It also shows that supply is at its lowest level ever recorded, similar to 2001 during the foot and mouth outbreak and 2004 during the run up to the introduction of the Single Farm Payment Scheme.
The survey report says that this is slightly weaker growth than the 1.9% recorded in the same period of 2013 but only a small acreage in England, for example, has publicly come to the market during this quarter.
It also points out that the continued growth in values has been driven by a combination of strong demand and lack of supply although average values mask the diversity in the market with sales achieved at values in excess of £12,000 per acre for the right farms.
The top end of the market continues to be driven by quality and location with large commercial arable farms and high quality estates attracting the strongest demand.
According to Ian Bailey, head of rural research, with year on year growth of 4.8% in the prime regional residential markets, it may be the beginning of an uplift in the residential farm market.
The research shows just over 13,000 acres of farmland were publicly marketed across Great Britain during the first quarter of 2014, a 1% rise on the same period of 2013. However, there was a significant fall of 13% in England but a 66% increase in Scotland and a 52% rise in Wales kept overall supply at last year’s levels. Although supply in Scotland is still around half of the normal supply for this time of year.
In addition there were significant regional variations across England where only a small number of farms have been marketed in the first quarter of 2014. A large increase in supply of 272% was recorded in the East of England and minor increases of 33% in the West Midlands and 4% in the South West of England. There was a fall of 14% in the North of England, a decline of 92% in the East Midlands and a fall of 63% in the South East. But Bailey pointed out that the percentage changes have to be treated with some care.
He also pointed out that the size of the average farm launched to the market so far this year is 40% larger at 226 acres, than in the same period of last year.
‘We do anticipate this year's earlier wet weather could have an impact on supply, although we don’t expect it to be enough to impact on our forecasts for farmland values. Income and cash flow pressures on farm businesses, particularly in the livestock sector, could result in increased debt which in turn could lead to unplanned distressed sales,’ he said.
‘The supply data in this report is derived from publicly marketed farmland. Anecdotal evidence suggests the private market for farms and land remains active with some strong competition for highly commercial units. Activity levels are probably at their highest for several decades,’ he explained.
‘This ties in with the fact that so far this year poorer quality land has performed most strongly. The average value of poor livestock land increased by 4.2% and poor quality arable land by 3.4%, whereas last year the greatest increase in land values was recorded for prime arable land,’ he added.
Savills does not expect a significant change in the overall levels in the supply of farmland, and uncertainty surrounding CAP reform, especially in Scotland and Wales may be an additional limiting factor.
‘Conversely, increased pressures on farm incomes due to the very wet winter may lead to an increase in farms coming to the market. Although this is unlikely, however, to reverse the trend in capital growth,’ said Bailey.
‘We expect average farmland values across the nation to grow at around 6% per annum over the next five years, but there will be significant variations in the rates of growth depending on land and farm type,’ he added.
Bailey also said that quality and location will remain key and therefore good commercial arable and the best dairy farms will have the strongest growth and as the general economic outlook improves he expects further signs of a revival in the prospects for the residential farm, which in recent years has often failed to generate interest in all but the most popular lifestyle locations such as the Cotswolds.
‘While the outlook is good we can never underestimate potential threats which may cause uncertainty and upset the supply/demand balance with the potential to put pressure on value growth. These might include Scottish Independence and the 2015 General Election in the UK, but we don't expect the referendum in Scotland to have a discernible effect on commercial farmland,’ Bailey concluded.
