Average price of farm land in England increased by 11% in 2013

The average price of English farm land rose by 11% to a record £6,882 per acre in 2013 and it has now almost outperformed gold, according to the latest results from the Knight Frank Farmland Index.

During the same period, gold, an asset class farmland is often compared to, lost almost 30% of its value. Land almost kept pace with the 14% annual hike in the resurgent FTSE 100.

Over the longer term, farmland has also performed strongly, increasing in value by 210% in the past 10 years, just behind the 212% change in the price of gold, which climbed rapidly as investors looked for a safe haven in the aftermath of the credit crunch, and significantly ahead of the 51% rise in the value of the FTSE 100.

The firm says that this on going performance highlights why land is increasingly being looked at as a potential investment by wealthy individuals and funds. Not only does it act as a defensive and inflation hedging component of portfolios, but can also offer steady and reliable capital growth.

The index report says that strong demand from investors as well as farmers, combined with a limited supply of good quality land for sale, is helping to maintain price growth.

It also shows that last year around 150,000 acres of land were advertised on the open market, this compares with around 300,000 acres at the turn of the decade.

The large blocks of investment grade arable land that do come to the market, either publicly or privately, are changing hands for significantly higher sums than the average reported by the  index, according to Tom Raynham, head of Knight Frank’s new Agricultural Investment Acquisitions department.

‘Serious investors are increasingly prepared to do off market deals to secure the right investments. Prices have exceeded £10,000 per acre in some cases,’ he pointed out.

However, even more modestly sized parcels of land in the right location are making good money, said James Prewett, head of Regional Farm Sales at Knight Frank.

‘Just before Christmas somebody tendered over £9,200 an acre for a block of land I am selling in the East Midlands, while in the west of the country a parcel of around 150 acres made £9,000 an acre under a five year £250 an acre sale and leaseback arrangement,’ he explained.

‘Farmers, adjoining landowners and institutional investors were among the bidders for the two blocks. It shows the depth of the market for the right land. The fact that a farmer buyer was prepared to accept a sale and leaseback arrangement also highlights how keen people are to get their hands on land when it becomes available,’ he added.

But he pointed out that there are strong regional differences. ‘I think we will see further price growth for larger blocks of arable land, especially those of interest to investors,’ concluded Prewett.