The only way is up for farmland values

A relatively short supply of farmland combined with a growing purchaser profile will lead to a continued growth in agricultural land values according to Crispin Holborow head of Savills farm sales team.

Research shows that the average value of farmland across Great Britain increased by 14.9% last year, which puts the cumulative growth since the beginning of 2004 at 50%. Now average values for all types of farmland are above the peak recorded in the mid-1990s when farm profitability was high.

However growth has been most significant in the grassland sector where increases of 41% and 63% were recorded for medium and poor quality pasture respectively. These greater than average increases were largely explained by the strong demand from the lifestyle buyer for farms located in picturesque locations, which most commonly are livestock units.

Our research shows that farmer activity on the buying side increased for the third successive year. 51% of all buyers in 2006 were farmers compared with 49% in 2005. Analysis of the motivations behind this increased activity showed that expansion at 64% was the principal reason behind a purchase while another 20% were relocating.

Lifestyle buyers who have accounted for as much as 40% of all purchasers in recent years, reduced to 30% during 2006 following increased competition, but still remain a major feature of the market and a proportion of the latest City bonus pot is predicted to find its way into rural property this year. Investment played a greater part in the market with 16% of purchases solely for this purpose. During last year we saw an influx of overseas buyers, who were involved in 20% of all deals including the Danes who represented 9% of all purchasers, but for farms of over 500 acres this proportion was nearer to 40%.

Looking at the means of purchase, cash sourced from previous sale proceeds has been steadily increasing during the past five years, and last year was used by 25% of all purchasers compared with 10% in 2002.

Analysis of farm transactions where we were involved shows that the proportion of farmers selling last year was higher than for a few years at 62% compared with 54% in 2005. Last year almost 30% of all vendors cited retirement as the reason for selling. Of all farmers selling, 40% were retiring compared with 33% in 2005 suggesting that retirement is now a realistic alternative to continuing farming, especially where there are no family members to succeed. Also 4.5% of all sellers were planning to move overseas.