Savills 2012 Estate Benchmarking Survey results demonstrate that rural estates in Scotland continue to remain resilient to the pressures of economic uncertainty with incomes continuing to rise despite an inflationary increase in expenditure.

These results are set against a backdrop of continued economic uncertainty – both at a national, European and international level. However, the challenge, going forward, is to balance the pursuit of growth in turnover with the management of the ever-increasing cost base.

In the agricultural sector, recent output price volatility and the inflationary pressures on costs are likely to remain. However, the diversity of business assets, particularly residential, on rural estates has ensured a steadily growing income stream in stark contrast to many farm businesses, where income is often concentrated in one sector and exposed to output price volatility.

Source of income

The average gross income of £99 per acre (£245 per ha) in 2012 is up 5.2% on the previous year. Graph 2 shows the main sources of this income.

Not surprisingly, the income derived from leisure and commercial has fallen. Of note, income from woodland has increased, reflecting estates undertaking harvesting during a period of relatively high timber prices.

Agriculture

Agriculture is traditionally the main income source on rural estates, and in 2012, contributed 38% of gross income or £38 per acre (£94 per ha). However, its contribution has slipped behind the residential sector for the first time. Our research shows that in 2012 agriculture contributed 44% of gross income.

Turning to the let sector, our survey records average agricultural rents in 2012, as illustrated in Graph 3:

• Traditional Tenancy: £47 per acre (£116 per ha), up 12.5% on 2011.

• Limited Partnership Tenancy (LPT): £45 per acre (£111 per ha), up 3% on 2011.

• Limited Duration Tenancy (LDT): £60 per acre (£148 per ha), up 11.6% on 2011.

• Short Limited Duration Tenancy (SLDT): £72 per acre (£178 per ha), up 22.5% on 2011.

Traditional agricultural tenancy rents continue to increase, albeit at a slow rate, with the average rent at £47 per acre, up almost 10% since 2009 (in line only with inflation). These increases have followed from notices served in November 2007. Many of these reviews were ‘sisted’ or put on hold whilst the outcomes of various landmark cases were pending.

Landlords remain cautious about undertaking rent reviews, given the current politics associated with Secure 1991 Act Tenancies.

Graph 4 illustrates a continuing reduction in the area of traditional tenancies in favour of alternative arrangements, particularly, in-hand contract, in-hand and to a lesser degree, modern lettings. In 2012, the area of traditional tenancies in the survey represented 62% of the total agricultural area, compared with 67% in 2011. In contrast, in-hand contract farms now represent 12% of the total agricultural area, together with small increases in the proportion of LDTs and SLDTs.