will generate further activity.

Mr MacCuish said: "Demand for secondary retail is also encouraging and we have personal experience of this with a significant number of deals being concluded recently in Aberdeen and surrounding towns.

"On the development front it is changed days from this time last year with very limited interest. On the plus side, however, there are signs that developers are starting to put their heads above the parapet again, although limitations on funding going forward will mean they will be more selective in their pursuit of sites, which has a consequential impact on prices.

"There is some limited activity in the investment sector with cash rich individuals and companies still trying to decide if the market is at the bottom or not. For what it's worth, I think the market has bottomed out, although the cost and availability of debt finance means that the market is not functioning properly."

Mr MacCuish said many clients are willing to buy shorter leases for higher income yields and that reflects their confidence in the local economy. It is possible to acquire modern office buildings in Aberdeen at yields of circa 8.75 - 9.0% on five year leases. The West End area of Aberdeen remains the favoured location for many office investors - its enduring appeal means that supply is very limited and as a consequence prices have remained strong.

Mr MacCuish added: "My view is that compared to what investors can earn on cash, commercial property remains a good bet and when UK plc starts to believe things are getting better, some of the current property investment opportunities are going to look very cheap indeed."

FG Burnett managing director Angus MacCuish

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