Rural asset performance

Farmland contributes greatly to a healthy investment performance.

17 September 2012, Words by Ian Bailey

 

Rural assets continue to outperform alternative assets and our
survey again records a healthy investment performance on ‘All Estates’ (see Graph 9).

In the year to 5th April 2012 the average total return for ’All Estates’ on all let property was 9.4%, the sum of a net income return of 1.5% and capital growth of 7.9%.

However, it is the farmland that contributes the lion’s share of this performance. It recorded capital growth of 10.7% (in excess of the 6% recorded in our Farmland Value Survey) and a net income return of 1.4% giving a total return of 12.1%.

The let residential sector is currently the weakest performer on rural estates showing a similar trend to the mainstream residential markets. Average total return for let residential property on ’All Estates’ was 4.5% being the sum of a net income return of 1.2% and capital growth of 3.3%.

In contrast, rural let commercial property contributed a healthy return in 2012, similar to 2011. Capital growth of 6.3% and net income return of 7.1% resulted in a total return of 13.5% across ‘All Estates’.

Our ‘Estates Index’, which looks at the individual capital values of the core components of rural estates, including marriage value (the premium), also shows that total rural estate values have benefitted from continued growth of agricultural assets (see Graph 10).

Despite the mixed fortunes of large country houses during the past five years, the average value of a rural estate today is broadly the same, having benefitted from the substantial rise in farmland and woodland values.

Since 2007, the agricultural component of the traditional rural estate has risen in value from £4,100 per acre to £7,300 per acre. This ties in with our farmland value survey, which shows average farmland growth for the same period of 116% for prime arable land.

Overall, the value of farmland and farm buildings has increased by a very significant 66%, and conversely, main house values have fallen by -12.2% since 2007, although the rates of fall is now showing signs of leveling out with just a -0.1% fall during the first half of this year. This adjustment in values is good news for IHT planning.

Likewise, the proportion of value attributed to each component part of the rural estate tells a similar story. In H1 2012 the main house average value was 37.4% compared with a 44.4% high of H2 2005 and the farmland and farm buildings have increased from 18.5% to 33% during the same time frame. In line with the wider markets, values of commercial and development property, cottages and marriage value showed little or no change.


 
 

Key Contacts

Ian Bailey

Ian Bailey

Director
Rural Research

Savills Margaret Street

+44 (0) 207 299 3099

 

Julie Baxter

Julie Baxter

Data Administrator
Rural Research

Savills Margaret Street

+44 (0) 1483 203492

 

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