The 2013 survey results show that average gross income on ‘All Estates’ in Scotland increased 33% to £123 per acre (£304 per ha) across the whole estate (including woodland). Annualised growth over the past three years was 11%. Income rose across most of the key sectors but especially so for the commercial sector where renewed economic confidence appears to have played a part.

Although costs increased 12.3% during 2013 to £59 per acre
(£146 per ha) it was at a much slower pace than gross income
which resulted in a substantial 60% increase in net incomes
(before depreciation, finance, drawings and tax) to £64 per acre (£158 per ha).

Graph 1 illustrates the change in proportion of income derived from the key sources on rural estates over the past five years.

Agriculture

Agriculture remains the main income source on rural estates, and in 2013, contributed 39% of gross income or £48 per acre (£119 per ha).However, the increased income generated from the residential and commercial/leisure sectors has reduced agriculture’s overall proportional contribution to 39% in 2013 from almost 50% in 2009. This contrasts to England where residential now contributes a higher proportion of gross income.

Looking specifically at the let area of the average estate, income from all let agricultural sources in 2013 increased by 13.5% to £60 per acre – mainly driven by LDT and SLDT growth.

Due to the difficult harvest in 2012, in hand farm incomes (after deduction of property repairs, insurance, third party rents and interest on borrowed working capital) on ‘All Estates’ fell by -22% to £13 per acre in 2013.

We expect pressure on in hand operations to continue as the additional costs of re-drilling 2013 harvest winter crops with spring crops takes its toll on cash flows into the 2014 harvest year. However, the pressure has been softened by a good autumn enabling the majority of 2014 harvest crops to be planted.

Our survey records average agricultural rents in 2013:

 Traditional Tenancy: £54 per acre (£133 per ha), up 6.5% on 2012.

 Limited Partnership Tenancy (LPT): £47 per acre (£116 per ha), similar to 2012.

 Limited Duration Tenancy (LDT): £72 per acre (£178 per ha), up 13.1% on 2012.

 Short Limited Duration Tenancy (SLDT): £88 per acre (£217 per ha), up 19.6% on 2012.

Traditional agricultural tenancy rents continue to increase with an annualised increase of 6.5% to an average rent of £54 per acre, up almost 29% since 2009.

Residential

Average income from residential sources on ‘All Estates’ increased in 2013 by 15% to £42 per acre (£104 per ha) and represented 35% of gross income. This growth is a combination of rental increases and a significant rise in the proportion of Short Assured Tenancies (SATs); 52% of all properties in 2013 compared with 46% in 2012.

Our survey also recorded a fall in the proportion of residential properties tied up in agricultural tenancies or in hand operations from 40% in 2012 to 34% in 2013.

Average annual rental income of SATs on ’All Estates’ increased by 7% during 2013 to £6,468 per dwelling. In England average market (ASTs) increased in 2013 by 4.6% (to £8,723 per dwelling).

Location affects residential rental levels and this can be illustrated using regional English data. The South East of England recorded the highest average AST rents at almost £10,500 per dwelling (see Graph 5).

However, there was evidence of pressure at the top end of the rental market with the South East recording a -5% fall in average AST rents in 2013 – the only region to record a fall during the 2013 survey year.

Evidence also suggests that we may be beginning to see two tiers in residential rents as demand for large properties weakens with high running costs being a factor.

Proactive tenant management, along with a realistic pricing policy, will be necessary to ensure that voids are minimised and income maximised.

At the lower end it is envisaged that demand will remain strong as raising equity to buy remains difficult for many, although this may be tempered by ‘Help to Buy’ schemes.

A significant threat to this sector is the impending changes to the EPC regulations, which will compel landowners to make significant capital improvements to their properties before they can be let.

Taken from
Scottish Estate Benchmarking 2013 Survey