26 October 2001

12.8% return on let land is 2000s top investment

By Andrew Shirley

TENANTED farmland is now the top performing investment in the UK despite falling farm incomes, according to one specialist property index.

New figures from research organisation Investment Property Databank reveal that the annual return on let land during 2000 was 8%. When transaction profits, such as the sale of land for development, are included this jumps to 12.8%.

This compares with a 6% drop in the value of UK equities (see graph), and a return of just over 10% for commercial property. Agricultural land also outperformed commercial property over a 10 year period, returning 11.9% compared with 9.2%.

Almost 400,000 acres of tenanted land with a total value of £665m at the end of last year is covered by the index. The figures may come as a surprise to farmers who saw their incomes slashed by 25% during 2000, but Jim Ward, head of research at FPDSavills which contributes to the survey, says residential and commercial letting income has helped maintain levels.

More than 80% of the land in the survey is let under traditional Agricultural Holdings Act tenancies, and although rental incomes dropped by 15% in 1999 the researcher notes that further drops have been mitigated by the residential value of farms to tenants.

AHA rents currently average £68/acre, but in many cases farm business tenancies, which average around £90/acre, have also helped to cushion the impact of declining longer-term rental values.

"Let land still looks a good investment," reckons Mr Ward. "The prospect of the capital value doubling is very attractive."

Prices for tenanted land are typically half that of land with vacant possession tenure and the potential uplift in value when a tenant retires or surrenders a tenancy is a large part of the attraction of ownership.

However, investment opportunities are limited as very little tenanted land tends to come on to the market. &#42