1. Property Matters.April 2012 A newsletter for businesses and professionals, focusing on confidence in the UK property sector.

2. Commercial Property Confidence Monitor.UK survey results: At a glance. Overall Condence 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 Property25 All SMEs shows a slight dip in confidence20 Commercial SMEsResidential SMEs 15 Major businesses remain confident in spite of difficultMajor businesses 10 trading conditions 5 0 -5These results are an indication of a gradual Aug-10Feb-11Aug-11Feb-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 theProperty 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 3. Graham McKeanHead of Property, Lloyds TSB CommercialWithin Lloyds TSB Commercial, wereWelcome to the April 2012 edition of Property Matters, a newsletter highlighting thechallenges and opportunities facing property investors, landlords and developersdoing a lot to help our customers towithin the SME (small to medium-sized enterprises) sector.grasp the opportunities ahead and This quarters 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 supportsthe 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 & GloucesterMarch 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 youd like to comment on the newsletter, or find out how you can benefit fromour sector expertise, call us on 0800 681 6078 or visit lloydstsb.com/property Property Matters. 3 4. 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 bybusinesses 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 fragilityowners arent rushing to have offices refurbished and thats 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, weve seen property investment rise, and our lending is up 13% year-on-year. What weve 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. Its 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. Weve 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 timemortgage 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 todays sustained austerity measures, manyHead of Property, Lloyds TSB CommercialProperty Matters. 4 5. The experts view.Ian Potter FRICS FARLASimon RubinsohnAssociation of Residential Letting Agents (ARLA)Royal Institution of Chartered Surveyors (RICS) Chief Economist I think the biggest issueI do think that SME property business ownersI would describe The bigger boys can be far more aggressive in affecting confidence levels tend to react more like consumers and these results as adriving down prices but it is harder for a smaller among SME propertyhousebuyers at times of economic uncertainty. glint of confidence.developer to improve its margins significantly. businesses is still a lack of Weve seen slight improvements in house supply. Yet confidence hassales and mortgage approvals over similar Its too early to get too We have recently seen demand for residential clearly rebounded to some timeframes yet this hasnt 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 shownthat 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 theproperty 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 ofright direction. The residential market needs properties comingfollow what happens this quarter. I hope thisthe 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 fearsin the UK residential market in recent months so the first few months of 2012, this may beabout the possibility of a double dip recessionHowever, the fortunes of those involved in things are definitely happening which could help beginning to happen.for confidence levels to continue that upwardproperty markets at any level are often tied toto 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 dont seem to beDespite regional fluctuations, smaller operators the confidence small businesses are displaying or showing further improvement over thein sync with confidence seen elsewhere isare going to take their ultimate benchmark fromregarding activity in their own sector is still only coming months.when it comes to the performance of their ownwhat 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 arethe smaller operators.very tough out there. I think SME developerslooking back at their actual performanceare not finding it very easy in the ongoingover the final quarter of 2012 and cant seefinancial 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 6. The UK perspective. UK property market activity: Activity in own business sector: Less pessimistic than in previous 2 periodsCautious expectation of more stable Own Sectors Activity net scoressectoral activity All SMEsCommercial SMEsResidential SMEs Major businessesUK Market Activity net scores Own Sectors Activity net scores3025All SMEsCommercial SMEs Residential SMEs Major businessesAll SMEs Commercial SMEsResidential SMEsMajor businesses UK Market Activity net scores103020 52515All SMEsCommercial SMEs Residential SMEsMajor businessesF 02010 Feb-11 A-5 155 Aug-11Feb-11 F-10100 Feb-11Feb-12Aug-11-155-5 Aug-11Feb-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 theAt 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 scoresexpectation 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 aboutposition than is seen by major business who have fallen from a net positive score of +20 in All SMEsCommercial SMEs Residential SMEs Major businesses the same in the Own Businesss Portfolio net itscores or declinecoming 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 50All SMEsCommercial SMEsResidential SMEs Major businessesBoth Commercial and Residential SMEs SMEs modest predictions of increased activity over theAll SMEsCommercial give Residential SMEs Major businesses expectation of decline persists (net score -22). Own Businesss Portfolio net scores 70 6040next 3-6 months (net scores of +5 and +2 respectively), although the majority of businesses60 This more stable SME outlook is being driven more by the UK Commercial sector (net score 50still feel things will stay as they are: 53% Commercial and 60% Residential say activity will stay30All SMEsCommercial SMEsResidential SMEs Major businessesF of +4) rather than by Residential businesses, who continue to predict a net decline (-9).50about the same.4020 Feb-11 A403010 Aug-11 Sector expected to perform best in the next 3-6 months:Feb-11 F3020 0 Feb-11Feb-12 Residential Letting expected to be strongAug-112010 Aug-11 Residential Letting remains-10 sector that most businesses believe will fare the best in the Feb-12the10coming period, with major-20 0businesses shifting to this view from Office sector last wave. Feb-12 0-10-30-20-30Property Matters. 6 7. 25All SMEsCommercial SMEs Residential SMEs Major businesses All SMEsCommercial SMEsResidential SMEsMajor businesses UK Market Activity net scores10 30 205Commercial SMEs 25 15All SMEsResidential SMEsMajor businessesFThe UK: Prospects for the business portfolio.020 10Feb-11A -5 15 5Aug-11 Feb-11 F -1010 0 Feb-11 Feb-12 Aug-11 -155 -5 Aug-11Feb-12-20 0 -10 Feb-12-25 -5-15 -10Business portfolio:Values: -15Static portfolios generally expected by SMEs Limited expectations of movements in values Own Values net scoresAll SMEs Commercial SMEsResidential SMEs Major businesses Own Businesss Portfolio net scores60Own Values net scores50All SMEsCommercial SMEs Residential SMEs Major businesses All SMEsCommercial SMEsResidential SMEsMajor businesses Own Businesss Portfolio net scores 7060 40 60Commercial SMEs 50 30All SMEsResidential SMEsMajor businessesF 5040 20Feb-11A 4030 10Aug-11 Feb-11 F 30200 Feb-11 Feb-12 Aug-11 20 10-10 Aug-11Feb-12 10 0-20 Feb-120-10 -30 -20 -30Similar to the Sector findings, SMEs expect their own businesss Portfolio performance toOn balance, SMEs still foresee little movement in values in the next 3-6 months. 59% thinkstay about the same this wave (net score of +5), although the net position was lower thanvalues will be static, whilst 16% anticipate an increase and 20% predict some degree ofin August or Feb 2011. 23% felt there would be an improvement, 18% expect their portfoliodecline. 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 netposition of +35. This is less bullish than in February 2011 (+65) but on a par with the viewsAmongst those expecting some movement in values, predictions average +2.07% for SMEsexpressed 6 months ago.Own Investment net scores and +2.42% for major businesses. All SMEs Commercial SMEs Residential SMEs Major businessesCommercial property businesses are againAverage %than Residential SMEs, who aremore positive change in total Own Investment net scores both expect broadly static portfolio performanceCommercial and Residential property SMEs 70increasingly expecting that the value ofproperty investment scores of +2 versus -20 their properties will fall (net to end 2012over the coming 3-6 months (net scores of +6 and +2 respectively).All SMEs 60 Commercial SMEsResidential SMEsMajor businesses respectively). In terms of the magnitude of the in totalAverage % change value changes expected, those primarily Commercial Major 50operating in the Commercial Property SMEs to endSMEs movement of SMEsproperty investment predict a netAll sector 2012 Residential +2.31% in values,businessesFeb-11 whilst the Residential property businesses are anticipating a modest average fall of -0.04%.8 40Aug-11CommercialMajor 30 All SMEs 6SMEs Residential SMEs businesses Feb-11 Feb-12 8 20 4 Aug-116 10 2 Feb-12 40 0 2% change to end of 2012Property Matters. 7 0 % change to end of 2012 8. 50 1020 Aug-11Feb-11Feb-12 A 40010 Feb-12Aug-11 F 30 -100 Feb-12 20-20-10The UK: A question of investment. 100 -30 -20 -30Investments: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 businessesAverage % change in total All SMEsCommercial SMEs Residential SMEsMajor businesses property investment Average % change in totalto end 2012 70Commercial property investment to end 2012 Major 60All SMEsSMEsResidential SMEs businesses Feb-11 8Commercial Major 50 All SMEsSMEsResidential SMEsbusinesses Aug-11Feb-11 6 8 40 Feb-12Aug-11 4 6 30 Feb-12202 4 10 0 200 % change to end of 2012% change to end of 2012In terms of intention to invest, the SME markets position remains fairly static, with similarLooking further ahead, businesses were asked to compare the value of their propertylevels 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 thethird (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 theof +20).sector. SMEs predict and average movement of +6.59% in investment value, comparedwith a more modest +2.6% shift for major businesses.In a reversal of the position in August 2011, it is now the Commercial Property respondentswho are the more confident here, with a net score of +22 compared with Residentials +17. Those dealing with Commercial properties seem to see the greatest opportunities thisThe magnitude of increase is also greater for Commercial property SMEs, with net increasesyear, reporting an average planned net increase of +7.32%, compared with +4.71% foraveraging +6.94% as opposed to the +1.91% predicted by those dealing with Residential those in the Residential sector.% of portfolio as Residential: Private Rentalproperties.% of portfolio as Residential: DevelopmentInvestment in the Residential Sectors: Private rental remains slightly stronger thanAll SMEs SMEs% of portfolio as Residential: Private Rental CommercialResidential SMEs Major businesses despite SMEs% of portfolio as Residential: DevelopmentCommercialdevelopmentAll SMEs modest overall reductionResidential SMEs MajorbusinessesCommercialMajor 50Commercial Major All SMEs SMEs Residential SMEs businessesAll SMEsSMEsResidential SMEs businesses50405040Current 3040 Current30End 20122030 End 2012Current Current20End 20121020End 2012 10010 0 0 Property Matters. 8 9. Own Investment net scoresAll SMEs Commercial SMEs Residential SMEsMajor businessesAverage % change in totalproperty investment to end 2012 The UK: Residential trends. Feb-11 8All SMEsCommercialSMEs Residential SMEs Major businesses Aug-11 6 Feb-12420 Investment in the Residential Sectors: Private rental remains slightly stronger than development despite% of portfolio as to end of 2012 % change Residential: Private RentalCommercialMajor modest overall reductionAll 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 30Current 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 20End 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 inResidential: Private Rental % of portfolio as Residential: Development Commercial Major CommercialMajor falling to 29.74%by the end of 2012). All SMEs SMEs Residential SMEs businessesAll SMEsSMEs Residential SMEs businesses 50 40Current30CurrentEnd 2012 20End 2012 100 Property Matters. 9 10. The UK: Eurozones 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 10Clearly, 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 CommercialProperty Matters. 10 11. New life for petrol station site. The site on the popular Ecclesall Road leadingof 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 asour relationship manager really helped in a Nandos 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 hisHampton, consulting engineers Capita Symonds family business interests. The site had originallyand lawyers hlw Keeble Hawson throughout been operated as a filling station by his fatherthe project. in the 1960s and 70s and was later leased to a national oil company. The petrol station was fullyKen Davies, Relationship Director for Lloyds Ken Davies (left), Relationship Director, Lloyds TSBTSB 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 beenCommercials specialist property team for the 900,000 development loan to financeproposition we could immediately see thetransformed into a mix of restaurant and retail units, the construction of the new building, havingpotential 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 whole900,000 loan from Lloyds TSB Commercial.Andrew Senior said: Its 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 weve worked hard with SME property developers play an important role both the planning department and our architectin 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 surroundingproperty teams receive regular training to ensure street, and were 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 repossessedThe area of Sheffield around Ecclesall Roadcompletion 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 outsideProperty Matters. 11 12. Survey methodology.These results refer to interviews with 446 financialdecision makers in small and medium businesses(potential borrowing of 100k-50m) and 30 majorbusinesses (potential borrowing of over 50m) in theproperty 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 youd like this in Braille,intervals by Whats 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: HenryDuncan House, 120 George Street, EdinburghGroups are classified as:Calls may be monitored or recorded in caseEH2 4LH. Registered in Scotland no. 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