We expect further growth in national farmland values in 2015 but the market will continue to be diverse and a clear understanding of local market conditions will be critical to both buyers and sellers to ensure expectations are realistic.

The fundamental reasons supporting the farmland market across Great Britain remain and include:

■ The strength of demand relative to the historically low supply

■ Farmland is a finite and decreasing commodity. The Utilisable Agricultural Area is declining by around 84,000 acres per year being lost to infrastructure, development, woodland expansion (which has increased nearly four times over the past 30 years), non-agricultural use (golf courses, minerals etc) and erosion

■ The competing uses for land are diverse and include food, energy, infrastructure, diversified enterprises and diverse ownership or lifestyle incentives

■ The long term investment performance is comparable with alternative assets and farmland has added tax benefits and, in some cases, the opportunity for substantial uplift in value through strategic development.

In addition the farmland market in Great Britain is transparent and a safe haven for wealth, and any economic uncertainty at a global or EU level may increase private and institutional investor interest. It also offers the potential opportunity for:

■ Diversifying investment portfolios (farmland has an inverse correlation to other property assets)

■ Strategic development gains and:

■ Long term reversionary uplift.

However, there are currently more downside pressures than we have seen for several years. Although we do not expect the value of farmland to fall significantly we believe that, in certain segments of the market, growth may be zero or at best very weak (see Table 2). This will be for poorer quality land, where local supply outstrips weak local demand.

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The key areas of concern are:

1. Agricultural incomes are inversely correlated to economic growth and continued improvements in the economic climate will put some pressure on farm incomes and therefore capital and rental values across all sectors. We are already seeing pressure on commodity prices and this is likely to continue into this year affecting farm profits and cash flows and may lead to an increased supply at a local level.

2. Interest rate rises are inevitable at some stage although we don’t expect these to have an impact on the market until at least 2016. They will add pressure to farm businesses already struggling to service debt and will contribute to more acres coming to the market.

3. Political uncertainty will be a key market factor in 2015. During 2014 the Scottish Referendum and proposed Land Reforms had a significant effect on the Scottish market, both in terms of reduced activity and stifled value growth. Across the UK the run-up to and potential outcome of the General Election may create some uncertainty.

4. Alternative assets such as commercial and residential property are beginning to look more attractive and especially the former if income yields are a driver.

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Taken from
Market Survey: UK Agricultural Land 2015