Savills: Q3 Farmland market update
Alex Lawson Savills head of farm and estate agency comments, “Between July and October there was a continuation of the trends we have seen emerging throughout this year, demand for farmland is strong and the supply of property coming to the market continues to be below historic average volumes. Consequentially values are increasing in response to this tight supply and demand balance”.
Supply:
The last period of relatively normal market conditions and activity, from 2011-2015 (prior to the Brexit referendum), provides a useful benchmark against which to assess current levels of farmland supply. Comparing recent supply levels to this period shows the market in Great Britain is currently around 20% smaller, but there are indications that it is now recovering from the influence of recent events.
Emily Norton Savills head of rural research says, “Our agents suggest the slow recovery of supply partly relates to concerns among potential sellers about what they will do with the sale proceeds if they sell and, or whether they will be able to find a suitable replacement property. Now that details surrounding the agricultural transition plan are providing clarity on future subsidy support levels, albeit to varying degrees across England, Scotland and Wales, farming businesses can make decisions about their long-term future and we expect supply to increase to at least historic averages in the near term.”
Whilst supply has increased from last year, this is not being seen evenly across the country. In the South West, the number of acres publicly marketed was down 27% on 2020. In contrast, Scotland has seen supply increase by 75% but it is still below the five- year average for between 2016 and 2020, which demonstrates how little was brought to the public market last year.
Values:
This quarter land values have continued to increase, with the average price of land in Great Britain rising 2.6% to £7,060 per acre. On average an acre of agricultural land in Great Britain is now worth 5.2% more than it was 12 months ago, and values are increasing faster than the rate of inflation in the wider economy.
Agricultural land values have a long history of outperforming inflation; in fact, over the last 30 years the average annual growth rate has been 3.2% above inflation.
As we saw in Q2, the growth in values for pasture land in Great Britain is currently greater than for arable land, with a 3.9% increase in Grade 3 livestock and a 3.2% growth in ‘poor livestock’ land recorded during this quarter. This compares to 1.7% for prime arable and only 0.3% growth for poor arable. However, it hasn’t been all growth this quarter. In the East of England a two tier market has emerged where average values of poor arable land fell by 1.3%, which takes values back to where they were at the beginning of this year.
The rate of value rises in Scotland has outpaced the rest of GB, with the value for prime arable in Scotland now marginally higher than prices being achieved in England for the first time since 2006. Values have also risen across other land types, and the overall average land value in Scotland is now exceeding its previous peak recorded in December 2013.
Evelyn Channing head of farm and estate sales in Scotland comments, “The appetite for planting land is a factor with investors for planting land turning their attentions to average quality livestock land instead of the poorest quality, which often has limiting factors for tree planting.”
Historically around 10% of the annual supply of land is launched in Q4, although this increased to around 18% in Q4 2020, due to the exceptional market circumstances of last year. We anticipate that the supply in Q4 2021 of newly advertised stock will return to historic levels, which means most of 2021’s market performance should already have been accounted for.