Demand is driving up prices as purchasers seek land to farm, an investment, or simply a lovely home with acres attached
Outstripping traditional, so-called safe investments, such as gold or prime property in central London, farmland values have reached their highest point in a decade, fetching up to £15,000 an acre in some areas of the country.
In 2014 the value of gold grew by 4 per cent, prime central London luxury residential property by 5 per cent, while the average value of farmland in England rose by 15 per cent, according to Knight Frank. The estate agency calculated that by the end of 2014 the average price of bare agricultural land was £7,925 an acre, with blocks of 800 acres or more commanding far higher prices in areas where demand was greatest.
Savills, which has also recently published figures on the subject, says that prime arable farmland across Great Britain strengthened by 14 per cent to almost £10,000 per acre in 2014 — this means that in the past ten years average prime arable values have risen by 277 per cent (although even poor grassland has grown in value by 260 per cent).
Mark McAndrew, head of Strutt & Parker’s estates and farm agency, adds a note of caution though. “We would say we are trading at an average of about £9,000 an acre and that we have seen a growth of about 10-12 per cent in the past year, but that hides huge discrepancies from £15,000 an acre at the top end to nearer £7,000 an acre elsewhere. It all depends on what it is and where it is.”
Everyone agrees, however, that average prices are likely to continue rising, driven by supply and demand. According to Savills’ 2015 Market Survey of UK Agricultural Land: “The smallest number of acres (131,000) was publicly marketed across Great Britain during 2014 since our records began in 1995 and at least since the end of the Second World War, when we know that around 650,000 acres were traded in England alone.”
Even with the addition of privately sold land, estimated to be an extra 30 per cent, less land is changing hands. James Brooke, head of the farm agency for Bidwells, explains that part of the reason is because there is little incentive as a retired farmer to sell. It is often more desirable to contract out the farming of your land than sell; not only does this ensure an income, alongside any capital growth, but it means your relatives will benefit from the inheritance tax relief on the land.
Yet there are more reasons to buy farmland than before, and those doing so divide roughly into three groups: farmers, investors (both individual and institutional) and “lifestyle farmers” — those who buy houses with land. These buyers are primarily looking for a home with access to grounds that can be used as a smallholding or for leisure pursuits. These might entail a few stables and a paddock for the kids’ ponies in Hampshire or land for full-scale hunting, fishing and shooting in the Highlands.
Alex Lawson, director of farm and estate sales for Savills, says: “Only a tiny, tiny amount of land comes to market, added to which there is a decreasing amount of land in operation because we are building on it or it is falling into the sea. Then you add in the multitude of different motivations there are for buying and you can see why the inequality is driving the price.”
Most agents believe prices will continue to rise. Lawson says: “Farmland will continue to improve in price although probably not at the dramatic rates we have seen because, basically, things rarely increase in value for ever and also because it is an oppportune moment for some investors to cash in. There really is an opportunity for some people to take a very, very big capital gain and invest in a different sector — for example residential property.”
Meanwhile, the mix of land buyers is changing. Lawson says: “The proportion of farmer buyers has fallen significantly over the past few years and in 2014 they represented 45 per cent of all buyers, down from 60 per cent in 2011. This suggests that uncertainty surrounding common agricultural policy reforms, political issues such as the general election and Scottish referendum, and the pressure on farm incomes as commodity prices fall, has made farmers more cautious about taking on large capital commitments in the current economic and political climate.”
The number of lifestyle buyers, however, has increased, although not back to pre-recession levels, when they represented 40-50 per cent of land buyers. “In 2014 our research indicates that new landowners are beginning to return to the market, representing 23 per cent of all buyers compared with 15 per cent in 2013,” says Lawson.
Not everyone is fighting over the same parcels of land — always. Farmers buying land tend to want to expand their farms. Lifestyle investors tend to be more focused on the house than the land. Meanwhile, investors are often looking for large commercial farms with big parcels of land, 800 acres or more, that can be outsourced to farmers and farm managers. Where these interests overlap is generally where the highest prices will be paid.
McAndrew says: “If we are talking about land that farmers want, but are not desperate for, then we are talking about £7,000 to £8,000 an acre. If we are talking about a farmer buyer with a war chest — gleaned from the sale of other assets to a developer, for instance — then maybe £8,000 to £9,000. And if we are talking about the sort of parcels of land attractive to the investment community, then £11,000 or more,” says McAndrew. “Investors are only a small part of the market but they have a big reputation. They want 1,000 acres of high-value land in eastern, central or southern England for commercial farming.”
The largest investor deal of recent times was the sell-off last summer by the Co-operative of almost 40,000 acres with 15 farms, 100 residential properties and 27 commercial properties to the Wellcome Trust for £249 million. It is hardly the same market as a City banker looking to spend a couple of million pounds on a nice family home with two or three paddocks. That is not to say that small individual investors aren’t in the market for farmland. Tom Raynham, head of Knight Frank’s agricultural investment team, says: “It is certainly possible to buy 100 to 200 acres for £1 million to £2 million and put it out to tenancy to a local or neighbouring farmer. These small plots are certainly viable as pure investment.”
This means that buyers can buy for both lifestyle and investment. Indeed the land around rural properties can now attract more attention than the house — Knight Frank estimates that farmhouses rose in value by just 3.4 per cent in 2014, far less than the land that surrounds them. This represents both an opportunity and a challenge for those looking to buy and sell rural homes.
Brooke, of Bidwells, sums up the opportunity: “Lifestyle purchasers want to have a nice house with, say, 400 acres of land. They might want to own land for the tax benefits, and they want to live in a nice environment, and it is now an investment too.”
McAndrew sums up the challenge: “In the past they would buy a jolly nice house with say a 100 acres for £2,000 an acre. So an extra £200,000 for the land around the house. That same land might now cost £1 million — it’s no longer a bit of fun. Until recently the small residential farm was difficult to sell. Now, though, we are coming out of a recession, the economy is strengthening, the stock market is booming and there is more confidence out there; it is a case that often it will sell better as two lots with the 100 acres sold separately to the house, depending on the strength of the land value and demand for land in the particular area.”
Brooke adds a note of caution to those seeking to buy a house with land. “They need to understand that they don’t need to buy a finished product, that is the beauty of buying land. They should look to secure, for instance, the geographical area, but then they can create something. I try to persuade them not to come with a list: house, acreage, stables, garage, manège etc, but once they are happy with the geography, to have a degree of imagination because planning permission allowing, land is a blank canvas.”