Investors competing with farmers pushes up prices of UK farmland, reports indicate

High prices are being driven by increased demand for commercial farmland and a continued lack of supply according to the Rural Land Market Survey for the first half of 2010 from the Royal Institution of Chartered Surveryors.
 
And according to the latest Savills Farmland Value survey UK farmland has retained its status as a safe investment despite continued economic uncertainty.
 
Over the past six months 47% more chartered surveyors reported a rise rather than a fall in demand for commercial farmland, up from 31% in the previous half year, according to the RICS report.
 
Demand for residential farmland increased but not as sharply, with 14% more surveyors reporting a rise in demand rather than fall, up from 1% in the last half of 2009, it also shows, with investors and some lifestyle buyers returning to the market.
 
Supply of farmland continued to fall, but at a slower pace. The net balance for availability of commercial farmland remained negative at -6, from -40 previously. The supply of residential farmland also continued to fall at a similar rate, with availability at -8, from -43 in the last six months of 2009.
 
Although land values remain high, the survey results present a mixed picture on prices. The transaction based measure of farmland prices, which includes a residential component, actually fell by 6% and now stands at £15,177 per hectare, down from £16,126.
 
However, RICS says this may be attributed to the slowdown in the wider housing market, rather than farmland. In contrast, the opinion based measure of bare land prices saw increases of 6% to £13,530, up from £12,715.
 
Looking ahead, surveyors expect farmland prices to continue rising over the next 12 months due to the imbalance in supply and demand. However, it is the commercial farmland sector that is expected to see the sharpest price rises, with 45% more surveyors expecting prices to rise rather than fall.
 
‘The demand for farmland shows no sign of abating and it continues to outpace supply. We are seeing demand from farmers who are keen to expand their production, particularly into neighbouring farms. Farmland continues to be viewed as recession proof and we are seeing UK and overseas investors purchasing commercial farms as an alternative form of investment which is outperforming other markets. These investors are competing with farmers and keeping prices high,’ explained RICS spokesperson, Sue Steer.
 
The Savills survey shows that during the second quarter of the year the average value of Grade 3 arable land across England increased by 5% to £5,225 per acre, which compares with £2,365 per acre in June 2005. ‘One of the reasons why the market is different this year is because it’s not just farmers driving it. They have been joined by investors so an extra element of competition has been introduced,’ said Christopher Miles, director of Savills Farm Agency.
 
Investors are looking for safer, traditional assets at a time of heightened volatility in European market, he explained. ‘Land can be described as gold with a cashflow,’ he said.
 
Lack of supply is expecting to keep prices high with Savills predicting growth of 5 to 6% in 2010.