Private buyers seek farmland for many reasons in 2011

National buying agent Ian Hepburn – from Strutt & Parker Private Property Search – reviews the land market in 2011 and looks ahead to 2012

2011 market – key features

This year, as in the last few years, lack of supply has been a feature across all sectors of the market. Private buyer demand has been strong both from commercial farmers wishing to expand, particularly in the arable sector, and investors who regard land as a safe investment alongside gold and other blue chip commodities. Some investors are still seeking lifestyle, sporting and amenity properties. Purchases on behalf of individuals with between £5m and £30m to spend have been split in 2011 between 30% bought privately and 70% on the open market.

• Tax is still a key driver for investors both for capital gains rollover relief and inheritance tax planning

• Some larger residential estates in the South East and the midlands have struggled to find buyers

• Benchmark values for arable land now firmly above £7,000/acre and with competition prices have exceeded £8,000/acre particularly for top grade 2 and 3 land.

• Grassland values have lifted on strength of arable values and are now reaching £5,000 to £6,000/acre where there is strong competition

Arable farming has performed well despite drought in much of eastern England. Contract farming agreements, which are a very attractive proposition for investors, are now showing returns for the farmer/landowner in the region of £175-200/acre sometimes with yields of 2% or more on capital values.

Dairy farming continues under pressure from the constant need for capital investment and animal welfare issues but the best units are attracting commercial farmer buyers.

2012 outlook – main market influences

While economic turmoil prevails in financial markets, blue chip investments like farmland will continue to interest investors, be they individuals who have sold businesses or top level banking and hedge fund managers.

Many larger commercial arable farmers are confident and investing in their businesses so when land comes up for sale they are prepared to compete with the financial investors.

Buyers, particularly those who have not previously been involved in agriculture, may be more cautious in 2012 because of the uncertainty in the eurozone and global financial markets.

2012 outlook – what will happen to land prices?

2011 values are likely to be sustained in 2012, especially if we have short supply again. There is the possibility of another increase in land prices and the top end will attract greater premiums for prime properties.

How much land will come to market in 2012?

With land prices where they are currently, some landowners may consider selling but it is unlikely that we will see any really significant increase in supply in 2012. People may start to look at the market and ask if this is the time to capitalise on these prices. On the flip side, farming profits at least on the arable side look healthy at the moment.

Ideal farm for the private buyer in 2012?

A really good, well equipped 1,000-acre farm with a decent but not over large house in central southern England. It should have undulating land, a decent shoot and two or three cottages.