Our Agricultural Rent Survey shows the rate of growth in agricultural rents has continued to slow.

This trend is not unexpected given that many commodity prices fell during the three years to 30 April 2015: wheat prices fell by 32%, lamb by 4% and milk by 12% although beef prices have increased by 2%.

The full extent of these price reductions has not fed through to farmers’ bottom lines as some key farm input costs also fell, so farm profitability, which is one of the factors which influences agricultural rents, has not been as affected.

For example, in April 2015 ammonium nitrate fertiliser was 6% cheaper than three years earlier, TSP fertiliser was 17% cheaper, red diesel was 31% cheaper and soya meal for animal feed was 11% cheaper. When landlords and tenants are agreeing rents, their negotiations will take account of these factors and comparable evidence.

Our analysis shows that rents for all tenancy types in England and Wales¹ rose by an average of 22% for reviews and new lettings in the year ending 30 April 2015. A year previously this figure was 28% (see Figure 1).

^{Source: Savills Research}

Rents for existing tenancies rose by an average of 19% at review, compared with 24% for the year to April 2014. For Agricultural Holdings Act (AHA) tenancies, the average increase in rents at review was 16%, compared with 19% a year previously.

Whilst the enthusiasm for exceptionally high Farm Business Tenancy (FBT) tender rents has perhaps been tempered, rental increases for new FBT agreements remain higher at 39% than the average increase from rent reviews, which is 25%.

The average FBT rents in this report are below some of the rents that grab the headlines; this reflects the diversity of holdings and land, and that many landlords consider factors as well as rent when selecting tenants, such as the tenant’s business plan, skills and husbandry.

98.6% of the rent reviews we surveyed resulted in a rental increase, with 0.7% standing still and 0.7% decreasing.

The frequency of rent reviews has some impact on the size of increase. If we calculate an annual change by looking at rents that were reviewed both this year and three years ago, they have risen by an average of 15.8%, which is equivalent to 5.3% per year.

AHA tenancies, the average increase was 13.6% or 4.5% per year, while FBTs rose by 20.9% or 7.0% per year. Despite this rental growth the income return on let land remains low; for 2014 it was about 1.4% return on the landlord’s capital employed.²

It remains rare for arbitrators to be involved in setting rents. Over the past five years arbitrators have been appointed for 5.4% of the reviews we have surveyed and this is generally because one of the parties wishes to extend the negotiation period. In just 0.3% of cases was the rent set by the arbitrator.

¹ All figures in this report relate to England and Wales and have been produced by the Savills research team unless otherwise stated.

² Source: MSCI IPD UK Annual Rural Property Index, year ending 31 December 2014.