Farmland moving up

Agricultural land prices increased by a further 2% in the third quarter of the year, building on the 9% growth seen during the first half of 2014, according to Knight Frank. The average value of commercial farmland without any land or buildings now stands at an average of £7,689/acre, or exactly £19,000/hectare.

Year on year, prices are up 15%. This means farmland has outperformed most other major asset classes, including the UK housing market (+10%), the FTSE 100 (+5%) and gold (-9%).

Over a 10-year period, farmland has risen in value by 187%, second only to gold (+224%).

Limited supply and the on-going demand from both farmers and investors continues to push up prices.

Despite recent falls in the price of agricultural commodities such as wheat and milk, farmers are still focused on the long-term and are keen to acquire neighbouring or nearby land when it becomes available.
With house builders increasing their output and acquiring more development sites, the number of farmers with roll-over funds to spend on land is growing. As farmland is acquired for the controversial HS2 scheme this could also bring new buyers into the market.

Investors’ hunger for land remains undimmed, as highlighted by the recent purchase of the Co-op farms portfolio for almost £250m by the Wellcome Trust.

Part of the problem for investors, particularly funds, is the lack of suitable investment-grade land available, combined with strong competition from neighbouring landowners prepared to pay a “legacy” premium for land that they may only have one opportunity to buy and once purchased may stay in their families for generations to come.

Because of this, many investment-led deals are happening off market. Our Agricultural Investments team, which is acting for a number of wealthy individuals and funds, estimates private deals are outnumbering public ones by as much as two to one. We are also helping a growing number of clients looking to purchase outside the UK.

Although large tracts of arable land with relatively little value tied up in high-value period farmhouses are selling quickly, the market for estates with large residential properties is less fluid, according to Clive Hopkins, Head of Knight Frank’s Farms & Estates team.

In some instances, this has led to large chunks of an estate’s farmland being sold off separately for a premium price. “I think this trend really highlights the strength of the farmland market,” says Clive. “Traditionally it has been the house leading the sale, now often it is the land.”

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