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Building Evidence

Making an informed decision in business is a challenge at any time, and perhaps more so in the current economic and political climate.

Much of the information we receive is based on anecdote, assumptions or perception and is inevitably filtered. That is why Ledingham Chalmers was attracted to supporting a detailed survey of North-east Scotland's property sector conducted by the research team of Aberdeen & Grampian Chamber of Commerce (AGCC). The result is "Building Evidence", a report presented by AGCC in association with Ledingham Chalmers, Keppie Design and Sir Robert McAlpine.

So what does the report tell us?

Over half of North-east businesses (53%) operating in the property sector have experienced a drop in turnover in the past 12 months, compared with less than one in five (17%) across the rest of Scotland.

Seventy per cent have reported a drop in profitability, compared to just 22% in the rest of Scotland.

Nearly nine in 10 North-east property businesses (88%) say they are feeling the impact of the oil and gas downturn.

The report follows a similar survey carried out by the Chamber of Commerce in 2012 to look at business performance and future outlook.

Four years ago, 40% of North-east businesses were planning to grow their business.

The new report reveals a slight reduction (-14%) in those planning to expand and an increase in those planning to downsize (+8%).

However what is not known is whether businesses intend to grow in the North-east or in other regions in the country.

Future outlook

There is some good news within the 2016 report however, with four in five businesses (81%) optimistic about achieving their set objectives.

A third of North-east businesses (35%) also predict an increase in both turnover and profitability in the next three years, although this compares to 68% and 58% for the rest of Scotland respectively.

Compared with what was reported in the 2012 study, businesses are more satisfied with access to finance, as well as technological developments, and access to business support and advice.

However some of the blame was placed squarely at government’s door, with changes in regulation being seen by more than half the businesses (51%) in the North-east as having a negative impact on the industry.

Context

In Scotland, the construction sector is forecast to contribute £8.5billion to the economy by 2025, and accounting for around 175,000 jobs. In 2015, around 178,000 were employed in the Scottish construction sector, with around 18,000 based in Aberdeen or Aberdeenshire.

In terms of house prices, both Aberdeen City and Aberdeenshire were among the bottom five in the UK for annual growth in the year to April 2016.

A report by Lettingstats in March 2016 revealed rents for two-bedroomed properties in Aberdeen City fell by 17% between winter 2015 and winter 2016. Residential property partner Mike Cunningham comments: “While the statistics reflect what we are seeing in practice, there remains a reasonable demand and uptake of rental properties, with the fall in rental prices opening up a wider range of options to those looking to rent than may have been the case in the past.”

Reaction

James Bream, research & policy director at Aberdeen & Grampian Chamber of Commerce, says: “Property and construction are key drivers of economic growth in the North-east and across the country, which is why an assessment of the sector is of such importance.

“There have been significant changes to the Scottish policy context since the last survey, with further changes in the pipeline.

“Most consultees were interested in how the North-east will meet the challenge of rebalancing property supply, and it will be interesting to see how the market addresses this, whether it can realise new opportunities and instil much-needed new confidence into the sector.”

Jennifer Young, chairman and partner at Ledingham Chalmers, says:

“There’s no doubt the impact of certain nationwide legal, policy and cost challenges - such as the business rate revaluation - is likely to be felt disproportionately badly in and around the Granite City.

“That said, there were elements of positivity throughout the report.

“For example, while there was considerable frustration about the existing planning system, there was a belief that the ongoing review would lead to real improvements and drive economic growth, with factors such as less complex decision-making, accelerated timelines for development, as well as a focus on growth, all desirable.”

Steve Morrice, Ledingham Chalmers commercial property partner, says:

“With 54% of respondents definitely or possibly moving premises in the next five years, according to the report, and more than one in three with no plans to move intending to refurbish instead, the commercial property market is certainly not going to be static.

Also, one in four businesses surveyed intended to renegotiate their lease: presenting opportunities in an area in which Ledingham Chalmers has been particularly proactive with good results”.

Summing up, Jennifer Young adds:

“Reports such as this one are invaluable in providing feedback from businesses across the property and construction sectors: providing evidence that goes beyond anecdotes or assumptions. There is no doubt investor confidence has been impacted by the oil price downturn, alongside the political uncertainty following the EU referendum but with businesses reporting improved productivity and four out of five being optimistic about achieving their objectives, it's clear the North-east remains an area with great potential”.

That view is supported by James Bream who points to AGCC’s Investment Tracker revealing highlighting £5billion worth of public and private sector investment projects already committed and to be delivered in the region by 2030. James notes: “The infrastructure pipeline in the North-east includes transport, housing, technology, innovation, leisure & retail, commercial property, key sector support and education facilities. Examples such as the extension of Aberdeen Harbour and the new Aberdeen Exhibition & Conference Centre create platforms from which the North-east has an opportunity to evolve our economy and build on past as well as future successes. When you add these projects together, there is an exciting story to be told, which we at AGCC will continue to track and share.”

Property survey: Building Evidence October 2016 is available to read/download from the AGCC website:

https://www.agcc.co.uk/research-downloads/sector-insight along with the Investment Tracker, November 2016.

For more information or to add your comments, please contact Jennifer Young or James Bream at James.Bream@agcc.co.uk

Posted, 11 January 2017 Categories: Insights