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Survival of the fittest - the importance of adapting to a changing marketBy: Lisa Parsons

Lisa Parsons, area director for Lloyds TSB Commercial

As the first quarter of 2013 draws to a close, now is a good time to reflect on the progress of the UK property market and examine how firms across the country are faring as we move through the year.

There is no doubt the market remains tough. The backdrop of a difficult economic climate, combined with issues such as the Government’s changes to local planning policy and the green agenda, are all factors that continue to shape the way firms approach fresh opportunities.

There are numerous facts and figures available that illustrate the drop in commercial property prices since the crash in 2007 and 2008. From an investment point of view, the Investment Management Association has said that property investors have seen returns fall on average by over 11 per cent in the past five years and the latest statistics from the Investment Property Databank show that UK commercial real estate values fell for the 16th consecutive month in February.

At the turn of the year, the Property Matters report was published by Lloyds TSB Commercial Banking – a comprehensive study canvassing the views of nearly a thousand commercial and residential property firms across the UK, which records their business confidence levels and intentions to invest over the following three to six months.

Not surprisingly, the national results indicated a predominantly flat property market, and the overall confidence level of UK firms had dropped to the lowest level in a year, with Scotland and the North East recording the sharpest falls.

There are however, encouraging signs in the sector, and it is no shock that London continued to outperform the rest of the country with an almost 15 per cent rise in business confidence, meaning it is now the most buoyant region in the UK.

Furthermore, a promising 30 per cent of the region’s SMEs indicated that they expected property values to rise as they moved through 2013; a similar percentage of residential and commercial businesses revealed an intention to increase their investments, and an encouraging 42 per cent of SMEs expected to see an overall improvement in activity for the market.

On paper, the findings for the capital are largely optimistic but it is important to consider whether these predictions have played out the way firms hoped in the first three months of this year.

A number of trends exist within the London property market - some have been present for a number of years while others have only emerged more recently. However, one thing is consistent - they all have a significant impact on how firms are performing.

While the Property Matters report shows that the majority of London SMEs felt the UK economy was one of the biggest hindrances to the retail property market, it is evident that there are some positive side effects to be capitalised on as a result. As people struggle to get their foot on the property ladder due to a shortage of mortgages, high occupancy rates and tenant demand for commercial property is an area of key return for businesses and the development and refurbishment of existing commercial properties is a strong area of lending that the bank is currently providing.

In addition, the report also found that firms in London have the strongest presence within the Eurozone compared to other UK regions, with 29 per cent of firms citing a presence overseas. This expansion is reciprocated in the UK with a significant proportion of strong capital growth emerging in prime areas as a direct result from international investment and high occupier demand.

However, while these developments have aided growth and expansion for a number of firms across London, a shifting focus towards sustainability is beginning to feature more prominently as an additional cost and added pressure for businesses. Ensuring commercial and residential properties meet the required standards for qualifications such as Energy Performance Certificates, can be an expensive burden and financing these adjustments is becoming an important area of funding that banks are being asked to provide.

It is important to remember that there is a wealth of support available for ambitious property businesses and a number of lending products are available, including loans through the Government’s Funding for Lending Scheme, which allows UK businesses to benefit from reduced funding costs.

Additionally, the Government-backed Enterprise Finance Guarantee (EFG) scheme is an ideal funding option for firms who have a viable business proposal, but lack the collateral to secure conventional funding.

The UK property market is still facing a number of challenges and as the landscape continues to shift in response to new legislations and the ever-changing economy, firms need to adapt in order to thrive. However, improved confidence levels from UK property firms hints towards a recovery for the sector as a whole and whatever the aim or ambition, it is crucial that property business leaders explore all of their options when working on their strategies for growth.

About the author

Lisa Parsons is area director for Lloyds TSB Commercial Banking in West London.

Features April 2013

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