Expenditure on the average Scottish estate in 2011 increased by 22%, to £49 per acre (£121 per ha). A significant increase in property expenditure together with smaller increases in legal and insurance costs suggest the economic climate is putting cost pressure on estates.
Property repairs
Property repairs remain the biggest spend and in 2011 amounted to £24 per acre (£59 per ha), as illustrated in Graph 5, representing 27% of gross estate income. An additional £8.74 per acre (£22 per ha) was spent on capital improvements to property – significantly up on the figure recorded in 2010.
Analysis of individual estates shows that much of this increase was attributable to cost-saving in the previous year and damage repairs caused by two severe winters. The general rise in property material and labour costs also contributed to increased repair costs.
Management costs
Our survey shows average management costs across ‘All Estates’ in Scotland in 2011 were just over £13 per acre (£33 per ha), representing 15% of gross income, exactly the same proportion as last year.
Other costs
All other estate costs followed a similar pattern and in total increased by 13% in 2011 to £12 per acre (£30 per ha). Although expenditure, other than repairs and management, may be relatively small, collectively they add up to an additional 13% of gross income and cannot be overlooked.
Agricultural expenditure
Expenditure on the agricultural portfolio fluctuates considerably, reflecting the scale of renewal and improvements being undertaken by landlords. The average estate reinvests 22% of let agricultural income back into these properties, ensuring viable units for their tenants, creating local employment and maintaining the fabric of the countryside. The agricultural surplus of 44% in 2011 is in line with the historic average of 43%.
Residential expenditure
Total expenditure on short assured tenancy property in 2011 was almost £3,000 per dwelling (up 12% on 2010) and as a proportion of the gross SAT rent, the surplus decreased from 50% to 46%.
Regulated tenancies have seen a significant increase in surplus from 31.5% to 53.6%. This reflects many estates referring regulated rents to the Rent Officer, seeking appropriate increases, and suppressing expenditure on the properties.
Investment performance
Our research shows rural estates in Scotland continue to perform well from an investment perspective, although restricted in 2011 compared with the previous year. The 2011 survey records an average total return from ‘All Let Property’ across ‘All Estates’ of 3.6% (net income 1.2%, capital growth 2.4%), lower than the 7.1% recorded in 2010 (see Graph 6).
However, let agricultural assets recorded a significant 10.4% total return, outperforming the 4.8% recorded in 2010. Overall performance was restrained by reduced capital growth in the residential sector which recorded a total return of 4.4% in 2011 compared with 8.4% in 2010. The performance of rural estates remains competitive against alternative investment assets when annualised over three, five and ten year periods, despite the recovery of commercial property, equities and gilts during 2010.
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