Farmland: likely to boom, not bomb

Three big agents say just how much they are looking forward to the farmland market in 2010. Savills, Strutt & Parker and Knight Frank are all upbeat. 

There is currently an estimated £7.5bn of funds available to purchase farms and estates according to analysis of Savills applicant register. For these funds to be exhausted, more than 1million acres of farmland at an average value of £7,500 per acre would have to change hands. This equates to the total acreage publicly marketed for the past six years.

Crispin Holborow, Head of Savills Country Department says, "Farmland is seen as a safe haven in times of trouble, which has held true this year. There are still useful tax benefits both in trading and owning land quite apart from the potential windfalls from development in the future. Land also has obvious lifestyle attractions and an improvement in the amenity and country house markets in the second half of the year have reinforced the rises in farmland values recorded since June."

Savills forecasts that average farmland values will continue to rise in the short and medium term by about 6% per annum. This forecast for annual growth is based upon Savills newly launched farmland model for Great Britain. The weighted model, which takes into account the key variables that affect price such as farm incomes, wheat price and yield, subsidies, prime country house values, is adjusted for any 'lag' effect. 

Ian Bailey, Head of Rural Research says, "Our model predicts that average grade 3 arable land values in England could reach £7,000 per acre and more than £5000 per acre in Scotland. However, the current ranges in values achieved are wide and applying our forecasts to the higher figures achieved could see the best land reaching £10,000 per acre well before 2015."

Savills suggests that the supply of farmland at a national level is unlikely to increase to the point of saturation, which would have the potential to have an adverse effect on values. In England for example the average annual supply of farmland between 2000 and 2009 was 123,000 acres per annum and just 105,000 acres during 2009. The volume of supply would need to reach at least 130,000 acres for there to be any risk of saturation.

Ian Bailey, comments, "We see little reason for the annual supply to increase dramatically save for unforeseen shocks; debt levels, which are the biggest driver of supply are not expected to change significantly on a national basis".

Bailey continues, "There might however be regional variations, including as small livestock producers in the South West and off-farm businesses in the South East, which have succumbed to recessionary pressures."

According to Strutt & Parker, 2009 was a spectacular year for the Estates & Farm Agency Division. Starting with the purchase of the Dalham Hall Estate on the Suffolk/Cambridgeshire borders extending to 3495 acres purchased for a client in the region of £45m.

There was a double whammy in the West Country where two estates exchanged and completed simultaneously, one of 1,060 acres, the other of 1,540 acres with a total value of nearly £20million.

Back in Suffolk, The Rushford Estate went under offer on the first day of advertising over the guide price of £10m and Docking Lodge Farm in Norfolk extending to 1264 acres sold quickly with good competition. Further north, The Scrainwood Estate in Northumberland, extending to 1,048 acres of unbelievably beautiful countryside, sold after strong competition.

North of the Border the sale was concluded of the magnificent Craighall Castle, a Scottish baronial castle in the heart of Perthshire with farmland and fishing on the River Ericht.

Looking forward Strutts hopes that the Kiddington Estate in Oxfordshire offered with a guide of £42m will all exchange early in the New Year but it anticipate 2010 will be short on supply with less land coming to the market and prices nudging up gently.

According to Knight Frank's Rural Bulletin Winter 2009/2010 asks if the new decade herald a new attitude to farming and the countryside from the government? it concludes that, for once, the initiatives coming out of Whitehall seem largely positive. So far this year Knight Frank has seen a new 20-year vision for food and farming that pushes agriculture up the political agenda, while the announcement of a supermarket ombudsman suggests that the growing power of the retailers has at last been recognised. Knight Frank's Andrew Shirley says: "Even the latest reform of the planning system looks as if it could be helpful to rural businesses. A looming general election might partly answer the question and talk is always cheap, but the real challenges for agriculture – volatile commodity and input prices and an increasing environmental burden, not to mention the imminent reform of the Common Agricultural Policy – will remain whoever wins power. It looks set to be another interesting decade. If Knight Frank can be of help in any way you can find contacts for our wide variety of rural service lines on the final page of this bulletin."

In Shropshire, David Giles, a director of Halls, says the recession and instability of financial institutions during 2009 persuaded many owners not to sell their agricultural properties during the year, with result that demand far outstripped supply. "There are lots of buyers waiting to invest in agricultural properties and there is no reason to suggest that the high value of farms and land is going to decline in 2010," he says. "The demand is being fuelled by farmers who want to expand their operations and investors who are looking for a safe haven for their money. Agricultural property relief is an important consideration for investors who want to convert money into a tax efficient asset. 

"Because there has been a dearth of agricultural properties on the market in 2009, there is bound to be a certain amount of catch up in 2010. With the financial markets appearing to be more stable, farmers and landowners are not as nervous as they were about changing the point of investment. 

"My message for them is don't be afraid to sell in 2010 because the market is good and there are plenty of buyers waiting to invest their money. 

"For tax efficiency reasons, our advice to anyone thinking of selling land or a farm property in 2010 is to start the ball rolling as soon as possible with the aim of completing the sale in the current financial year.