Farmland values - 5 per cent growth predicted in 2012

The capital value growth of UK farmland is forecast to outperform many commodities markets, residential property, UK gilts and West End offices, according to Savills rural research who expects the average value of farmland in the five years from 2012 to increase by 36%.  More immediately we are predicting average growth of 5% in 2012.  This forecast growth follows a substantial rise in average farmland values over the past five years (138%) which was significantly greater than that recorded for either residential or commercial property or equities.

The medium term prospects for UK farmland in terms of capital growth are extremely positive, although there will be higher yielding alternatives, say Savills. Alex Lawson Director of Savills Farms and Estates comments, “Against a backdrop of economic uncertainty the farmland market is likely to become more diverse in terms of performance, we expect the continuing tightened supply and low interest rates to maintain values for all but the worst quality land.”

Our forecast for next year follows more muted growth than originally expected for 2011. We predicted average growth of 9.7% for all land types in 2011, whereas the average was 5.7%, which included a stalling in growth during Q4 for all regions except Scotland and the east of England. This average however, masks the strong demand for the best arable land which recorded growth of 8.9%.

In terms of supply the area publicly marketed in England was up 10% on 2010 at 116,000 acres. There were clear regional variations with increases in supply recorded for the East of England, the East Midlands and the South East. It is interesting to note that despite the 10,000 acre increase in supply across the eastern counties, the values for the best land in these counties continued to rise significantly.

Lawson again, “Farmers continued to be active buyers particularly when the opportunity to buy a neighbouring block of land arose. There is also undoubtedly demand for the best sporting/residential estate from the amenity buyer, the biggest issue has been the lack of property to buy.”

Charles Dudgeon head of farm and estate sales in Scotland comments, “With continued demand and a decrease in supply, average values have remained firm.  We have seen widening divergence between the values of the best and the poorest arable land, with the former worth up to double the latter: the best arable acres can reach more than £8,000 per acre, whilst secondary arable may be nearer £4,000 per acre. 
Whilst Scottish buyers and local farmers are the most active in the market, there has been an increase in the number of viewers from south of the Border, attracted by the quality, scale and price of some of the farms which have been offered for sale this year.”