Average farmland prices increased in first quarter of 2018 in England and Wales

The average value of bare agricultural land in England and Wales rose 0.4% in the first quarter of 2018, signalling an improvement in the market.

The upturn means prices dropped by just 3% overall during the year to the end of March and now average £7,226 an acre, according to the latest Knight Frank farmland index.

However, the index report says that it would be wrong to say this is necessarily the beginning of a sustained rally. ‘It appears that we are in for a prolonged period of limited market activity with an erratic succession of small quarterly dips, plateaus and rises likely until the market finds a new level,’ said Clive Hopkins, head of farms and estates at Knight Frank.

‘In terms of the factors lending support to current pricing levels, an ongoing lack of supply is probably the most significant. The amount of land advertised in Farmers Weekly, for example, was down by 20% year on year at the end of April,’ he pointed out.

He also explained that non-farming factors, such as the significant number of potential buyers with rollover funds to spend, continue to bolster demand for the limited number of farms that are put up for sale.

‘One might argue that a 0.4% rise is hardly a ringing endorsement of the strength of the
land market, but to me it is significant that prices headed up even slightly at a time of such uncertainty and remain at historically high levels. Only a decade ago, farmland was worth on average significantly below £5,000 an acre, according to our index,’ said Hopkins.

‘Over the past 12 months, average values have slipped by only 3%. It could be argued that even this relatively modest decline is more down to general concerns about commodity markets and the economy as a whole than Brexit,’ he added.

A breakdown of the figures show that farmland has been performing better than other sectors such as the property market in London. In the first quarter of 2018 farmland increased by 0.4% while prices in the prime property market in central London fell by 0.5% and UK wide house prices increased by 0.7%.

Year on year farmland values fell by 3% while prime prices in central London fell by 1% and nationally prices increased by 3%. Over five years farmland has increased by 15%, prime London property by 4% and UK prices by 30%. While over 10 years the figures are up 56%, 23% and 18% respectively.

However, it will take the farmland market some time to adjust to Brexit, according to Tom Barrow, head of country valuations at Knight Frank. ‘I don’t expect things to change overnight. The gradual adjustment in direct payments will cushion even the least profitable farmers, preventing a glut of farms coming to the market,’ he said.

‘However, I do expect the growing disparity in values across the country that we have witnessed over the last five years or so to widen,’ he added.

Currently arable land in Scotland is valued at between £4,000 and £6,000 but in Wales it is £6,000 to £8,000 and in the South East and the South West of England between £7,000 and £12,000.

Ahead of Brexit in March 2019 ambiguity around future trading relationships is continuing to affect certainty, confidence and investment in the farmland markets, according to Ross Murray, chairman of rural asset management at Knight Frank.

‘There is a lot we still don’t know about the future, who knows which Government will be in power this time next year, but farmland will always tick a lot of boxes whatever else is happening politically or economically,’ Hopkins concluded.