The outlook for rural estates in Scotland

Identifying the opportunities and threats for rural estates in Scotland.

23 January 2014, Words by Kenneth Munn

 

Our Estate Benchmarking Survey again reinforces the benefits of having diverse assets and enterprises to provide a steady income stream, which has kept pace with inflation. Proactive management with a continued focus on costs will be key to maintaining this position and driving more value to the bottom line.

• There appear to be some rays of light in terms of the general economic conditions with recent indicators showing a more positive trend. The Scottish economy grew by 0.7% in the third quarter of 2013, up from 0.3% in the first quarter. However, there is no room for complacency, as output still remains 3.3% below its pre-recession peak.

• The 2013 survey results recorded the strongest income (gross and net) growth for several years. We expect average gross incomes on rural estates to continue in a steady upward direction although costs and therefore net incomes will face some pressures.

The key growth factors in the short-term are likely to be:

• Continued growth in the proportion of houses let at SAT rents (2% per annum over the past five years) as concessionary agreements expire and agricultural tenancy reversions release houses tied up in tenancies.

• We expect the performance of the leisure sector to improve. Visit Scotland shows a rising spend by visitors to Scotland and spend by day visitors to Scottish tourist locations increased by around 10% last year. There is scope for rural enterprises to benefit from this improving trend.

• Growth in the proportion of LDT/SLDT area (5% per annum over the past five years) with reversion from traditional tenancies.

• We expect agricultural rents to continue to increase, reflecting pent up demand and the outcome of recent Land Court decisions.

• Similarly we expect the fortunes of the commercial sector to improve in line with the recovering wider economy as business confidence returns.

These positive aspects will be balanced by:

• The uncertainty created by land reform, proposed legislative change and the Independence referendum cannot be underestimated. Such uncertainty can only serve to dissuade or delay landowners from commencing significant investment projects which would have a clear detrimental impact on the wider rural economy.

• Pressure on subsidy income for tenants and in hand operations and managing the strategic implications on estates as the latest CAP reforms are implemented.

• The cost of new legislation to enroll all employees in an approved pension scheme.

• Farmland (in hand and let) and forestry have an excellent track record in investment performance over the longterm and have outperformed other assets in recent years, which we expect to continue.

• Impact of EPC legislation on rents and on expenditure on capital improvements to meet new requirements.

 
 

Key Contacts

Ian Bailey

Ian Bailey

Director
Rural Research

Savills Margaret Street

+44 (0) 207 299 3099

 

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