Expenditure on Scottish rural estates

Expenditure on Scottish rural estate has witnessed its largest increase since 2010 but it is still below the increase in gross income.

23 January 2014, Words by Kenneth Munn

 

Average total expenditure across Scottish rural estates increased during 2013 by 12.3% to £96 per acre (£146 per ha). Although the largest increase for four years it was well below the increase in gross income and not altogether surprising given the inflationary pressure on costs.

Our survey shows that the two main costs, property repairs and management, represent over three quarters of all costs and almost 40% of gross income.

Graph 6

However, ‘other costs’, which increased by 13% to £13.21 per acre, represent just over 105 of gross income and should not be ignored. Anecdotal evidence suggests that the insurance market is competitive, with premium reductions achieved in some cases.

Table 1

In addition, new legislation can bring added costs. In October 2012, the Government introduced a requirement for all employers to automatically enroll their workers in an approved pension scheme, to be phased in over four years for smaller employers. Despite this new legislation, only 20% of a subset of our survey participants currently has an employee pension scheme. Whilst employees can opt out, the minimum contributions to be made by employers is 3% and this should be factored in to estate budgeting.

Average property repairs increased by 21% across ‘All Estates’ to £27.24 per acre, giving an annualised increase of 12.4% over the past three years. Property repairs represent just over one-fifth of gross income and towards half of total expenditure.

Capital improvements on the average estate also increased significantly – more than doubling to almost £13 per acre. The amount an estate spends on improvements generally varies greatly from year to year, particularly where estates do not have a rolling repairs programme. It is a good policy to actively manage and timetable repairs to fit in with cashflow and labour troughs.

Whilst estate repair expenditure remains consistent at 20 – 25% of gross income, capital expenditure frequently peaks following rent reviews. Particularly in the light of the Telfer case, landlords will seek to ensure that tenants are meeting their repairing obligations to mitigate against such spikes in expenditure.

Average total management costs across ‘All Estates’ increased by just over 1% in 2013 to just over £18.60 per acre.

 

 
 

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Ian Bailey

Ian Bailey

Director
Rural Research

Savills Margaret Street

+44 (0) 207 299 3099

 

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