Arable land set to average £10,000/acre by end of 2022
© Rickbowden/Adobe Stock More than half of the arable land sold so far this year made more than £10,000/acre for the first time ever, according to Strutt & Parker research.
Farmland is continuing to climb in value, with the average price of arable land in England forecast to reach £10,000/acre by the end of 2022.
Tight supply and strong demand has pushed the price of arable land sold during the first nine months of this year up 4% to average £9,800/acre, the highest it has been since the peak of 2015.
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The average price of pasture has risen 6% over the same period, to a record-breaking £8,000/acre.
Supply has been growing, with 66,200 acres publicly marketed by the end of September, which is more than was marketed during the whole of 2020 or 2021.
However, most of this rise can be attributed to a small number of significant sales in terms of acreage, rather than a rise in the number of farms and estates being marketed.
Strutt & Parker’s Farmland Database shows that the number of farms publicly marketed so far in England in 2022 (186) is up on 2020 (170) and 2021 (179), but is still lower than the five-year average (194).
Most activity was in the South East (34 farms) and South West (31), and the least in the East Midlands (16) and Yorkshire and Humber (15).
By type, most farms that have come to the market are arable (61 farms) or mixed (28), with estates (7) and dairy (7) few and far between.
The biggest increase (120%) is in hill farms up for sale (22), which Strutt & Parker believes is mainly a result of planned retirements, rather than farmers being forced out of business.
Stifled activity continuing
The continued constrained supply means there is a growing pool of buyers frustrated by the lack of opportunity, and values being supported, said Savills.
Such high demand means land – from smaller farms to larger commercial estates – can be under offer for up to 20% more than its guide price.
In the third quarter of 2022, land prices have continued to rise, with the overall average farmland value in Great Britain increasing 3.3% to £7,600/acre, according to Savills.
The average values for prime arable and Grade 3 grassland are about £9,700/acre and £6,300/acre, respectively.
Lesser-quality livestock land has seen the largest increase, at 5.9%, showing a continued drive for environmental outcomes, compared with 2.9% for prime arable.
Alex Lawson, head of rural agency at Savills, said: “With land being a longer-term investment, the short-term effect of the national spike in inflation is fairly minimal.
“With a limited supply of land coming into the market, and an increasing demand from investors, we are likely to see prices continue to rise.
“We may also see demand increase from overseas investors, due to the value of the pound dropping.”
Retirements and land supply
Defra’s Lump Sum Exit Scheme application window closed in September and, combined with reducing direct payments, increased costs and uncertainty about future farm policy, there has been speculation that there may be an increase in farmer retirements.
Savills has been tracking advertised machinery sales for the past few years and according to its research, farm sales only accounted for about 10% of machinery sales so far in 2022 – a change in farm management has been a more common reason.
The majority of owner-occupier retirees will meet the exit scheme rules by transferring their land to successors, or letting it under a farm business tenancy, according to Savills.
Therefore, the scheme’s effect on the farmland market will be low, with any increase in supply likely to occur during 2023 so the retiree can meet the 31 May 2024 land transfer deadline.
New peak predicted
The Knight Frank Farmland Index for the third quarter of 2022 shows the average value of farmland has returned almost exactly to the peak seen in the autumn of 2015.
Prices for bare agricultural land rose by 1% on the previous quarter to just above £8,300/acre, taking annual growth to 13%.
However, price growth is starting to slow, with the latest quarterly uptick the weakest since the beginning of 2021, as input costs spiral and traditional area-based subsidy payments to farmers reduce.
Andrew Shirley, head of rural research, said: “Given the continued imbalance between supply and demand, which shows little sign of unwinding, I predict we will still see farmland values hit a new high, albeit by a small margin, by the end of the year.”