Farmland prices remain high

Prices for farmland remain high, driven by increased demand for commercial farmland and a continued lack of supply, says the latest RICS Rural Land Market Survey.

Over the past six months 47 per cent more chartered surveyors reported a rise rather than a fall in demand for commercial farmland. This was up from 31 per cent in the previous half year. Demand for residential farmland increased but not as sharply, with 14 per cent more surveyors reporting a rise in demand rather than fall, up from 1 per cent in the last half of 2009. As well as investors, this can be attributed to some ‘lifestyle' buyers returning to the market.

Supply of farmland continued to fall, but at a slower pace. The net balance for availability of commercial farmland remained negative at -6 (from -40 previously). The supply of residential farmland also continued to fall at a similar rate, with availability at -8, (from -43 in the last six months of 2009).

Although land values remain high, the survey results present a mixed picture on prices. The transaction based measure of farmland prices (which includes a residential component) actually fell by 6 per cent and now stands at £15,177 per hectare (down from £16,126). However, this may be attributed to the slowdown in the wider housing market, rather than farmland. In contrast, the opinion based measure of bare land prices saw increases of 6 per cent to £13,530 (up from £12,715).

Looking ahead, surveyors expect farmland prices to continue rising over the next 12 months due to the imbalance in supply and demand. However, it is the commercial farmland sector which can expect to see the sharpest price rises, with 45 per cent more surveyors expecting prices to rise rather than fall.

RICS spokesperson, Sue Steer said: "The demand for farmland shows no sign of abating and it continues to outpace supply. As in the previous survey, we are seeing demand from farmers who are keen to expand their production, particularly into neighbouring farms. Given the elevated prices at the farm gate, it seems farmers are willing to pay a premium in order to do so.

"Farmland continues to be viewed as ‘recession proof' and we are seeing UK and overseas investors purchasing commercial farms as an alternative form of investment which is outperforming other markets. These investors are competing with farmers and keeping prices high."