English farmland prices expected to decline slightly as austerity measures kick in, report indicates

Values rose just 0.8% in the third quarter of 2010, according to the latest Knight Frank Farmland Index. The average price of farmland is now £5,816 per acre, the highest level recorded by the index and takes growth over the past 12 months to 17%.
 
But prices have flattened despite a leap in the value of cereal prices although the report says that values are not forecast to fall significantly.
 
‘Even though agricultural commodity values are currently performing extremely strongly, this slowdown is hardly surprising. No sector of the economy is likely to escape the impact of the coalition government’s spending review later this month and the UK’s economic recovery is still uncertain,’ explained Andrew Shirley, head of rural land research at Knight Frank.
 
‘The fact that farmland prices still remain at record highs shows how resilient the market is and we believe that the flattening seen in the past three months is a slowdown rather than the beginning of any significant decline. Prices are likely to start picking up again more quickly after spring 2011 when farmers actually begin to see the impact of higher cereal prices on the bottom line.
 
In terms of buyer activity, farmers remain the most active purchasers, accounting for 52% of acquisitions, followed by lifestyle buyers at 27% and then investors at 11%, the report also shows.
 
According to Clive Hopkins, head of farm and estate sales at Knight Frank, the amount of farmland advertised in the UK has gone up this year but much of that was accounted for by several large estates in Scotland, in particular the 23,000 acre Lake Vyrnwy Estate in Wales, which Knight Frank is selling.
 
In England, the volume of land for sale has actually decreased so far in 2010 and he points out that this will help prevent farmland values from following other property sectors downwards.
 
‘The huge amount of interest in the Lake Vyrnwy Estate from investors, conservation organisations, community groups and private individuals also highlights the current strength of demand for farmland. Farmland continues to outperform other property sectors and investment classes and I expect that trend to continue,’ said Hopkins.
 
The Knight Frank Farmland Market Index is an opinion based index, compiled quarterly by professional staff in Knight Frank’s Farms and Estates and Valuations offices in the UK. Farmland is defined as bare agricultural land with neither dwellings nor buildings on it.