Estates need diverse income despite better returns

In-hand farming and let land provided the best returns on Carter Jonas’ diversified Model Estate in 2013.

Despite these results, diversifying income should remain a priority to reduce exposure to volatile commodity prices and other uncontrollable factors such as changing weather patterns, said the firm.

In addition, estates needed to review their structures and make sure that recent tax developments were taken into account.

Total returns from the estate at 7.8% in 2013 were a considerable improvement from the 2012 result of 1.9%. This rises to 9.2% when the manor house is excluded and 10.3% when the commercial elements of the estate are taken out, highlighting the better performance from the farming elements.

However there was no rent increase on the let land so the improvement here came entirely from the increase in land value, taking the let land portion to 34% of total value against 31.4% the year before.

More on land values Agricultural land values set to rise 5% by 2019

The Model Estate was valued at £32.9m at the end of 2013, an 8.4% increase from its 2012 level. A big part of this rise in value was a 15.4% increase in value of the let farms element of the estate during the year, although the value of the in-hand farms excluding the manor house also rose by 6.8%.

The firm’s Richard Liddiard thought that the let land value trend was now catching up with that of vacant possession farmland.

An improved housing performance and outlook meant that the residential component of the model estate rose in value by 3% while other elements including a syndicate shoot, fishing rights and telecoms mast remained flat.

The in-hand farms produced a total return of 5.1% to 2014, which rose to 6.8% when the manor house was excluded. Poor winter cultivations and an increase in fallow area along with rising fuel and fertiliser costs and a dip in commodity prices squeezed net incomes on this part of the estate.

Commercial lettings produced a nil total return in 2013, with values stabilising compared with a 2.4% drop in 2012. The improvement in performance was entirely due to the additional annual income and savings of £9,000 from a new roof-mounted solar PV scheme.

The estate is considering a larger ground-mounted scheme before changes to the Feed-in Tariff take effect in 2014. Mr Liddiard warned that grid connections were an increasing challenge.

The model estate illustrated well the challenge of letting commercial rural property, he said. Broadband access and the attraction of a rural workplace were both big issues, especially when there was plenty of choice in town centres.

Of the estate’s 14 commercial units, four are vacant, indicating the tentative nature of the market. However vacancy rates had fallen in recent years, with a more flexible approach in negotiations to incentivise tenants to remain in or to take on a property.

Rising property values accounted for a 3% return from the residential element of the estate compared with just 0.4% in 2012, although demand for cottages in rural locations had strengthened.

Capital value and income from the telecoms mast, the shoot and fishing rights remained static, producing a zero return. This was in contrast to a 2012 return of -1.9%.

See more