Wine making regions in the United States and New Zealand are leading the rankings, according to Knight Frank’s latest global vineyards index which tracks the change in the price of lifestyle or boutique vineyards rather than hobby producers or larger commercial enterprises.
Vineyards falling within the index usually comprise two to 15 hectares of vines with a detached family residence on the estate and, on occasion, outbuildings including a winery or bottling plant.
Now in its third year, Knight Frank’s global vineyard index covers 14 key wine making regions worldwide in both the world’s most established ‘old world’ markets such as Bordeaux and Chianti as well as newer regions such as Colchagua Valley in Chile and Mendoza in Argentina.
On average, the value of vineyards located across the 14 regions rose by 4.5% in the 12 months to June 2014, slipping slightly from the 6.3% rate of growth recorded a year earlier. The index says that the slight dip in performance can be explained by the lower rates of growth amongst the top performing regions which in 2013 were in excess of 25%.
Despite the slower rate of growth, the proportion of wine regions that recorded positive price growth increased from 60% in 2013 to 79% in 2014.
However, the global picture hides some notable standout performances, particularly amongst wine making regions in ‘new world’ locations such as the US, New Zealand and Argentina. The average price of a lifestyle vineyard in the new world rose by 6.2% year on year compared to only 2.3% in the established markets of the old world.
Sonoma County in the US, often overshadowed by neighbouring Napa Valley, recorded the strongest appreciation with vineyard values rising by 17.9% in the 12 months to June.
However, the report says it is worth noting that prices in Sonoma County’s Russian River Valley remain 50% to 65% below those in Napa Valley’s key markets of Rutherford and Howell Mountain.
Alongside Sonoma County, the index’s antipodean markets performed strongly with Hawkes Bay, Marlborough and Barossa Valley recording price growth of 17.6%, 14% and 13.3% respectively over the 12 month period.
The report points out that economies of both New Zealand and Australia are going through a buoyant phase with GDP growth estimated to reach 3.5% and 2.6% respectively this year according to the OECD. Interest from international buyers is also strengthening, in particular from China, the US and France, and global demand for Sauvignon Blanc and Pinot Noir is swelling.
Back in Europe, vineyard prices in Chianti increased the most, by 12% in the year to June, followed by The Rhône Valley which saw prices accelerate by 5.6% over the same period. Both markets tick many boxes on buyers’ wish lists in terms of views, landscape and property type and crucially both regions are easily accessible.
France’s most favoured wine making regions, Bordeaux and Burgundy, saw prices hold firm year on year. Although demand varies significantly from one AOP in France to another, the dominance of large commercial setups limits the opportunities for lifestyle vineyard owners in both these regions, with some looking instead to Provence, Languedoc and The Rhône Valley where there is greater choice and they are within easy reach of the Cote d’Azur.
The weakest performing markets were Piedmont in Italy, Stellenbosch in South Africa and Colchagua in Chile. Here, price growth fell into negative territory, declining by 8%, 10% and 14% respectively on an annual basis. Local agents report that global economic sentiment has had a bearing on buyer confidence and the availability of finance is tight.
The report suggests that the price falls in the Western Cape are attributable to strong harvests and an oversupply of grapes. This has meant sales prices have failed to stay ahead of input costs making it a less profitable venture. While in Chile, the economy is slowing but capital is still flowing into agricultural and lifestyle investments.
‘We expect demand to strengthen in 2015 with more buyers interested in fractional ownership of managed vineyards,’ the report says, adding that in Italy there is a clear demarcation between the best and the rest.
Although vineyard prices in Piedmont have slipped, the area of Barolo (within Piedmont) is experiencing real growth. Demand is focussed on those areas where there is a quality product with a strong reputation. Other areas in Italy which outperform their wider markets include Brunello and Prosecco.
The report also points out that the flow of vineyard buyers is an increasingly global affair but the influence of overseas buyers varies significantly from region to region, and even from village to village in France and Italy’s case.
Tuscany currently attracts the largest proportion of international buyers at 60% with some areas such as Chianti and Montalcino seeing an even higher percentage of up to 80% due to the reputation of the local wine.
Mendoza in Argentina, which is home to a large number of US, Canadian and also European vineyard owners, is in second place with around 50% of buyers originating from outside of Argentina.
Barossa Valley in Australia and Bordeaux in France are at the other end of the spectrum with foreign purchasers accounting for only 10% of buyers. The reasons differ for this low percentage, according to the report.
Bordeaux’s low proportion of foreign buyers is attributable to the dominance of commercial owners and off-market domestic sales while a slump in prices until recently has deterred some buyers in Barossa Valley, a trend Knight Frank expects to change as Asian interest strengthens.
The presence of Asian buyers is no longer confined to just Bordeaux and Knight Frank research shows that they are increasingly active in the US, New Zealand and Australia.
Only two or three years ago any reference to Asian buyers was synonymous with the Chinese but now it refers to a much broader mix of nationalities from Vietnamese to South Korean as well as the ubiquitous Hong Kong wine enthusiasts.
The Americans are also broadening their reach, although still active in Latin America, they are looking further afield, to Italy and also to New Zealand while Brazilians are no longer focussed solely on Chile, Argentina and the Napa Valley but are interested in Tuscany, in particular Montalcino.
