Supply

Our research shows just over 20,750 acres were publicly marketed across Great Britain in the first quarter of 2016. This is the same acreage as the first quarter of 2015, and 35% greater than the area launched during the first quarter of 2014.

Supply in the first quarter is normally variable, however, the total for 2016 was 13% above the five-year average but remains historically low.

While the overall area marketed in Great Britain was consistent with last year, there continues to be significant variation between regions (see Figure 1 below). At a country level supply was over 50% higher than last year in both Scotland and Wales, but a 16% reduction in England meant that overall the acreage marketed was equivalent to last year.

Across England there were some significant regional differences during the quarter. A large increase in supply was recorded in the East Midlands (67%), primarily due to the launch of a number of Lincolnshire arable units during late March. Farm profitability and its impact on farmers’ decision-making can affect supply, and last year the proportion of sales due to retirement and debt increased on previous years.

By contrast, decreases in the supply of farmland were recorded in the South East (-83%), West Midlands (-40%) and East of England (-28%).

Considering supply by land type in Great Britain, whilst the total area was consistent with 2015, there has been higher supply of grassland, including dairy farms, and lower supply of arable land this year despite low commodity prices. This suggests that uncertainty around the EU Referendum is beginning to have some effect in a sector which is dominated by commercial farms, and where sales do not benefit from the additional demand from amenity buyers.

^{Source: Savills Research}

Values

Our Farmland Value Survey shows the average value of ‘all types’ of farmland across Great Britain fell slightly, by -0.4%, between January and March this year. However, this hides a number of dynamics in the market.

In Wales, average values for ‘all types’ of land stayed static in the first quarter, compared to a 1.3% increase during last year. Scottish values have not changed at all during the first quarter of 2016 and have been static since December 2013.

It is in England where most of the change is happening. Whilst there was an overall fall of -0.4% in average values across ‘all land types’ in the first quarter (see Figure 2 below), it is arable land values which are responsible for the softening in the overall average. The average value of prime arable land fell in the East of England and East Midlands in the first quarter by -0.3% and -1.9% respectively. Average grassland values have remained unchanged during the first quarter of 2016.

^{Source: Savills Research}

However, low market activity in the early months of the year and the lack of transactional evidence meant that many regions recorded no change in values. Interestingly there appears little correlation between the levels of supply and change in values at a regional level; the exception being the East Midlands where, as noted earlier, supply increased by two thirds and values decreased.

Continuing low commodity prices in the arable sector, and the expectation that they will remain low in the short term due to high global stocks, means that buyers have become more price-sensitive and, for some farm types, having more land for sale is reducing competition for land at a local level. Farmer buyers have become fewer, more cautious and less willing to bid high to secure land.

Areas that are solely reliant on commercial farming have been under greatest pressure. In contrast, grassland, less-productive areas and areas with easy access to London and other commuter belts, which often have wider variety of land use and benefit from a strengthening residential market, attract a more diverse demand profile, especially from amenity and ‘lifestyle’ buyers.

Therefore local market knowledge, for both buyers and sellers, is critical in a market where prices achieved range widely from average values.

^{Source: Savills Research}

Outlook

■ Farm profits and cash flows continue to be under pressure and are likely to remain so in the short term, consequently farmer demand will generally remain weak.

■ At present there is some uncertainty due to the approaching EU Referendum and we know from past events that uncertainty affects land market activity. Prior to the UK joining the EU, and during each CAP reform negotiation, the volume of land marketed reduced, recovering once the position became clear.

■ However, uncertainty can be an opportunity. Last year, despite the Scottish Referendum, 22 sporting estates sold in Scotland, compared with eight in 2014.

■ In the light of recent market evidence, the short to medium-term expectations for commodity prices and therefore farm profitability, we expect values to be much more varied than in the past five years.

■ Exceptional prices may still be achieved if all the right factors come together, but conversely it is very likely that there will be more farms where potential sales fail to reach expectations.

■ However, the fundamental factors supporting long-term UK farmland value growth remain. Supply is historically low, there are competing land uses, a variety of ownership motives and the product is finite.