Tenanted land returns 9% overall in 2010

Overall returns from investment in tenanted farmland were 9% last year. The latest IPD Rural Property Index data shows that capital growth contributed most of this increase, with rental income at 1.6%.

The figures come from farms on a total of 488 estates and are based on returns from almost 219,345ha (542,000 acres). At 15.1%, commercial property returns outperformed farmland in 2010, however rural property did not suffer from negative returns during the recent economic downturn, point out Carter Jonas and Smiths Gore, who sponsor the index.

Net income on let land in the index rose to almost £173/ha (£70/acre) while landowners’ costs fell slightly to just below £49.50/ha (£20/acre). The best performing regions in terms of total annual returns were the South-East, East Midlands, North-West and North-East. By sector, intensive arable gave the best return in 2010, at 15.8%.

However the figures show a huge range in rates of return between estates. For example, when the top and bottom 25% performers are excluded, the range in rate of return is still between 3% and 17%, giving great scope for improvement on many estates, said Gerald Fitzgerald, head of investment and valuations at Smith Gore.

“This shows the importance of active management,” he said. Active management meant making the most of assets and opportunities, for example negotiating with tenants on compensation to surrender parts of holdings where value was locked up, for example in large farmhouses which may no longer be essential to the tenancy.

The total capital value of land in the sample contributing to the IPD Rural Property Index is more than £2.2bn. Contributing estates include traditional landholders such as the Crown Estate, Duchy of Cornwall, The Church Commissioners, Guy’s and St Thomas’ Charity, the Society of Merchant Venturers, Winchester College and Jesus College, Oxford.