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Welcome to Aberdeen: what next for boom city?

The north-east of Scotland has been economically buoyant ever since the discovery of offshore oil and gas. With construction still booming, how can contractors take advantage and what challenges will they face?

Aberdeen, like London, is booming. Tower cranes dot the skyline. Traffic jams snake half a mile long and, with no bypass in place, getting to the airport on a Friday afternoon can take an hour and half to drive a few miles out of the centre.

But thanks to more than £1bn of promised investment in much-needed road and rail infrastructure, there is support for the city’s growth.

On the back of government investment and a booming oil and gas sector, construction activity continued at pace throughout the recession, as it did in London.

Opportunities for national and local contractors are clearly plentiful but the challenges of working in the Granite City are immense.

“It’s even difficult to get your boiler fixed in Aberdeen, because all of the gasfitters work offshore,” says EC Harris’s lead partner in Scotland Graham Hill.

Capacity is the big issue. Materials shortages and rising prices are common, and the much-discussed skills shortage is also worse here.

Project controls and engineering disciplines in particular are proving hard to come by, with the effect rippling down to the central belt.

“It’s even difficult to get your boiler fixed in Aberdeen, because all of the gasfitters work offshore”

Graham Hill, EC Harris

The oil and gas sector is both a blessing and a curse in this way. It hoovers up the talent thanks to the higher salaries it pays – more than £80,000 on average – plus the attractive on-off employment cycle.

But it also keeps the local economy buoyant, ensuring GDP growth is higher here than in Scotland as a whole, as well as keeping unemployment rates at among the lowest in the UK.

Even the potential of independence is unlikely to affect this region too severely. Oil and gas is here to stay, regardless of whether Scotland separates from the UK in September.

A micro-economic climate

Constant demand for natural resources has ensured Aberdeen and its surrounding shire have become a micro-climate, distinct from the rest of Scotland and the UK.

Data published by the Office for National Statistics in December 2012 showed gross value added for Aberdeen city and shire was £14.95bn in 2011, accounting for 13.8 per cent and 1.1 per cent of the Scottish and UK totals respectively.

This did not even include output from offshore activities, which contributed £31bn and is not attributed to any UK region in the statistics.

Aberdeen in numbers


Rise in gross value added in Aberdeen between 2001 and 2011, compared with 48 per cent in UK as a whole


GVA per head in Aberdeen in 2011, second only to inner London across the UK


Ranking of Aberdeen’s GDP per head across the entire European Union


Proportion of Scotland’s gross valued added accounted for by Aberdeen and its shire

In each year from 2005-11, Aberdeen’s GVA growth was in the top three regions of the country, which of course included the hardest years of the recent recession.

“Aberdeen has always been a micro-economic environment within Scotland, but over the past two years especially there has been a real upward trajectory in terms of confidence, investment and prices,” says Turner & Townsend managing director of infrastructure Murray Rowden.

“It never had the recession to the same extent.”

Fuelled by oil and gas

Sean O’Callaghan is a director for Kier Construction in Scotland and says it is the demand from the private sector that really sets Aberdeen apart.

“It is a particularly busy area and most of that is fuelled by the need for new office space for the oil and gas sector,” he says.

“This is evidenced by the growth of several brand new business parks in the city – there are four or five at various stages of construction already.”

Mr Hill echoes this, admitting that demand meant finding office accommodation for his own company was “unlike anywhere else”.

“It’s a seller’s market,” he says. “The serviced office sector is very different. The smaller, central townhouse-type offices are bought by the oil companies and stripped out for their own use.

“The bigger companies then look to build bespoke offices out of town, with car parking and other facilities.”

The influx of people to the city as a result of the growth also means there is demand for residential development – although there is a shortage at the moment.

“There are not enough residential units up there,” Mr Hill says. “The council is addressing that with its masterplan for the region (see map – click to enlarge) and there are a lot of schemes in the pipeline.”

Aberdeen strategic development zones

The Aberdeen City and Shire Development Plan was approved by Scottish ministers in March this year and sets out a strategy for development in the region.

It outlines plans to build up to 67,500 homes, as well as a number of new schools and improvements to road and energy infrastructure.

This wider ripple effect from offshore revenues is the reason both EC Harris and Turner & Townsend opened offices in Aberdeen.

“We saw this coming a few years back,” Mr Rowden says. “We operate in three main sectors: natural resources, property and infrastructure. But it’s really the property and infrastructure sectors that prompted us to open our office.

“The property and infrastructure sectors prompted us to open our office in Aberdeen”

Murray Rowden, Turner & Townsend

“The natural resources market acts as a catalyst for residential and commercial developments, and there is a lot of investment in road and rail networks from the Scottish Government, too.

“This then sees house prices rise, the standard of living go up and more confidence to invest further.”

Aberdeenshire Council head of property Allan Whyte acknowledges that there is a need for more housing in the region, with the Strategic Development Plan mapping the potential developments.

“This has an impact on council developments, too,” he says. “If you build houses, it then creates demand for schools, for example, and other projects.

“We are seeing an increase in spending on construction projects. We have three secondary schools on the go and plans for six primary schools.”

Accommodating demand

This culminates in a wealth of opportunities for contractors in the region, with the residential and commercial sectors in particular providing a lot of work. But it brings its own challenges as well.

Aberdeen city homes planned

Offshore working requires a large amount of temporary accommodation onshore. While many of the employees who work on the rigs come from north-east Scotland, many do not.

Aberdeen International Airport is busy and getting busier, with workers flying in from across the UK and overseas – almost all of whom require accommodation for at least one night before flying on to the offshore fields by helicopter.

“Accommodation is a problem, that’s for sure. There’s not enough capacity in the hotel market or in the serviced apartment market”

Keith Wallace, Costain Upstream

“Accommodation is a problem, that’s for sure,” says Keith Wallace, managing director of Costain Upstream, a division of Costain that provides services to offshore clients. “There’s not enough capacity in the hotel market or in the serviced apartment market.”

And while low capacity and high costs are already proving a challenge, the start of construction on the massive Aberdeen Western Peripheral Route project could exacerbate the problem.

Balfour Beatty Investments makes up a third of the Connect Roads consortium that has won the £745m bundle of roads, which includes both the Western Peripheral Route and the A95 Balmedie-Tipperty scheme.

Also in the consortium are Carillion Private Finance and Galliford Try. Work is expected to start later this year, with completion due in 2018.

“We saw the AWPR as a key opportunity, as did others,” says Balfour Beatty managing director for Scotland and Ireland Murray Easton.

“It’s a significant project in UK terms, nevermind Aberdeen or even Scotland terms, and accommodation will be a factor we have to consider.”

Graduate competition

The other way in which oil and gas competes with construction in the region is in recruitment.

Aberdeen has one of the lowest unemployment rates in the UK. In Q4 2013, the number of people claiming Jobseekers’ Allowance in Aberdeenshire was 0.8 per cent, the lowest of Scotland’s 32 local authorities. The rate was 1.3 per cent for the City of Aberdeen.

The rate of unemployment across the whole of Scotland was 3.1 per cent, while in the whole of the UK it was 2.9 per cent.

“This means that there is a steady pressure on resources,” Mr Easton says. “I think everybody would acknowledge that the oil and gas sector is predominant and attracts resources from all over.”

“I think everybody would acknowledge that the oil and gas sector is predominant and attracts resources from all over”

Murray Easton, Balfour Beatty

In particular, recruitment at graduate level is a problem. “We’re seeing this in central Scotland, too,” Mr Easton continues.

“Graduates can choose to go anywhere and some are choosing to go into the oil and gas sector. Commercial resources like quantity surveyors in particular have that option.”

The main reason is salary levels. Online jobs board reported in a survey in January that average salaries in the UK energy industry were £80,960.

It also reported that 68 per cent of respondents had received a pay rise in the previous 12 months, with 29 per cent of those receiving increases of between 20 and 30 per cent.

“In engineering and project control roles, oil and gas clearly offers higher salaries,” Mr Rowden says.

“I think this is a historic problem – when I graduated from Glasgow in the last century, a whole swathe went off to work in oil and gas. It’s always been the case in Scotland.”

It’s not just contractors and consultants that are competing: clients are, too. Mr Whyte says Aberdeenshire Council has to constantly manage the challenge of recruiting and retaining skilled staff.

“At one of the local universities, every single QS graduate this year went into oil and gas. And that includes my own daughter”

Allan Whyte, Aberdeenshire Council

“The packages on offer in oil and gas are significant, which means we as an employer have to offer other incentives,” he says, adding that the council offers flexible working as one such incentive.

“At one of the local universities, every single QS graduate this year went into oil and gas. And that includes my own daughter. We accept that, though – we’d far rather have the buoyant economy with the challenges that brings, than not have oil and gas.”

Deep pipeline

While these issues have to be managed, the area is still one that is attractive to construction companies.

Turner & Townsend and EC Harris opened their Aberdeen offices after identifying the region’s huge growth potential.

Kier acquired part of the Stewart Milne construction business two years ago so that it could establish a bigger presence in north-east Scotland and use it to springboard north into the Highlands and Islands.

Colas recently established a Scottish contracting arm to take advantage of increased infrastructure spending.

Mr Easton is confident that Balfour Beatty will be there for the long term as well.

“I expect to see a lot of activity in the short-to-medium term for hotels, too, which will tail off after that”

Graham Hill, EC Harris

“We’ve always worked in Scotland, we originated in Scotland – the pipeline is still there as far as we can see across all sectors,” he says.

Residential development is set to continue apace thanks to the clarity set out in the Strategic Development Plan, while demand from oil and gas companies for office space shows no sign of abating, either.

“I expect to see a lot of activity in the short-to-medium term for hotels, too, which will tail off after that,” Mr Hill says.

Investment in infrastructure will need to continue to support this growth. The WPR scheme is a big part of that, but the Scottish Government is also investing in rail.

First minister Alex Salmond announced in March that the government would invest £170m in the Inverness-Aberdeen railway, redoubling the track between Aberdeen and Inverurie, extending platforms, improving signalling and even relocating a station.

This will allow increased services, including a new hourly service between Aberdeen and Glasgow. The region needs this investment in infrastructure to grow and keep up with demand.

Costain managing director for natural resources Alex Vaughan says capacity is already “pretty strained” and there is a “tremendous need” for infrastructure.

“Infrastructure investment in Aberdeen has been absolutely abysmal over the past 30 years. Successive governments have failed miserably to create a UK that’s got more than one major economic hub”

Keith Wallace, Costain Upstream

“If you’re comparing Aberdeen with London, they are both sustainable microclimates that have seen significant growth levels,” he says.

“They both have global economic drivers that are outside the UK’s economy that drive sustained demand – but both have inadequate infrastructure to meet that demand.

“The good news is people have realised that and are now investing to ensure we have the world-class infrastructure to meet the needs of a world-class industry like oil and gas.”

Mr Wallace describes infrastructure investment in the region as “absolutely abysmal” over the past 30 years.

“I think that’s pretty representative of a lot of UK cities in comparison with the amount of investment that goes into London. Successive governments have failed miserably to create a UK that’s got more than one major economic hub.”

Independence impact

The Scottish Government is showing confidence in the region, investing to help it grow and prepare for the future.

But one big question looms over all of this: what will happen if Scotland votes to go independent this September? Will investment by either of the public or private sectors be put on hold?

The general consensus seems to be that, for Aberdeen and north-east Scotland at least, the effects won’t be too keenly felt.

Global industries like oil and gas are able to rise above the shifting sands of local jurisdictional changes, as long as the economic environment in that area is still conducive to good business – and there’s no reason to think an independent Scotland won’t be.

“There will be changes that will have to be responded to either way. I think there will be just as much opportunity as there is risk”

Graham Hill, EC Harris

“People will still want the energy and the industry will continue to go in the same direction,” Mr Wallace says. “From a parochial point of view, it doesn’t make any difference to the energy business.

“The market will still be open for business so, in the realms of oil and gas, I’m not unduly concerned. The issue is bigger than that, though.”

And even if the vote is no, increased powers for the Scottish Government under a form of enhanced devolution look reasonably likely.

Increased fiscal powers over tax and spending might well make a devolved Scotland independent in all ways except in the areas of foreign policy and defence, anyway.

“There will be changes that will have to be responded to either way,” Mr Hill says. “I think there will be just as much opportunity as there is risk.”

A good place to be

The pipeline of work looks strong, with residential development set to continue thanks to the local authorities’ masterplan, while infrastructure spending is ramping up to help support this.

It is clearly a worthwhile market to be part of, but the challenges over resources will have to be carefully managed by anyone who wants to enter it.

Once the WPR scheme is built, the increased capacity offered by that road will unlock even more development opportunities in other parts of the city and wider region, too.

“A lot of companies moved to this region to respond to the demand,” Mr Hill says. “Now, as developer and public sector demand increases again across Scotland, this gives contractors a choice.

“The market in Aberdeen is still hot – but might they find better reward elsewhere? It’s not the only show in town now, but it has always shown consistently strong demand.”

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