The property firm predicts that values are likely to increase by 4% to 5% over the next 12 months in its report covering the first three months of the year.
The report shows that farm land continues to outperform many other asset classes over the mid to long term, although the recent bounce in equity values means the FTSE 100 has performed more strongly over the past year as investors recover some of their appetite for risk.
It points out that gold, one of the few mainstream investments to have outperformed farmland this decade, has, however, lost some of its lustre, increasing in value by 1% over the past 12 months.
Although investors fed up of poor returns seem to be moving away from low yielding, or zero yielding in the case of gold, safe haven investments such as AAA rated government bonds, there continues to be strong interest in farm land.
‘I think farm land still has a valuable role to play in investment portfolios. Even though stocks and shares are back in favour, the markets remain volatile. Land offers something more tangible, yet still has the potential to provide good capital appreciation,’ said Tom Raynham from Knight Frank’s Farms and Estates team.
‘For private investors it also offers significant tax and amenity advantages. This combination of benefits has seen increased activity in Lincolnshire, the UK’s arable heartland, with some large blocks of good arable land recently making over £10,000 per acre,’ he explained.
Despite the continuing weather problems, demand also remains strong from farmers who are prepared to pay a premium to secure land adjoining, or close to, their existing units.
James Prewett, head of Regional Farm Sales at Knight Frank, said that there is still a shortage of supply and, while more marginal land may have a lost a little of its value, demand remains strong for commercial units.
More land could come up for sale over the next few seasons as some farmers decide they’ve had enough of the weather. For many, 2013 could be the third successive difficult harvest, and they could look to take advantage of current strong land prices.
However, Knight Frank analysts believe that UK agriculture still has a very strong balance sheet overall with liabilities well under 10% of the sector’s capital value. They say this means there is unlikely to be a huge increase in the number of disposals. If it appears an over supply is causing values to weaken, potential vendors may well decide to sit tight until the market firms again.
It now also looks like the on going reform of the Common Agricultural Policy (CAP) is unlikely to lead to a major shake up of the European Union’s farm subsidy system as some had feared. The relative weakness of sterling against the euro is also regarded as beneficial for UK farmers.