Diversified Income Streams

The diversity of assets (agricultural, residential, commercial and more recently renewable energy) and therefore opportunities to generate income has helped spread risk. This has also been a key factor in the recent improved performance.

There has, as illustrated in the graphic below, been quite a shift away from the proportion of gross income generated from agriculture towards other income streams over the past 16 years.

Although the contribution from agricultural assets has fallen it, with residential still provides the lion’s share (80%) of the average estate’s income.

Most estates have a number of other income sources including woodland, shooting, minerals and in many cases leisure and commercial trading enterprises.

Income from trading commercial and leisure enterprises has recorded annualised growth over the past three years in excess of 60% and we expect, while the pound is weak income for tourism businesses will be boosted.

The character and value of these additional income sources is often dependent on location. Estates in the South West have the highest proportion of leisure income and the proportion of income from commercial assets is highest in the South East (see Figure 2).

In addition: many estates are actively generating renewable energy and our research shows, for these estates, renewables contributed £9.60 per acre to gross income in 2016 – almost double the £5 recorded in 2014.

These opportunities have given estates steady positive income growth over the long term which is in stark contrast to single farm enterprises where exposure to price, exchange rates and weather volatility has created significant swings in incomes from one year to another.

Spotlight on Income

The results of Savills 2016 Estate Benchmarking Survey show that the rate of growth for gross income on ‘All Estates’ slowed to 2.5% compared with 9.3% in 2015 equating to £231 per acre. Average estate performance is significantly improved for the second year, following a period of relatively weak annual growth in the preceding five years.

^{Source: Savills Research}

AGRICULTURE:

In 2016, the agricultural sector came under some pressure with total income up just 2.5% (9.1% in 2015) equating to £85 per acre and representing 37% of gross income.

Passing rental growth remains positive despite lower commodity prices suggesting there is a time lag in any rental adjustments for AHAs. For FBTs any rental growth is tempered by demand exceeding supply due to the scarcity of land available to rent:

■  AHA rents increased by 4.9% to £84 per acre

■  FBT rents increased by 2.2% to £118 per acre

Reversions from AHA tenancies continue with almost half of the let area on the average estate now in FBTs compared with a quarter of the let area 10 years ago.

RESIDENTIAL:

The residential sector continues to perform well and showed significant growth (15.6%) contributing, for the first time, over a £100 per acre across the average estate. In 2016 the sector contributed 43% of gross income.

This trend looks set to continue as estates upgrade houses to maximise market rents and properties revert from concessionary tenancies.

■  AST rents increased by 4.7% to over £9,600 per dwelling

■  ASTs represent over 80% of rent bearing dwellings or 54% of all housing stock.

■  There is a range of average AST rents per dwelling across England; from £13,600 in the South East of England to just over £7,000 in the North of England

■  Average AST voids over the past three years have been between 4% and 6%

Our research of average AST rents by house type shows that, generally, the strongest recorded rental growth is for the smaller properties but there is anecdotal evidence over the past year of strengthening lifestyle demand for renting, rather than buying, larger detached houses in the countryside. Our survey results reflect this with positive growth for the top end rents (see Figure 1).

These two sectors remain the bedrock of rural estates and still deliver 80% of the average estate’s gross income.

^{Source: Savills Research}

Costs Controlled

Total estate expenditure was very similar to 2015 – up just 0.8% and significantly lower than average inflation over the period of 1.7%. Total expenditure represented 42.5% of gross income, which is the lowest for five years suggesting that estates are managing their costs.

Net Incomes (before depreciation, finance, drawings and tax) rose by 3.4% equating to £133 per acre following a similar trend to gross incomes.

Total expenditure represented 42.5% of gross income, the two key costs being property repairs and management. Over the past five years these have represented 50% and 25% of total costs respectively.

A useful Key Performance Indicator (KPI) is cost relative to gross income. Figure 3 below gives a snapshot, but understanding the relationship between costs to the individual enterprises and resources available on an individual estate is crucial.

^{Source: Savills Research}