Since 2007, the UK average annual supply equates to 164,195 acres, and as expected is marginally weighted towards the opening half of each year. We calculate around 29,800 acres of new supply is required during Q4 2017 for the annual supply to match the long-run average. This would be 70% above average Q4 volumes for the past 10 years. As such a material increase is doubtful, and indicators point to supply remaining constrained through to 2018.

At a country level, the greatest contraction in supply occurred in Wales, down 47% year-on-year; in comparison to Scotland and England where the dip was more modest at 14%. The regional variation within England mentioned in last quarter’s update persists. Supply in the South East and West dropped by 30% but the West Midlands bucked the trend with a 65% year-on-year increase.

^{Source: Savills Rural Research}

Values

Our Farmland Value Survey continues to reveal muted pricing across ‘all-land’ types with values down 2.2% year-to-date and 1.3% from the previous quarter.

The current average value of £8,956 per acre for GB prime arable land is now 9% below its 2014 peak of £9,870 per acre but the range in values currently achieved continues to be significant and very localised albeit all areas have recorded modest declines in value.

The greatest average fall in values for all land types was recorded in the East Midlands at 4.6%.

^{Source: Savills Rural Research} 

Market outlook

The current political and economic uncertainty continue to drive market sentiment with clarity over post-Brexit trade arrangements still lacking.

A stronger euro against the pound has affected the value of euro denominated subsidy payments, compressing unhedged revenues by circa 14% since the vote to leave the EU, and in turn contracting yields from operating agricultural land.

Although the shape and extent of longer-term financial support has yet to be established by the UK Government, it is widely held that the emphasis will shift away from production, which may well force further change within the industry.

Furthermore, noise from Central Banks points to an earlier rise in interest rates than previously anticipated, which will increase both the cost of borrowings and expectations on acceptable yields.

Whilst the rise is unlikely to occur at a pace that will shock the market, we may see more buyers constrained by higher interest rates.

Into the medium-term, continuing uncertainty may keep supply constrained during 2018 as sellers postpone decisions until a better understanding of the longer term agricultural payment structure is known.

Market commentary

England, Alex Lawson

Macro-economic and political uncertainty have adversely impacted supply more so than values in England.

This has helped support values and on average the price achieved for prime arable land is only down 1.5% from Q2 2017 and 2.5% year-on-year to £9,060 per acre.

Whilst the appetite for land ownership remains we are definitely seeing an increased focus on quality land which is priced at fair value.

Last autumn's renewed interest in residential and amenity farms and estates has carried over to this year. There have been some notable sales and new launches with a broad cross section of buyers both domestic and from overseas.

Scotland, Charles Dudgeon  

The attraction of better value and ring fenced units of scale continues to entice buyers from south of the border, particularly from northern counties such as Yorkshire, Lancashire, Cumbria and the Midlands.

We also note a bolstering in buyer confidence as the threat from a second independence referendum softens, highlighting the attractiveness of the value gap between England and Scotland.

Looking forward, we see the restriction in supply lingering into 2018 until the market gains further clarity on the impacts of Brexit on the rural sector. Whilst uncertainly often prompts the risk averse to mark time, some players can be opportunistic, capitalising on the effects of heightened volatility to sow the seeds for future land price growth.

Wales, Daniel Rees

Supply is materially down at 7,300 acres year-to-date, 50% below 2016’s full year transaction volume. Yet we note some encouraging signs as sellers testing the autumn market doubled supply volumes from the end of Q2 2017.

Attractive units in the Pembrokeshire coast & Brecon Beacons National Parks captured the interest of “lifestyle” buyers seeking both acreage and value for money. Farming businesses are still active market participants but face increasing competition from those seeking a lifestyle package or investment returns.

Average values dipped by 2% from the previous quarter to £5,350 per acre and remain depressed compared with last year, down 3.5% from December 2016 across all land types.