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Crashed: Can Aberdeen Recover From The Oil Disaster?

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The Granite City, once known as the Oil Capital of Europe, was at the centre of the oil crash of 2015 when the plummeting price of crude sent the entire North Sea oil industry into a skid, wiping out billions of euros worth of value, thousands of jobs and the sense of security that oil in the North Sea would keep Aberdeen's economy strong.

Oil rig in the North Sea

When oversupply and quibbling at OPEC weakened the global oil industry in 2014, energy strongholds around the world were hit hard. But Aberdeen's pain may be more lasting than markets like Houston or Calgary. Europe, already skeptical of fossil fuels, quickly diverted investment into renewables, where government support and subsidies signaled much-needed stability. Global clean-energy investments increased 17% and renewable companies raised 54% in 2014, reversing two years of declines, according to a report from McKinsey.  

That left oil workers without hope that this downturn would reverse eventually. A report published by Oil and Gas UK said that 84,000 oil sector jobs vanished in 2015, and 40,000 disappeared in 2016. With those kinds of devastating losses, companies that support the industry faltered and collapsed. Many workers simply left Aberdeen.


Official city statistics estimate the population of Aberdeen City is 15% smaller than before the oil market crash. Visitors through the airport were 17% lower in January, meaning far fewer people on the streets.

As property developers completed projects that had been in the works for years, there were no tenants to occupy them. Savills reported that 2015 was a weak year in Aberdeen, Edinburgh and Glasgow, with overall leasing volume falling 23% on the previous year. Savills said the “very sharp slowdown” in leasing in Aberdeen was due to the collapse in oil prices in 2014 and 2015. Total takeup in 2015 was 47% below average for the city and 61% down from the previous year.

Deeside Golf Course, Aberdeen
Deeside Golf Course, Aberdeen

Councillor Willie Young with the Aberdeen City Council said 2014 was overheated for commercial development, but now the city is about where the rest of the UK is. 

2015 remained a strong year, with hotels always full and planning applications flowing forth, but Young said that was not reality. 

“This is reality,” Young said.

The slowdown goes beyond oil: Young blamed new Scottish taxes, including stamp duty, for dampening development. The private sector stopped investing, so the public sector jumped in, such as with the regeneration of the city centre.

Businesses are using this slow period as an opportunity to diversify, and the city is putting forth new plans to attract tourism. Young said Aberdeen is more than oil and gas; there are beautiful beaches, gardens, golf courses and, of course, malt whisky.

“We are not good at selling ourselves,” Young said.

Prime Four Business Park

Recent figures from CBRE show glimmers of hope that the commercial property sector may slowly be returning. Office uptake in Aberdeen grew 53% in the last six months of 2016, compared to the first half when only 86K SF was let. Three offices sold in the second half of 2016 for more than £19M, compared to zero in the first half. The largest of these was the Prime Four Business Park offices of accountancy firm Anderson Anderson Brown, which sold to an unnamed investor for £17.2M.

Subsequent to the sale, developer Drum Property Group submitted plans for a 320K SF retail development, which will sit adjacent to the existing office buildings.

The other sales were low value and include the £1.6M disposition of 12/13 Albyn Terrace to a private buyer and the acquisition of 492 Union Street by Harlaw Investments Ltd. for £187K.

CBRE cited the detrimental impact of the oil and gas downturn, Brexit and the threat of a second Scottish independence referendum as reasons for the weak demand. What little energy is in the sector is coming from family offices and private offices that are taking advantage of the lack of institutional investors in the market.

Marischal Square, Aberdeen

The largest letting of 2016 was the 36K SF taken by charity Somebody Cares at Trafalgar House One, according to a report by Knight Frank. This was one of two deals over 30K SF to complete during the year. The other was the extension of Marathon Oil's 31K SF lease at Kennedy Wilson’s Marathon House, Hill of Rubislaw, even as the company plans to shutter its largest UK rig and most active North Sea operations in the Brae Area. A spokesperson for Marathon Oil told Bisnow that the decommissioning process could take up to 20 years, and that in Q4 2016, the company averaged 19,000 barrels of oil for sale, an increase over the previous quarter.  

There were smaller deals in 2016 that gave hope Aberdeen’s property is recovering, such as PwC being the first occupier to sign at The Capitol, taking 10K SF on a 15-year lease.

Refurbishments are likely to be more popular than speculative development for at least the first half of 2017, CBRE said. With new developments like Marischal Square and the Silver Fin Building nearing completion in the city centre and occupiers still awash with space, rents are likely to remain where they are for the foreseeable future.

While most believe the worst of the oil and gas downturn is safely behind us, there is likely to be a considerable lag before that optimism translates into a strong occupier market. Knight Frank concludes the investor market will reach the bottom of this cycle in the second half of this year or first half of 2018. The firm also predicts secondary value-add investments will appeal to opportunistic buyers monitoring the market closely. 

Aberdeen's commercial property may begin to improve over the next year, but it is unlikely the city will ever be the same.