Bullish outlook for farmland values

Further evidence of the bullish outlook for English farmland values is contained in the latest flush of reports by agents, with one claiming prices have a reached a record high.

Limited supply and increasing demand are providing a solid base and a good springboard for the market, they say.

Knight Frank reckons the effect is so strong it drove the market to a new high in the final quarter of 2009.

The average price rose 3% between October and December to £5123/acre as more buyers fought to secure fewer acres, according to latest figures from the firm’s Farmland Index. This opinion indicator is based on Knight Frank’s and other companies’ sales and valuations around the UK.

Annual growth hit 6.8%, taking values £23/acre above the previous high recorded in the second quarter of 2008.

“It seems fitting that farmland, which has been one of the strongest performing assets in recent years, should end the decade at an all-time high,” said Andrew Shirley, head of rural research. “An acre of land is now worth £5123 on average, compared with about £2000/acre 10 years ago – a rise of 164%.”

Even prime London property, which grew especially rapidly before the credit crunch, has only managed 113% since the millennium, while the FTSE 100 index fell 22%.

A shortage of land for sale was a key market driver in the past decade and continues to underpin values, he said.

Ten years ago 226,000 acres of farmland were sold in England. Last year, fewer than 150,000 acres were advertised publicly across Britain, about 30% down on 2008. Most owners view land as a long-term investment and have little incentive to sell, he added.

“This dwindling supply of land is being fought over by a large number of potential buyers that shows no sign of abating.”

Commercial UK farmers accounted for 47% of the market over the quarter, the biggest group. Lifestyle purchasers were involved in 25% of sales and institutional and private investors made a noticeable return, said Mr Shirley.

The uncertainty associated with a general election in the first half of 2009 could limit market activity, but he expects average values to climb by at least a further 5% next year.

“Large blocks of productive land, which can already fetch well over £6000/acre, will lead the way, but smaller blocks of amenity land will prove increasingly popular once more with lifestyle buyers,” he said.

Figures from Smiths Gore showed a slight dip (2%) in English bare land values in the final quarter of 2009 to £4800/acre, back to where they started the year.

However, the sample was small, based on the firm’s sales of 2600 acres. That was less than half the area sold in the same quarter in 2008, said head of research Jason Beedell.

“The value of bare land remains firm. It has stayed between £4800 and £4900 for the past year and, despite the credit crunch, is about 30% higher than at the end of 2007.”

In contrast, the value of equipped farms rose for the first time since summer 2008, by 2% in the final quarter of 2009 to £7200/acre across England. “However, values are still about 10% lower than a year ago,” said Dr Beedell.

The picture is of very limited amounts of land for sale and pent up demand from farmer, non-farmer and investment buyers. Just 7800 acres of equipped farms, averaging 210 acres, were marketed during the period, compared with 19,100 acres averaging 308 acres in Q4 2008.

These smaller farms helped values rise, as the house and buildings boosted the value per acre, said the firm’s head of farm agency, Giles Wordsworth, “Given this, careful lotting of farms is essential to maximise value.”