Land values continue to rise with premiums paid for large scale holdings

Farmland has risen in value over the first half of this year, although the increase marks the slowest rate of growth in the past three years, according to the latest data from Strutt & Parker.

This data shows that the average arable land values over the first half of this year saw a rise of 2% to £8,793 per acre across England, compared to the same period in 2013. Meanwhile pasture values rose by even more in 2014, with a rise of 9% increasing the average figure for first half of this year to £7,077 per acre.

Part of the reason for the slow down in arable value is the recent comparatively low agricultural commodity prices. The continued rise in land values has been put down to a relatively small amount of very high prices, generally paid by buyers who are purchasing land as a long-term investment and for careful tax planning.

At the same time, there have been less sales to investors in the first six months of this year compared to previous years. The percentage of farms bought by those looking to invest has more than halved, from 17% in 2013 to 8% this year. The reason behind this trend is thought to be an increased focus by investors on buying more risky and higher yielding assets such as commercial property and the stock market.

Those who are still investing in land are generally focussing on large-scale commercial arable holdings or areas of bare arable land. There is currently a premium for large-scale commercial properties, meaning values for 1,000 acre plus holdings are at a high.

In England, the average cost of a 1,000 acre unit was £10,742 per acre in the first half of 2014, compared to £8,038 per acre for holdings sized between 500 and 1,000 acres. Holdings between 250 and 499 acres generally sell for an average of £7,854 per acre, while smaller units retail at £9,365.

In addition, Strutt & Parker’s data shows that the volume of land coming on to market has continued to decrease. The first half of 2014 saw 48 sales contracted across England, down 6% on the same period in 2013 and a massive 25% on 2012. As such, only buyers with a large financial backing can buy the largest and most commercial properties where the competition remains fierce.

Sam Holt from Strutt & Parker’s Farms and Estates team explains: “Over the past few years land values have been underpinned by good commodity prices supporting the farmers who have been buying land. Now that these prices have dropped there is naturally less confidence from farming purchasers. However large blocks of land remain attractive to institutional buyers and individuals looking to make use of potential tax advantages which, albeit more cautiously, continue to drive land values upwards.”

Strutt & Parker expect land values to stay strong while supply remains limited. The difference in value paid by farmers and investors is also expected to rise further.

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