Property Matters.April 2012 A newsletter for businesses and professionals, focusing on confidence in the UK property sector.
Commercial Property Confidence Monitor.UK survey results: At a glance. Overall Conﬁdence Index 45• Confidence amongst SMEs showing a slight rise in 2012 40 35• Confidence driven by Commercial Property SMEs 30• Following a long-term neutral stance, Residential Property 25 All SMEs shows a slight dip in confidence 20 Commercial SMEs Residential SMEs 15• Major businesses remain confident in spite of difficult Major businesses 10 trading conditions 5 0 -5“These results are an indication of a gradual Aug-10 Feb-11 Aug-11 Feb-12increase in confidence, and an especiallywelcome boost for the SME sector.” The Confidence Index is the average of the net scores for the 5 core questions in the Property Confidence Monitor, i.e.: UK Market Prospects; Sector Prospects; Own PortfolioGraham McKean Performance; Own Values; Own Investment Intentions.Head of Property, Lloyds TSB Commercial Property Matters. 2
Graham McKeanHead of Property, Lloyds TSB Commercial“Within Lloyds TSB Commercial, we’re Welcome to the April 2012 edition of Property Matters, a newsletter highlighting the challenges and opportunities facing property investors, landlords and developersdoing a lot to help our customers to within the SME (small to medium-sized enterprises) sector.grasp the opportunities ahead and This quarter’s results revealed a gradual increase in confidence within the propertymitigate any challenges. industry. As the SME sector is fuelled by confidence, this is very welcome and supports the findings of other surveys.Our lending growth is strong and as Also in this edition:a Group, which includes brands such • Full findings from the Lloyds Bank Commercial Property Confidence Monitor foras Halifax, Cheltenham & Gloucester March 2012. The survey takes into account the opinions of UK property businesses and their advisors and is the only one if its nature to provide a representative andand BM Solutions, we are doing a lot regular view of confidence within the UK commercial property market.to support the property sector.” • Insight and views of the survey and current market conditions from industry experts Ian Potter, Association of Residential Letting Agents (ARLA), and Simon Rubinsohn, Chief Economist representing the Royal Institution of Chartered Surveyors. • Comment and analysis from property specialist businesses and professionals in your region. • A case study revealing the support we are giving to a commercial development that is also creating jobs within its local area. If you’d like to comment on the newsletter, or find out how you can benefit from our sector expertise, call us on 0800 681 6078 or visit lloydstsb.com/property Property Matters. 3
UK property market overview.“In stock market terms, I look at the property marketsector as a “hold”. We can see green shoots ofrecovery and confidence is going in a positive directionfor many, but the recent years have given us a morecautious approach to business strategies.The gradual improvement in confidence in the property sector revealed in our Confidence Monitorsurvey is a very welcome boost for small to medium-sized enterprises (SMEs).Businesses of this size form the bedrock of the UK economy and their strategic growth is fuelled by businesses are continuing to tighten costs. With businesses not taking up office space, propertyconfidence. The dynamism of SMEs means they are addressing factors such as economic fragility owners aren’t rushing to have offices refurbished and that’s exacerbating the situation.and the Eurozone crisis. Their industriousness in working their assets to the full in what is a relativelyflat market is inspiring for the whole economy. Despite this, we’ve seen property investment rise, and our lending is up 13% year-on-year. What we’ve seen is a much longer-term view of investments with investors no longer looking for quickHighlighting this approach is the rising confidence of Commercial Property SMEs. By being more gains through short-term turnaround.flexible than corporates, they can tailor their business strategy to meet different challenges andopportunities as they present themselves. In light of historically low interest rates and other positive economic factors, I expect the rise in property sector confidence to continue for at least the next six months, especially because SpringThe residential rental sector continues to have a confident outlook and is approaching 20% of UK and Summer is historically the house-buying part of the year.housing stock compared to 15% just a few years ago. This is based upon a limited housing stock,while first time buyers are struggling to step onto the housing ladder. It’s also a consequence of Supporting these investments in both commercial and residential markets remains a key focus forfewer residential properties and council housing being built. us here at Lloyds TSB Commercial. We’ve invested in our people to help customers receive the right guidance and products to mitigate any challenges ahead. Our lending growth is strong and ourHowever, this needs to be balanced. Initiatives such as the New Buy Scheme are helping first time mortgage approval rate continues to rise. Our mortgage teams are also getting involved in abuyers and the private rental sector must be careful not to push prices and rents too high or risk number of initiatives to support property purchase to help fuel growth in the market.”losing potential customers.The office accommodation sector has more challenges ahead, especially in the secondary and Graham McKeantertiary markets. Through continued concerns linked to today’s sustained austerity measures, many Head of Property, Lloyds TSB Commercial Property Matters. 4
The experts’ view.Ian Potter FRICS FARLA Simon RubinsohnAssociation of Residential Letting Agents (ARLA) Royal Institution of Chartered Surveyors (RICS) Chief Economist “I think the biggest issue I do think that SME property business owners “I would describe The bigger boys can be far more aggressive in affecting confidence levels tend to react more like consumers and these results as a driving down prices but it is harder for a smaller among SME property housebuyers at times of economic uncertainty. ‘glint’ of confidence. developer to improve its margins significantly. businesses is still a lack of We’ve seen slight improvements in house supply. Yet confidence has sales and mortgage approvals over similar It’s too early to get too We have recently seen demand for residential clearly rebounded to some timeframes yet this hasn’t yet turned into what excited about the small housing at its highest level since 2010 and, if degree and that is pleasing could be called a sustained recovery. uplift in confidence shown that can be maintained, it will certainly help toto see, even if it has happened in a relatively by property firms but, coupled with evidence further improve the confidence of the smallshort period over the first few months of 2012. It would be great to see this confidence among elsewhere of a degree of stabilisation in the property business owners. smaller businesses hold up throughout 2012. wider commercial sector, it is a move in theThis was pre Budget so it will be interesting to The fact that they are the least pessimistic of right direction. The residential market needs properties comingfollow what happens this quarter. I hope this the groups interviewed bodes well that this on the market and availability of finance to helpuplift is indicative of confidence levels for the rest may happen. The RICS has seen slightly more positive moves it get moving. With mortgage approvals rising inof 2012 but I think there are still too many fears in the UK residential market in recent months so the first few months of 2012, this may beabout the possibility of a double dip recession However, the fortunes of those involved in things are definitely happening which could help beginning to happen.for confidence levels to continue that upward property markets at any level are often tied to to bolster this upward trend. the wider economic landscape. But any confidence is going to remain fragiletrajectory without a blip. It is worth noting that despite less pessimism, until we see all of these factors remaining stableWhere smaller businesses don’t seem to be Despite regional fluctuations, smaller operators the confidence small businesses are displaying or showing further improvement over thein sync with confidence seen elsewhere is are going to take their ultimate benchmark from regarding activity in their own sector is still only coming months.”when it comes to the performance of their own what is happening in the larger commercial showing a net score of +1.portfolios over the next three to six months. market and a clearer indication of recovery there will spread greater confidence among This is a reflection of the fact that it is stillThis could be due to the fact that they are the smaller operators.” very tough out there. I think SME developerslooking back at their actual performance are not finding it very easy in the ongoingover the final quarter of 2012 and can’t see financial climate.any evidence why their own portfolio shouldsuddenly improve performance.This article is produced for general information only and should not be relied on as offering advice for any specific set of circumstances. Property Matters. 5
The UK perspective. UK property market activity: Activity in own business sector: Less pessimistic than in previous 2 periods Cautious expectation of more stable Own Sectors Activity – net scores sectoral activity All SMEs Commercial SMEs Residential SMEs Major businesses UK Market Activity – net scores Own Sectors Activity – net scores 30 25 All SMEs Commercial SMEs Residential SMEs Major businesses All SMEs Commercial SMEs Residential SMEs Major businesses UK Market Activity – net scores 10 30 20 5 25 15All SMEs Commercial SMEs Residential SMEs Major businesses F 0 20 10 Feb-11 A -5 15 5 Aug-11 Feb-11 F -10 10 0 Feb-11 Feb-12 Aug-11 -15 5 -5 Aug-11 Feb-12 -20 0 -10 Feb-12 -25 -5 -15 -10 -15 Property SMEs are less pessimistic this wave, anticipating a more stable UK market in the At Sector level there is an emerging air of cautious optimism amongst SMEs, with some next 3-6 months. Whilst not yet predicting a net increase in activity, they have moved away Own Values – net scores expectation of increased activity (net score +5, up from -8). Again, this is a more positive from the net decline (-10) foreseen 6 months ago. 51% now believe activity will stay ‘about position than is seen by major business who have fallen from a net positive score of +20 in All SMEs Commercial SMEs Residential SMEs Major businesses the same’ in the Own Businesss Portfolio – net itscores or decline coming period, with equal proportions saying will improve August to -12 this wave. 60Own Values – net scores (24% each). This is a stronger position than is seen by major businesses, where an overall 50 All SMEs Commercial SMEs Residential SMEs Major businesses Both Commercial and Residential SMEs SMEs modest predictions of increased activity over the All SMEs Commercial give Residential SMEs Major businesses expectation of decline persists (net score -22). Own Businesss Portfolio – net scores 70 60 40 next 3-6 months (net scores of +5 and +2 respectively), although the majority of businesses 60 This more stable SME outlook is being driven more by the UK Commercial sector (net score 50 still feel things will stay as they are: 53% Commercial and 60% Residential say activity will ‘stay 30All SMEs Commercial SMEs Residential SMEs Major businesses F of +4) rather than by Residential businesses, who continue to predict a net decline (-9). 50 about the same’. 40 20 Feb-11 A 40 30 10 Aug-11 Sector expected to perform best in the next 3-6 months: Feb-11 F 30 20 0 Feb-11 Feb-12 Residential Letting expected to be strong Aug-11 20 10 Aug-11 Residential Letting remains-10 sector that most businesses believe will fare the best in the Feb-12 the 10 coming period, with major-20 0 businesses shifting to this view from Office sector last wave. Feb-12 0 -10 -30 -20 -30 Property Matters. 6
25 All SMEs Commercial SMEs Residential SMEs Major businesses All SMEs Commercial SMEs Residential SMEs Major businesses UK Market Activity – net scores 10 30 20 5Commercial SMEs 25 15All SMEs Residential SMEs Major businesses F The UK: Prospects for the business portfolio. 0 20 10 Feb-11 A -5 15 5 Aug-11 Feb-11 F -10 10 0 Feb-11 Feb-12 Aug-11 -15 5 -5 Aug-11 Feb-12 -20 0 -10 Feb-12 -25 -5 -15 -10 Business portfolio: Values: -15 Static portfolios generally expected by SMEs Limited expectations of movements in values Own Values – net scores All SMEs Commercial SMEs Residential SMEs Major businesses Own Businesss Portfolio – net scores 60Own Values – net scores 50 All SMEs Commercial SMEs Residential SMEs Major businesses All SMEs Commercial SMEs Residential SMEs Major businesses Own Businesss Portfolio – net scores 70 60 40 60Commercial SMEs 50 30All SMEs Residential SMEs Major businesses F 50 40 20 Feb-11 A 40 30 10 Aug-11 Feb-11 F 30 20 0 Feb-11 Feb-12 Aug-11 20 10 -10 Aug-11 Feb-12 10 0 -20 Feb-12 0 -10 -30 -20 -30 Similar to the Sector findings, SMEs expect their own business’s Portfolio performance to On balance, SMEs still foresee little movement in values in the next 3-6 months. 59% think stay about the same this wave (net score of +5), although the net position was lower than values will be static, whilst 16% anticipate an increase and 20% predict some degree of in August or Feb 2011. 23% felt there would be an improvement, 18% expect their portfolio decline. Major businesses are far more confident, with nearly two thirds (65%, net +52) performance to decline, and 55% expect it to stay as it is. Major businesses, however, are expecting values to rise. far more confident about their own portfolios than about their sectors overall, with a net position of +35. This is less bullish than in February 2011 (+65) but on a par with the views Amongst those expecting some movement in values, predictions average +2.07% for SMEs expressed 6 months ago. Own Investment – net scores and +2.42% for major businesses. All SMEs Commercial SMEs Residential SMEs Major businesses Commercial property businesses are againAverage %than Residential SMEs, who are more positive change in total Own Investment – net scores both expect broadly static portfolio performance Commercial and Residential property SMEs 70 increasingly expecting that the value ofproperty investment scores of +2 versus -20 their properties will fall (net to end 2012 over the coming 3-6 months (net scores of +6 and +2 respectively).All SMEs 60 Commercial SMEs Residential SMEs Major businesses respectively). In terms of the magnitude of the in total Average % change value changes expected, those primarily Commercial Major 50 operating in the Commercial Property SMEs to endSMEs movement of SMEs property investment predict a net All sector 2012 Residential +2.31% in values, businesses Feb-11 whilst the Residential property businesses are anticipating a modest average fall of -0.04%. 8 40 Aug-11 Commercial Major 30 All SMEs 6 SMEs Residential SMEs businesses Feb-11 Feb-12 8 20 4 Aug-11 6 10 2 Feb-12 4 0 0 2 % change to end of 2012 Property Matters. 7 0 % change to end of 2012
50 10 20 Aug-11 Feb-11 Feb-12 A 40 0 10 Feb-12 Aug-11 F 30 -10 0 Feb-12 20 -20 -10 The UK: A question of investment. 10 0 -30 -20 -30 Investments: Changes in total property Investment in 2012: Investment intention remains relatively buoyant Commercial leads the way on sector investment to end 2012 Own Investment – net scoresAll SMEs Commercial SMEs Own Investment – net scores Residential SMEs Major businesses Average % change in total All SMEs Commercial SMEs Residential SMEs Major businesses property investment Average % change in total to end 2012 70 Commercial property investment to end 2012 Major 60 All SMEs SMEs Residential SMEs businesses Feb-11 8 Commercial Major 50 All SMEs SMEs Residential SMEs businesses Aug-11 Feb-11 6 8 40 Feb-12 Aug-11 4 6 30 Feb-12 20 2 4 10 0 2 0 0 % change to end of 2012 % change to end of 2012 In terms of intention to invest, the SME market’s position remains fairly static, with similar Looking further ahead, businesses were asked to compare the value of their property levels of intent this wave compared with 6 months and a year ago. Currently, just under a investments now with their forecasts for the end of the year. Reassuringly, across the third (31%) expect to increase their property investments in the coming 3-6 months (net score board the research found businesses planning to increase their commitments in the of +20). sector. SMEs predict and average movement of +6.59% in investment value, compared with a more modest +2.6% shift for major businesses. In a reversal of the position in August 2011, it is now the Commercial Property respondents who are the more confident here, with a net score of +22 compared with Residential’s +17. Those dealing with Commercial properties seem to see the greatest opportunities this The magnitude of increase is also greater for Commercial property SMEs, with net increases year, reporting an average planned net increase of +7.32%, compared with +4.71% for averaging +6.94% as opposed to the +1.91% predicted by those dealing with Residential those in the Residential sector.% of portfolio as Residential: Private Rental properties. % of portfolio as Residential: Development Investment in the Residential Sectors: Private rental remains slightly stronger thanAll SMEs SMEs % of portfolio as Residential: Private Rental Commercial Residential SMEs Major businesses despite SMEs % of portfolio as Residential: Development Commercial developmentAll SMEs modest overall reduction Residential SMEs Major businesses Commercial Major 50 Commercial Major All SMEs SMEs Residential SMEs businesses All SMEs SMEs Residential SMEs businesses 50 40 50 40 Current 30 40 Current 30 End 2012 20 30 End 2012 Current Current 20 End 2012 10 20 End 2012 10 0 10 0 0 Property Matters. 8
Own Investment – net scoresAll SMEs Commercial SMEs Residential SMEs Major businesses Average % change in total property investment to end 2012 The UK: Residential trends. Feb-11 8 All SMEs Commercial SMEs Residential SMEs Major businesses Aug-11 6 Feb-12 4 2 0 Investment in the Residential Sectors: Private rental remains slightly stronger than development despite % of portfolio as to end of 2012 % change Residential: Private Rental Commercial Major modest overall reduction All SMEs SMEs Residential SMEs businesses 50 Looking in particular at Residential activity, businesses from the whole property market 40 were asked what percentage of their portfolio is currently Residential Private Rental or 30 Current Residential Development, and where they expected the balance to lie by the end of 2012. Whilst some reduction in portfolio share is predicted for both sectors, overall the 20 End 2012 magnitude of the fall is expected to be slightly greater in the rental than the development 10 market. For all SMEs, Private Rental is expected to fall from 31.02 to 25.6% (net -5.42), 0 compared with a more modest decline of 26.12% to 24.55% (-1.57) in Development properties. Those in the Residential sector are expecting almost a 9% fall in the proportion of rental% of portfolio as their portfolio over the course of this year (average proportion of 38.51% properties in Residential: Private Rental % of portfolio as Residential: Development Commercial Major Commercial Major falling to 29.74% by the end of 2012). All SMEs SMEs Residential SMEs businessesAll SMEs SMEs Residential SMEs businesses 50 40 Current 30 Current End 2012 20 End 2012 10 0 Property Matters. 9
The UK: Eurozone’s wider impact. Eurozone – The UK Overview Eurozone concerns are greatest at the larger end of the market (87% of major businesses expect they will experience a negative impact). For SMEs, around half (49%) expect it to negatively affect their business. Amongst SMEs, Residential Property businesses are marginally more pessimistic about the resultant outlook, with a net position of -46 compared with -42 for Commercial businesses. Effect of Eurozone issues on own business – positive or negative? All SMEs Commercial SMEs Residential SMEs Major businesses 10 “Clearly, Eurozone issues are affecting SME 0 developers’ confidence, although not as -10 Net much as the impact on major businesses. -30 This is because SMEs tend to operate in local -50 -70 markets, rather than across Europe.” -90 Graham McKean, Head of Property, Lloyds TSB Commercial Property Matters. 10
New life for petrol station site. The site on the popular Ecclesall Road leading of the city centre, and created a vibrant mix into Sheffield, has been rebuilt by the developer of shops and restaurants along the road. AJ Senior Ltd to create two restaurant units and a retail unit. The lease on the first part of the “The support from Lloyds TSB Commercial building has already been taken by a 96-cover has been invaluable in completing the project Pizza Express which opened in November, efficiently, and the day-to-day guidance from and the second is shortly to open as our relationship manager really helped in a Nando’s restaurant. navigating the process of my first commercial property development. I have also had fantastic Owner Andrew Senior established AJ Senior Ltd support from the teams at Lambert Smith to develop the site during a reorganisation of his Hampton, consulting engineers Capita Symonds family business interests. The site had originally and lawyers hlw Keeble Hawson throughout been operated as a filling station by his father the project.” in the 1960s and 70s and was later leased to a national oil company. The petrol station was fully Ken Davies, Relationship Director for Lloyds Ken Davies (left), Relationship Director, Lloyds TSB TSB Commercial, said: “The new development decommissioned in 2001, with the tanks removed Commercial with Andrew Senior of AJ Senior Ltd. is a huge improvement to this part of the high and the site environmentally cleansed. street, and one which is also adding real value to Following the granting of planning permission the local area through the creation of new jobs. in 2009, Andrew approached Lloyds TSB “When Andrew approached us with hisA former petrol station in Sheffield has been Commercial’s specialist property team for the £900,000 development loan to finance proposition we could immediately see thetransformed into a mix of restaurant and retail units, the construction of the new building, having potential of the site. The fact that he has been introduced to the bank by his property managed to successfully complete the project increating new jobs in the area, with the support of a consultants Lambert Smith Hampton. what has been a challenging time for the whole£900,000 loan from Lloyds TSB Commercial. Andrew Senior said: “It’s rewarding to see the property industry is a testament to the hard work and planning that has gone into it. realisation of the project which has taken nearly four years to complete – we’ve worked hard with “SME property developers play an important role both the planning department and our architect in helping to boost local economies through the Ian Drabble at Cadenza VM Limited to ensure redevelopment of vacant sites, and our specialist that the building complemented the surrounding property teams receive regular training to ensure street, and we’re really pleased with the result. that they are able to offer customers the support and guidance they need from the outset to the Any property given as security which may include your home, may be repossessed “The area of Sheffield around Ecclesall Road completion of their projects.” if you do not keep up repayments on your mortgage or other debts secured on it. has become a very popular place for young families and university students to live, which has All lending is subject to a satisfactory credit assessment. increased the demand for places to eat outside Property Matters. 11
Survey methodology. These results refer to interviews with 446 financial decision makers in small and medium businesses (potential borrowing of £100k-£50m) and 30 major businesses (potential borrowing of over £50m) in the property market and based in the UK. Participantsare asked to consider what they foresee for the market and their ownbusinesses over the next 3-6 months. Interviews were conducted from6th February – 5th March 2012. The research is conducted at 6 monthly Please contact us if you’d like this in Braille,intervals by What’s Next Business Consultancy Ltd for Lloyds Bank. Net large print or on audio tape.scores show the balance of all positive responses, less all negativeresponses, excluding any ‘stay the same’ answers. We accept calls via Text Relay. Lloyds TSB Scotland plc Registered office: Henry Duncan House, 120 George Street, EdinburghGroups are classified as: Calls may be monitored or recorded in case EH2 4LH. Registered in Scotland no. SC95237. we need to check we have carried out your Authorised and regulated by the Financial• Small businesses (lending of £100,000-£1 million) instructions correctly and to help improve our Services Authority. quality of service.• Medium to large businesses (lending of £1 million-£50 million) Licensed under the Consumer Credit Act Please note that any data sent via e-mail is not 1974 under registration numbers 0004685• Major businesses (lending of £50 million plus) secure and could be read by others. and 0198797 respectively. Lloyds TSB Commercial is a trading name of We subscribe to The Lending Code; Lloyds TSB Bank plc and Lloyds TSB Scotland plc copies of the Code can be obtained from and serves customers with an annual turnover www.lendingstandardsboard.org.uk of up to £15m. To find out more, please call your local specialist property Lloyds TSB Bank plc and Lloyds TSB Scotland Lloyds TSB Bank plc Registered office: 25 plc are covered by the Financial Services relationship manager: lloydstsb.com/propertycontacts Gresham Street, London EC2V 7HN. Registered Compensation Scheme and the Financial or visit our website: lloydstsb.com/property or email in England and Wales no. 2065. Ombudsman Service. (Please note that due to the schemes’ eligibility criteria not all Lloyds email@example.com or call 0800 681 6078. TSB Commercial customers will be covered by these schemes.)
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