19 May 1995

Tenanted land is tops

COMPARED to all other major UK asset classes, tenanted farmland generated the highest total return in 1994 at 15.6%, according to the latest Savills/Investment Property Database analysis.

The annual survey is based on information drawn from 49 funds managed by Savills for various financial institutions.

"Over the 1991-94 period, farmland has shown a total return of 11.1%, exceeding the 8.5% return on commercial property and the 10.9% return on gilts," says the survey.

This return was mainly driven by a 11.3% increase in capital growth caused by strong purchasing demand – especially from sitting tenants who accounted for nearly 40% of all purchases – and rising farm profits. A renewed speculative interest in farmland was also shown by property companies who accounted for five of the years 36 tenanted land purchases.

"Improving farm incomes following the devaluation of the green pound over the last two years has led to a tightening of yields to 5.1% for 1994," says the survey.

Overall rental growth was 0.2% per acre in 1994 as farm incomes increased, although there were regional variations. Rental values on English grade 3 land fell by 4.7% and rose by 8.4% on Scottish grade 3 land, due to rent reviews reflecting improved farm incomes over the previous two years.

During 1994, 43,000 acres of let land were sold reducing the survey sample to 164,000 acres from a high of 549,000 acres in 1984. &#42