Farmland values buck current market trends

Farmland values on average have risen by 29% during the past six months across Great Britain and are forecast to increase further this year particularly for the best quality land in the most desirable locations, according to Savills research.

Ian Bailey Savills research comments, “Unlike most property assets farmland continues to significantly increase in value as world food shortages and rising commodity prices make it the choice of a wider range of investors. Average values now stand at £5000 per acre although this figure masks the prices now being achieved for prime arable land, which is often realising in excess of £8000 per acre whilst sales of prime dairy land have recorded values of in excess of £10,000 acre”.

While the rate of average growth slowed during the second quarter of the year to 10% compared with 17% recorded during the first three months, growth for the first six months of this year is not far behind the 30% achieved for the whole of last year.

Jessica Simpson, Savills farm agency comments, “Although values continue to rise, increased costs have brought yields on farmland back to between 1% and 2%. Whilst investors are still in the market for UK farmland, they are currently looking at capital growth over the next 10 years as opposed to short term yields. The credit crunch has affected confidence, particularly in the sub £2million price bracket, where applicant numbers have fallen, however applicant numbers in the over £5million bracket have increased which mirrors both the prime country house and prime central London residential markets”.

Values rose most acutely in the South-West and South-East regions around 15%, compared to single digit growth in the East suggesting that these regions have been catching up with their eastern counterpart where up until recently values had risen most dramatically.

Supply continues to decline; down 17% in England compared to the same time last year at 69,346 acres whilst in Scotland it has fallen by 39% during the same period of comparison to 13,945 acres.

The profile of vendors and purchasers is broadly similar to last year although there has been more purchasing activity from private individuals citing investment rather than lifestyle as their primary motive. Most of the sellers have been non-farmers either selling up or relocating with the number of farmer sellers falling with just 6% citing debt as the main reason for sale.

We have tracked farmland values against those of gold and oil, see chart below, where it shows a good correlation against both. Gold being another commodity in which investment is often greatest during times of economic volatility and oil prices a potential symptom of an economic downturn.