Average commercial farmland prices reached a record high of £6,514/acre in the second half of 2011.
This measure of farmland prices from the RICS Rural Land Market Survey, gives a hypothetical value of land based on agents’ opinions.
It shows bare land rose by 7% in the second half of 2011, with an annual gain of 11%.
Land prices based on actual transactions rose to £8,386/acre, where the value of the residential component of the land was less than 50% of the total value of the land being sold.
Land prices by this measure increased by 11% in the second half of 2011 and recorded an annual gain of 19%.
This rise was in part due to farmers’ eagerness to expand production on the back of relatively elevated commodity prices, said the survey.
It also highlighted the growing gap between commercial and residential farmland prices.
Commercial prices have steadily risen over the past two years while residential farmland has stayed relatively flat in line with the broader national housing market. Farmland is classed as residential land where residential buildings account for 50% or more of the value.
“Farmers still account for over 60% of all buyers, but the tax buyer and the institutional investor are still active in this marketplace. Residential farms continue to struggle unless they are located in attractive areas and within close proximity of major communication routes,” said Andrew Pearce, director and head of rural agency at Chesterton Humberts in Lincoln.
“We see the main factors likely to affect the market in 2012 as being commodity prices, prevailing interest rates and access to funding, the euro crisis, and the situation with the CAP reform.
“We see the supply of farmland being restricted again in 2012 and therefore prices will increase but not at the same rates as during the previous two years. As an average, rates could increase by over 5% during 2012.”