Fall in commodity prices slows growth in land values

Farmland prices have eased back during the third quarter of 2015, with the pressure greatest on prime arable land.

Analysis by Strutt & Parker suggests that while land prices remain at historically high levels, there are signs that the growth in values has stalled.

Far fewer people are now prepared to pay the high premiums for arable land that have seen average prices rise to record levels over the past couple of years, according to Mark McAndrew, partner in Strutt & Parker’s Estate and Farm Agency department.

While he had seen one sale in Hampshire in early 2015 achieve around £15,000/acre, commercial arable land was more typically selling for £8,000/acre through to £12,000/acre.

“Falls in commodity prices mean farmer-buyers are being more cautious about what they are prepared to bid and farmers are the biggest number of buyers in the market ” he says.

“Investors are also being more selective, perhaps reflecting the fact that while capital growth has been very strong it is now slowing.

“The noisier buyers who can – and will – pay almost any price have backed away for a while and are being more restrained. There are still some big buyers in the market, but they are buying at the right price for them,” he adds.

Mr McAndrew says there are still some hotspots in the country where demand is very strong and therefore pushing up values.

These include the M4O corridor and further north the M62 corridor, where development has created wealth, some of which is looking to go back into land.

According to Strutt & Parker’s Farmland Database the average price of arable land in England was £10,242/acre between July and September 2015. This was down from a high of £11,263/acre in the second quarter of the year.

The average price of pasture land in England during the third quarter of 2015 was £7,145/acre, down from £8,307/acre in the second quarter.

The database, which tracks farms and estates over 100 acres in the market, also points to the supply of land coming forward increasing.

Over the course of the first nine months of the year 86,486 acres came to the market in England, compared with just 75,100 acres across the whole of 2014 and 83,600 acres in 2013.

Mr McAndrew concluded that average land values had dropped by about 1% overall in 2015.

“I’d expect them to be steady for a year or two until we see a sustained rise in commodity prices and then I’d anticipate they will start to rise once again.”

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