19 July 2002

Surprise performance as let land returns increase

RETURNS from tenanted land outperformed UK equities and commercial property during 2001, according to the latest let land index from market analyst Investment Property Databank.

Let land showed a total return of 14%, up from 12.8% in 2000, while stocks and shares saw their values drop by a similar amount. Over a 10-year period let land produced a nominal return on investment of 12.6%, again higher than the UK all-share index which realised about 11%. Over 30 years, shares have shown higher yields but not by much.

This consistently strong performance may come as a surprise, given the downward spiral of farm profits and subsequent readjustment of rents.

But farm business tenancies and the gradual replacement of traditional lower-value tenancies have helped to sustain rental returns, currently running at 3.9%, says IPD director Vida Godson.

"Incomes have been falling but not by as much as might be expected." These, however, only account for a small proportion of total returns. The balance is made up of transactions where land or buildings have been sold, often with vacant possession, and capital value growth which has been supported by strong demand for let land from long-term investors.

The survey covers almost 200,000ha (500,000 acres) valued at over £800m which, despite being only a small proportion of the UKs total stock of tenanted land, represents a significant amount of the agricultural property held specifically for a return on capital, says Jim Ward, head of research at FPDSavills.

Almost two-thirds of the land is owned by the Crown, Church and the Duchy Estates, 16% belongs to private estates, while only 7% is now in the hands of insurance and pension funds.

&#8226 The let land index is sponsored by Cluttons, FPDSavills, Smiths Gore and Smith-Woolley. &#42