8 trends of 2015’s farmland market and 8 predictions for 2016

The land market always reflects what is happening in farming as a whole. This year, in particular, the challenges and opportunities in agriculture have spilled out into that market.

Tumbling farmgate prices have pushed many to sell-off all or part of their land and to become more business savvy when making farmland purchases.

On the other hand, demand for strong commercial units has stayed strong and the need to build new houses has meant more farmers in the market with development roll over money.

With farming less profitable, farmland buyers became more savvy and less productive land became harder to sell. Meanwhile, demand for top commercial farms remained strong, with a view to the long term.

See also: Regional outlook: Bigger land supply in Southern Scottish market expected in 2016

We asked land agents around the country to sum up the top market trends of 2015 and asked them what they think 2016 will bring for the farmland market.

Prices climbed, then fell

The year started with prices continuing to rise at a rapid pace, although these rises were not across the board and huge regional variations prevailed.

Clive Hopkins Clive Hopkins
Head of farms and estates, Knight Frank, London

Bare land across England varied in price considerably, not only from region to region but also locally – from £5,000-£17,000/acre.

These ranges did not reflect land quality since some of the highest prices paid were for Grade 3 arable land. This considerable price rise period stopped at the end of April and since then the land market has levelled off considerably and, in some cases, fallen by approximately 5%.

Market will not see early price rise

On the back of extremely low commodity prices, we do not anticipate land prices rising in the early part of 2016. However, from the second quarter through to the end of the year, we expect prices to start to rise again, clawing back much of the 2015 falls.

Commodity prices, which never directly affect land prices, do affect the confidence of investors.

Reduced farm profitability pushed land on to market

The spring of 2015 brought a greater supply of land to the market than seen for some years.

Although supply remained low in historic terms, this increase in land softened the market with reduced agricultural profitability and retirement being the principal motivations for sale.

Holly RichardsonHolly Richardson-Parry
Partner, Fisher German, Market Harborough

Many investors undertook a strategic review of their property portfolios, taking the opportunity to release poorly performing assets while land values remained at record levels and seeking to retain only those blocks that offered long-term strategic potential.

Realistic pricing will be needed

Both investors and farmers are becoming more cautious as the downturn in commodity prices persists and interest rate rises are predicted.

Land put on the market in 2016 will need to be priced at a realistic level to be sure of sale, as land that is overpriced will linger.

Those without money from other sources will resist paying inflated values, but where there are farmers with rollover relief, high-net-worth individuals or adjoining landowners with an interest, land will still deliver a strong price.

Buyers became more discerning

The number of larger-scale, truly commercial units on the market this year was very low.

James BrookJames Brooke,
Partner, Bidwells, Norwich 

Despite this lack of supply, buyers were more discerning in their requirements, leading to a divergence in land values, depending on soil types, productivity, location and the existence of onerous conditions imposed by vendors.

The appearance of overage, due to the drive for housing, was increasingly commonplace.

More uncertainty expected

Volatility and uncertainty will influence many aspects of the marketplace in 2016, from alterations to the tax regime, an exit from the EU with the inherent effect on the subsidy system, loss of subsidies for green energy, greater control on chemical menus and low commodity prices.

These will continue to unsettle the market in the short term.

However, UK farmland can still be regarded as a store of wealth for the long-term investor, who will play a key role in creating the 2016 marketplace.

Big price variations were seen locally

Never have we seen such a range in land values.

In the past it was usual to see regional differences when it came to prices paid per acre, but this year we saw, in some instances, not only significant variations within counties, but also from parish to parish.

Matthew SudlowMatthew Sudlow
Partner, Strutt & Parker, London

The reason behind it was nothing new – location and quality. An adjoining farmer, nearby landowner or a rollover buyer all within a small radius will compete strongly to buy desirable property on their doorstep.

 The rollover-funded buyer will see a resurgence

There appears to be an increasing number of farmers and landowners who have development funds in the pipeline. This is more prevalent in certain areas of the country than others and is likely to see regionalised demand and competition.

On the flipside, we are experiencing an increase in buyers, investors and institutions recently registering with us, seeking “strategic” land that can be farmed in the short to medium term, but may have some longer-term uplift in value from development land.

Scotland still showed value for money

The 20-30% margin between the average price per acre for prime arable land in England and Scotland continued to attract national interest in Scottish farms from those seeking value in order to expand their farming businesses in a market still dominated by farmer buyers.

Evelyn ChanningEvelyn Channing
Director, Savills, Edinburgh

Supply will continue to increase

As debt levels to UK farming rise to the highest level ever and prospects for improved commodity prices look gloomy, it is fair to assume supply will increase in the short term; a factor that will be instrumental in determining future land values. However, the fundamentals for why land is a good long-term investment remain the same and we expect values to at worst show small falls.

Demand was mixed

Falling commodity prices cooled the enthusiasm of traditional farmer buyers who might otherwise have been keener to acquire land on their boundary.

Anne BarkerAnne Barker
Partner, Brown & Co, Norwich

This may have left some land unsold this year.

However, for larger offerings – particularly the best-quality residential farms – demand was as strong as ever, with the combination of farmer buyers with non-farming money and investors.

This resulted in hot competition and premium prices.

We end the year with unsatisfied demand for good-quality residential farms in the east.

Further polarisation and unpredictability ahead

We are likely to see the market become yet more polarised as the gap between values paid in sought-after areas for the best offerings, and in less strong areas for smaller acreages, widens further. The combined effect is likely to leave average values unchanged, but it will be important for sellers to set out with realistic expectations to avoid disappointment.

Buyers were more prepared to move

Though land values marched onwards from 2010, the market was increasingly sporadic. High prices were achieved in localised markets, while some areas saw little demand.

The market appeared thinner and more focused to the investor or rollover purchaser, the latter being driven by CGT rollover relief witnessed in 2015.

Andrew FallowsAndrew Fallows
Partner, Carter Jonas, York

Buyers were more agile and looked to where would deliver the best opportunities rather than being set on specific geographical locations – which may benefit local farmers looking for contracting or FBT opportunities.

Tax will continue to influence market

Tax-driven purchases will continue to influence the market, while a more flexible planning system will take land out of production and also put money back into the system. Additionally, the chancellor recently announced a £12bn investment in capital infrastructure and a boost to its digital services, including the introduction of a digital tax account. It is thought this announcement could ignite greater debate on the very real need to improve facilities in these communities to enable our rural businesses to continue to thrive.

Commercial units remained in demand

The commercial farm market in Scotland remained remarkably strong despite poor cereal, potato and milk prices of late and confusion and uncertainty about recent CAP reforms.

Duncan BarrieDuncan Barrie
Senior associate, CKD Galbraith, Stirling

However, more marginal arable and livestock units proved to be slightly more difficult to sell, largely due to recent fluctuations in commodity and livestock prices, which created difficulties for farmers trying to obtain finance.

Demand will fall for all but the highest-quality land

While the commercial farmland market has been very buoyant during the recession, the countercyclical nature of the industry has started to show signs of a decline in the demand for all but the very best arable farms, as well as upland farms that can be planted for commercial timber.

We do not expect to see a dramatic fall in prices, but farms brought to the market at asking prices that are ambitious will generally fail to find buyers, which is a predicament not faced by the land market for a number of years.