Land values will increase by up to 7% this year as farmer demand strengthens, says property company Knight Frank.

Even though bareland values slipped slightly during the first quarter of the year (see table), the firm’s head of farm sales Clive Hopkins said he thought this was more of a blip than a pattern.

“Buyers were cautious in the first quarter.

There was a sensitivity to the SFP and an anticipation that more land might be coming to the market.”

But Mr Hopkins said the market was now under “full steam”.

“Demand has risen by 10% over the first three months of 2006, with the increase being higher in the southern counties like Oxfordshire, Buckinghamshire, the Cotswolds and also along the M4 corridor.”

Much of the increased demand had come from commercial farmers, he added.

“For purchasers using us as agents, lifestyle buyers are still the biggest group, at 40%, but farmers now account for 35% of all buyers.

This represents a 67% increase on the previous quarter and suggests that commercial farmers have started to enter the market in growing numbers.”

Not all of this interest was from UK farmers, said Mr Hopkins.

“If you think of commercial farms in the east there is an influx of European farmers, especially Danes, who are looking for productive land rather than amenity farms.

“Without them there might be some slackness in the market.”

But UK farming buyers were also gaining in confidence, he reckoned.

“The single payment system has bedded down and people can more easily make plans knowing what their cash flow is likely to be until 2012.

Some have made the decision to expand.”

This demand should ensure a strong market even if more land came to the market during the rest of the year, said Mr Hopkins.

“The serious supply restrictions of 2005 have rolled forward into the first quarter of 2006 as buyers continue to be left disappointed and frustrated by current land choices.

“To address the supply/demand imbalance there needs to be a significant improvement in the level and pace at which land is brought to the market.”

Land availability has been so low in Wales that the National Assembly has cancelled its latest quarterly price review.

Land values will now be published on an annual basis, it said.

andrew.shirley@rbi.co.uk