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Farm rents rise in estate income survey

Farming’s contribution to the profitability of rural estates remained steady in 2009, although agricultural rents increased, according to Savills Research.

The firm’s Rural Estate Benchmarking Survey, which collects information from 200 estates with an average size of 4500 acres, reveals that revenue from agriculture contributed £64/acre to estate income in the spring 2010.

Income from in-hand or contract-farming operations fell back from the highs seen in the 2009 survey to £91/acre and £98/acre respectively, across all regions and farm types.

However, rents from Agricultural Holdings Act tenancies grew almost 5% during the 2010 survey to £67/acre, following an 8% hike the previous year on the back of soaring commodity prices in 2007-2008.

Rent review notices on AHA tenancies are served 12 months in advance, so increased rents sought in 2007-2008 and agreed a year later contributed to the 2009 survey.

The strongest increase seen in the survey was in the livestock sector, where average AHA rents on sheep and beef farms rose 10% to £50/acre.

In contrast, the declining incomes from dairy farming caused average AHA rents to fall 2% to £70/acre in this sector.

While rents on Farm Business Tenancies increased only marginally – 2.1% to £83/acre – the continuing shift from AHA to 1995 Act agreements continues, with FBTs now accounting for 35% of the let area.

Residential property letting remains the most significant proportion of estate income. Revenue from residential lets has continued to increase at an annualised rate of 5% over the last three years of the survey.

The average rent from Assured Shorthold Tenancies on rural estates was £7845 per dwelling in the 2010 survey, an increase of 4% on the year, compared with 1% in the mainstream UK property letting market. There was significant regional variation, with average AST rents of £11,000 a year in south-east England.

Regulated rental incomes increased by 8% in 2010 to £4589 per dwelling.

Savills’ head of rural research Ian Bailey said: “Landlords need to really engage with tenants and understand their needs. You are better off having a property let to a tenant on a slightly reduced rent than trying to get a higher rent on a vacant property.”

Rural estates saw a significant improvement in investment returns in 2010, with an average total return from all let property of just over 7%. And residential assets had increased in value by 4.4%, compared with a 9% fall in 2009.

However, estates still need to manage costs carefully. The survey shows that while property repair costs fell back after a sharp upturn last year, the costs of estate offices and administration grew 6.6% and and now represent nearly 12% of average estate income.