Demand and prices of UK farmland down in first half of 2017

Demand and prices of UK farmland down in first half of 2017
28/08/2017 , by , in INTERNATIONAL

Demand for farmland in the UK has fallen, as have prices, with the sector being hit by a lack of clarity over the Brexit negotiations, a new report shows.

Subdued demand for farmland, coupled with falling land prices and a lack of new supply across the rural sector marked the sector in the first half of 2017, according to the latest land market survey from the Royal Institution of Chartered Surveyors (RICS).

The survey shows that demand for farmland continued to soften across both mixed-use and commercial sectors, the fourth consecutive report in which demand has declined. As with the previous report in the second half of 2016, the latest one cites a lack of clarity over the post Brexit landscape as negatively impacting the market.

Breaking it down, anecdotal evidence does suggest demand for higher quality land remains stronger in comparison, while purchasers are more selective when it comes to lower grade farmland, the report points out.

It explains that coupled with falling demand, there has been a fall in the availability of mixed-use and commercial farmland for the second period in succession. In spite of tightening supply conditions nationally, the recent drop off in demand still places some downward pressure on prices.

The first half of the year also saw the transaction based measure of farmland prices edging lower for a third consecutive report to stand at £9,936 per acre, down 9% based year on year.

Looking ahead, respondents to the survey expect prices to remain in negative territory for the coming 12 months. However, this represents the least negative reading since 2015 and the price expectations have turned progressively less pessimistic in each of the last three reports.

However, the report points to a recovery in average arable land rents in the first half of 2017, up 3% compared to a year ago, although still down 10% on the 2014 peak. At the same time, average pasture land rents were flat through the first part of 2017, but remain down 2% on an annual comparison.

Yields on investment land held steady, having only declined marginally to 1.5% down from 1.6% a year before. Most purchases continue to be made by individual farmers, with just under a quarter of purchases being made by lifestyle buyers. Investments from agricultural businesses and institutional investors both accounted for just under 10%.

‘Farmland prices have fallen from their peak in late 2014 and early 2015 due to weaker demand from farmers, who are the main buyers of farmland. However, the average hides a great variation in prices, for example, from £7,000 to well over £10,000 per acre for arable land,’ said Jason Beedell, partner at Strutt & Parker.

‘Prices depend on the quality of the land, but also on whether there are acquisitive local farmers and investors, who are often looking to roll over funds from the sale of residential development land. Where there is strong local interest, buyers are paying similar prices to the peak; elsewhere, land is struggling to attract interest and sell,’ he explained.

‘Because of this, more land is being tested off the market with neighbours or known active buyers, rather than being formally advertised and put on the market. The appointment of Michael Gove as Secretary of State for Environment, food and rural affairs has been generally welcomed, however, the farming sector, like other industries, wants long term stable policies which it understands and on which investment can be planned,’ he added.

Given the wider political and economic landscape, it is unsurprising that there are some concerns in the market, according to Alex Lawson, director of national farms and estates at Savills.

‘However, there is an inherent confidence in the sector and, where quality farms and estates are priced and presented correctly, they continue to sell well, although prices vary greatly depending on the calibre of the location and whether or not there is competition,’ he said.

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