Farmland values increase but at a slower rate than same quarter of past few years.
Our Farmland Value Survey shows continued positive growth. During the first quarter the value of prime arable farmland increased by 0.5% to £9,900 per acre across Great Britain, which follows 14% growth in 2014.
This is significantly more muted than recorded in the same period of the past few years and suggests, as we forecast, that the ‘bull run’, driven by the top end of the market, in average capital value growth is slowing. In the first quarter of 2014 and 2013 the corresponding figures were 1.4% and 1.8% respectively.
Quarter one growth was principally concentrated in the southern regions of England and in the East Midlands, where quality farms and estates dominated the market. Average prime arable farmland growth in these regions was 0.4% in the South East, 3.5% in the South West and 0.6% in the East Midlands.
All other regions across Great Britain, as shown in Graph 1 (below), recorded zero growth. Values continue to be highest in the East of the country.
Importantly, average values continue to mask the diversity in the market with sales at values in excess of £15,000 per acre being achieved for the right farms. This end of the market continues to be driven by quality and location with large commercial arable farms and high quality estates attracting the strongest demand.
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GRAPH 1First Quarter 2015 % change for average prime farmland (2011-15)
Source: Savills Research
The trend of limited supply continues and, whilst remaining historically low, shows a slight increase on the first quarter of 2014. Supply remains at close to the lowest levels ever recorded – similar to 2001 during the foot-and-mouth outbreak and 2004 during the run-up to the introduction of the Single Farm Payment Scheme.
The lack of clarity surrounding the potential outcome of the General Election coupled with pressure on farm incomes is creating some uncertainty.
Our research shows that just over 15,250 acres of farmland were publicly marketed across Great Britain during the first quarter of 2015; a 9% rise, amounting to 1,320 acres, on the same period of 2014.
Graph 2 (below) illustrates the regional differences in market activity in the first quarter of each of the past five years. In the first quarter of this year the increased activity was concentrated in England (26%) whilst the levels of supply continued to fall in Scotland (-10%) and Wales (-53%).
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GRAPH 2Supply variations across Great Britain
Source: Savills Research
Across England there were some significant regional differences during the quarter. Large increases in supply were recorded in the East Midlands (280%) and the South East of England (362%). In the South East of England activity was boosted by two large properties in Hampshire (1,600 and 1,000 acres).
In contrast, decreases in the supply of farmland were recorded in the East of England (-30%), the North of England (-37%) and also in the South West of England (-11%).
Although activity in the South East of England was dominated by two large farms the market in the first quarter across Great Britain predominantly consisted of a larger number of smaller farms suggesting that pressure on incomes and cash flows may be having some effect – see Table 1.
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TABLE 1Farms advertised in Q1 2015
Source: Savills Research
The supply data in this report is derived from publicly marketed farmland. Anecdotal evidence suggests the private market for farms and land remains active with some strong competition for highly commercial units. ‘Off market’ activity levels in the past few years are probably at their highest for several decades.
■ We do not expect a significant change in the overall levels in the supply of farmland, with the amount of land coming to the market remaining historically low.
■ The demand for quality farms and estates in the right location remains strong. However, the market is diverse and a clear understanding of local market conditions will be critical to both buyers and sellers to ensure expectations are realistic.
■ We expect average farmland values across Great Britain to grow at around 6% per annum over the next five years, but there will be significant variations in the rates of growth depending on land and farm type, as discussed in our recent Agricultural Farmland Survey published in February 2015.
■ In the short term, the general election in May has added an additional level of uncertainty on top of the pressures of low commodity prices on farm incomes.
■ However, the farmland market in Great Britain is transparent and a safe haven for wealth, and those concerned that inflation could take a hit will look for protection in tangible assets.