The performance of rural assets

Rural assets continue to outperform most alternative assets as a healthy investment performance is recorded.

24 September 2013, Words by Ian Bailey

 

Our latest Estate Benchmarking Survey focuses on the investment performance of rural estates against other assets. Download here.

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

In the year to 5th April 2013 the average Total Return for ’All Estates’ on all Let Property was 8.2%, the sum of a net income return of 1.3% and capital growth of 6.9%.

However, it is the farmland that contributes the lion’s share of this performance although capital growth was slightly more muted in the 2013 survey year. It recorded capital growth of 11.6% (similar to the 12% recorded in our Farmland Value Survey) and a net income return of 1.3% giving a total return of 12.9%.

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 to the prime London residential market, the prime regional markets have remained relatively subdued. According to our Prime Regional Residential Index overall prices rose by just 0.3% on average in the past six months with no improvement in the number of transactions.

In contrast to agricultural and residential assets, let commercial property on rural estates contributed a healthy return in 2013 similar to 2012. Capital growth of 7.5% and net income return of 5.1% resulted in a total return of 12.6% across ’All Estates’.

We expect these trends to continue in the short-term with capital growth for farmland outperforming other assets with the exception of prime central London residential property as shown in Graph 4.

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 (Graph 5).

Total estate value increased 2.6% in the first half of 2013 and by 6.7% over the past year. Values are now only -0.3% below their June 2008 peak although this masks a huge divergence in performance. While farmland, farm buildings, woodland, sporting and miscellaneous land are significantly above peak, all other estate components are below.

Marriage value increased by 3.9% in June 2013, outperforming total estate growth.

 
 

Key Contacts

Ian Bailey

Ian Bailey

Director
Rural Research

Savills Margaret Street

+44 (0) 207 299 3099

 

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