According to property firm Knight Frank farm land has seen capital growth of almost 200%. This compares with 57% for the FTSE 100 equities index shares, 48% for average UK house prices .and 100% for top end London real estate.
But the figures show that farmland market did experience a slight lull this summer with average prices across England dipping by 1% to £6,220/acre.
‘Given that farmers have just experienced one of the worst growing seasons for many decades, switching virtually overnight from drought to monsoon conditions, the fact that farmland is only £70/acre below its all time high is a reflection of how robust the market remains,’ said Andrew Shirley, head of rural property research.
‘It is also worth noting that our index reflects the performance of all types of English farmland, from the best soil to the more marginal. Where there is strong demand for land we are still seeing much higher prices being achieved,’ he added.
Decent arable land is still making upwards of £7,500 per acre and that is because there is still a real shortage of good quality land for buyers to get excited about, according to Tom Raynham, head of farm sales in Knight Frank’s London office.
‘A number of new farmland funds are appearing and I have just been retained by a private investor aiming to spend upwards of £10 million building a portfolio of commercial agricultural land.
Part of the attraction for investors is the sharp increase in farm rents. ‘Where we have been conducting three yearly rent reviews for our land owning clients, we have seen increases of up to 40% for traditional Agricultural Holdings Act tenancies,’ said James Del Mar, head of rural consultancy at Knight Frank.
‘Rents for shorter term and more flexible Farm Business Tenancies are also rising rapidly. It has reached the point where landowners need to think very carefully before accepting the highest bids from prospective tenants. On paper they look very attractive, but there is a danger that they will become unsustainable if commodity prices fall. If that happens, your tenant will struggle to pay the rent or may not look after your land as carefully as you would like,’ he explained.
Trees are also increasingly attracting investors, points out Raynham. ‘We have recently sold blocks of amenity woodland in the south of England to UK and overseas buyers for £5,500 to £7,500 per acre, a huge jump in the prices being achieved just five years ago,’ he said.
James Prewett, head of regional farm sales in central and western England said the region is seeing land regularly fetch over £8,000 per care, but added that the market is becoming noticeably more polarised.
‘If there is competitive bidding potential buyers are prepared to pay good prices to secure a deal, but where there is less interest people are being more circumspect about what they will pay,’ he said.
Clive Hopkins, head of Knight Frank’s farms and estates department, is expecting prices to start rising again soon, increasing by around 5% over the next 12 months. ‘While it has undoubtedly been a difficult year for the UK’s famers, the situation has been the same all over the world. This should help to keep commodity prices high and give producers and other potential purchases more confidence going forward. I think the land market will experience a bit of a purple patch next spring,’ he said.
