Tight Supply See's Certain Farmland Values Firm

Farmland values show signs of firming over the past quarter, on the back of tight supplies and strong interest from non-farmers and tax-driven buyers.

Analysis of Strutt & Parker’s Farmland Database shows that private investors and rollover buyers are emerging as the dominant force in the market for farmland in England, with farmers accounting for fewer transactions than at the peak of the market in 2015.

For sale

The number of transactions involving private investors has risen from 8%, pre the 2008 financial crisis, to 20% in 2017.

Agents are also reporting greater levels of activity from rollover buyers needing to reinvest the proceeds of residential and commercial land deals to avoid a Capital Gains Tax liability.

While many of these rollover buyers are farmers, they are funding their purchase from a development windfall, rather than from their core business, which allows them to pay premium prices for the right sort of farm.

Michael Fiddes, Head of Estates & Farm Agency for Strutt & Parker, said: “Our data points to a combination of tight supplies and increased interest from non-farmers and tax-driven buyers, causing prices to firm for certain types of property, despite demand overall for farmland being weaker.

“The data shows more farmland is remaining unsold compared to two years ago, but much of the land which is selling is achieving good prices.

“Based on the transactions in our Farmland Database, the average price of arable farmland sold in Q3 of 2017 was £9,100/acre, which is nearly 5% higher than it was in Q2.

“This change may not be statistically significant because of the relatively small amount of land which sells in each quarter – and it, of course, only reflects the land which has sold – but it does feel anecdotally as if prices have firmed in the past quarter for larger farms.

“Certain categories of buyers – for example, those on the hunt for large residential estates – are currently competing over a dwindling pool of properties.

“Similarly, the increase in the amount of rollover money circulating in the market has prompted strong demand for larger, commercial blocks, leading to premium prices in many cases.

“The appeal of smaller farms and blocks of farmland is very dependent on location, with the prices paid for them very wide-ranging.”

Mr Fiddes said since 2013 an average of 43% of farm sales had been to non-famer buyers, with these transactions accounting for 55% of the total area sold.

Farmer-buyers accounted for less than half of land sold.

Mr Fiddes said 2017 started slowly in terms of the amount of land marketed and it looked like the year would end that way, too.

“During the first nine months of the year, around 73,000 acres of land in England have been marketed, which is in line with the five-year average, but a 20% fall on 2015 levels.

“Autumn is usually a prime time to sell, but there has been a noticeable lack of new farms coming forward over the past six weeks and this is unlikely to change before Christmas.”

Mr Fiddes added that over the coming months he expected some smaller properties to continue to struggle to attract interest, but good-sized, commercial blocks of arable land were likely to be sought after by rollover buyers needing to reinvest.

“High net worth individuals are also likely to want to invest in larger estates, as and when they emerge.

“No one is anticipating the high levels of capital growth we have seen over recent years, but there are good tax reasons for continuing to invest in farmland, along with a strong emotional pull to the idea of owning land.”

Regional outlook

“Non-farming investors are driving the market in the north of England and most are looking for farms that have the potential for diversified income away from mainstream farming. We’ve seen a mix of medium-sized residential arable farms, mixed estates and bare blocks of land put up for sale. The former is a result of restructuring or people choosing to retire and exit farming. The latter is vendors seeking to raise cash to either pay off debt, diversify or reinvest in other assets.” Will Parry, Northern Region

“Demand is strongest for straightforward arable farms or bare blocks between 300 and 600 acres, which are of particular interest to rollover buyers. Location remains paramount and buyers are also looking for properties that offer opportunities to generate income away from just farming the land. Farms requiring one or two compromises are the slowest to move, with the perception that they may be overpriced in a market driven more by demand than supply.” Matthew Sudlow, Central & West Midlands Region

“Lack of supply in the market has helped to keep prices stable over recent months. Very few farms of any size have been marketed, with most sales being prompted by retirement or downsizing. Rollover and lifestyle buyers are the most active in the market and are looking for large farms or estates. However, local farmers are confident enough to take opportunities to buy land if it comes up on their doorstep and we expect this to continue.” Charlie Evans, South West Region

“Buyers with funds generated as a result of selling development land are very prominent in the market in the East Midlands. However, farmer buyers are also active if land comes up close to their existing holding. The type of farms most in demand are those in areas with an historic lack of supply. Land with medium- to long-term strategic angles, for example, where there may be future potential for residential and commercial development is also in high demand from a huge variety of buyers.” Sam Holt, East Midlands Region

“Land on the whole is selling well in the south east, with lifestyle buyers on the hunt for residential farms, with an attractive house, in a good state of repair. But we are also seeing less land coming to the market. Vendors have recognised that land prices have eased over the past 18 months and those that can afford to do so are choosing to keep their land until there is more clarity around Brexit.” Matthew Gibson, South East Region

“Relatively little land was launched in the Eastern counties during the first four months of the year, but a wide variety of farms and farmland were brought to the market during the summer. Farmers remain a key force in the market - but at the right price. There is increasing interest in the market from city investors or landowners with rollover funds. Supply levels look set to remain low for the rest of 2017, but we could see an increase during the first half of 2018.”  Giles Allen, East of England Region.

Strutt & Parker

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