Land prices slow but no prospect of serious drop

Land prices have flattened but values will not fall significantly, according to Knight Frank’s Farmland Index. The firm predicts that they are likely to start picking up again more quickly after spring 2011 when farmers begin to see the impact of higher cereal prices on the bottom line.

“Even though agricultural commodity values are currently performing extremely strongly, this slowdown is hardly surprising,” said Andrew Shirley, head of rural land research at Knight Frank.

“No sector of the economy is likely to escape the impact of the government’s spending review; the UK’s economic recovery is still uncertain.”

While the amount of farmland advertised in the UK has gone up this year, in England, the volume of land for sale has decreased so far. This would help prevent farmland values from following other property sectors downwards, said Clive Hopkins, head of farm and estate sales.

English farmland has been outperforming many other property and investment asset classes including the FTSE index for several years and although values rose just 0.8% in the third quarter of 2010, they have grown 17% in the past 12 months, says the firm.

There is a growing number of pension fund and other investors looking for large arable farms which would then be offered on FBT terms. “There’s a dearth of really good, easily run arable farms,” said Mr Shirley.

The average price of bare agricultural land is now £5816/acre, the highest level recorded by the index. Farmers account for 52% of purchases, followed by lifestyle buyers (27%) and then investors (11%).