Farmers likely to shape the land market in 2010
City money made a surprising return to the English land market in 2009, helping to push arable land values back up in the second half of the year.
But, while prices look set to build on that recovery, farming cash is more likely to be the main driver in 2010, says Charlie Evans of Strutt & Parker.
“Last year, lifestyle buyers and private investors bought 32,619 acres, or 46% of the land on our database,” says Mr Evans. “In 2008, they bought just 19,751 acres, under a quarter of the total.
“That might seem surprising. The popular view was that such people were hiding under their desks, waiting for a recovery.”
Instead, Mr Evans reckons bonuses, although highly taxed, put plenty of ready cash into some people’s pockets. The stock market also posted significant gains, while interest rates stayed low.
“Land is also seen as a good hedge against future inflation, one of the safest assets,” he adds. “And there was also a real lack of country houses on the market, so people looking for a rural retreat instead had to look for small farms with a decent house.”
The overall effect helped the English arable land market recover some of the losses seen since 2008, when prices peaked at £6000/acre.
“At the end of 2009 the average acre was worth £5490,” says Mr Evans. That compared with a low point of £5144 recorded in the second quarter, coming soon after the collapse of Lehman Brothers during the depths of the economic downturn, tighter credit and falling commodity prices.
“We believe land will hold on to these recent gains, mainly because of continuing lack of supply.”
In 2008, he estimates just over 112,000 acres entered the English market. Last year, the figure dwindled to 93,000 acres, an 18% drop. “Buyers had to compete, particularly in the second half of 2009, and that allowed values to recover and hold steady.”
Tight supply is likely to remain the over-riding factor, he believes. Prices could edge up by 5% over the next 12 months.
However, a combination of continued low interest rates, the harsh winter and its aftermath, lowish commodity prices and electoral uncertainty is likely to have two effects, says Mr Evans.
“People won’t do much between now and May, when we are likely to have an election. So market activity will be weighted towards the end of the year. And there are likely to be fewer lifestyle and private investors about – farmers are the more likely buyers, especially if a new government introduces higher taxes as a matter of priority.”
That is likely to fuel demand for commercial farms, especially those of 500 to 1000 acres in good wheat-growing areas like Lincolnshire, Cambridgeshire and other nearby counties. “We could see UK farmers again accounting for half the market, as in 2008,” says Mr Evans.
Their overseas counterparts are now conspicuous by their absence. “The Irish have played a much smaller part in the past couple of years, and almost completely disappeared in 2009 due to the state of their economy.
“And the Danes, who came in very heavily when values were hovering around £3000/acre, have been put off by our rising land prices. Given the way exchange rates have gone, you might have expected them to come back in, but they are now looking at Eastern Europe.
“Overseas buyers accounted for just over 9% of the market in 2008, but less than 1% last year. I do not see that changing.”
Where land prices go in the longer term is more difficult to judge. But the underlying trend of rising demand and tightening supplies is set to stay. “On that basis, anything is possible,” says Mr Evans. “I think we are in for an exciting five years; given that values doubled between 2005 and 2008, there’s no reason why they shouldn’t do so again.”
Farm database
Strutt and Parker’s figures for the land market are now gleaned from its new Farmland Database, launched on 1 January, which is based on English, Scottish and Welsh sales of 100 acres or more.
Information is collected from the firm’s team of 17 farm agents across England, rather than researchers, which Mr Evans says produces more accurate statistics.
“It allows us to run much more comprehensive reports. We can assess who’s buying, and break down farms to their constituent parts to provide a more accurate picture of land values and the market.”