The evolution of the rural estate

Rural estates have witnessed significant change over the past two decades, but agriculture remains an integral part.

27 October 2014, words by Ian Bailey

 

There has been significant change across rural estates since our survey started in 1996.

Our survey tells us that the primary motive for estate owners and managers is the retention of the core estate followed closely by income generation. Maximising return on capital comes in at third place.

This suggests estates are being managed proactively in terms of their property assets with an emphasis on consolidating the core estate and disposing of any non-core assets; both farmland and residential properties.

The predominant change to the rural estates agricultural portfolio has been the reversionary shift from Agricultural Holdings Act (AHA) tenancies to Farm Business Tenancies (FBT).

Our research shows that the AHA area represents just under 40% of the current average estate compared with almost 70% in 1996 (see Table 1).

Conversely, the proportion of acreage on FBTs has increased from almost nothing to 36%. A similar trend is confirmed across all farmland by the Defra data.

The rate of AHA reversions was almost static between 1996 and 2005 since when the rate has increased significantly to its current level. The lag is probably due to FBTs only being introduced in September 1995 in the Agricultural Tenancies Act 1995.

All other elements of the agricultural portfolio have remained in broadly similar proportions over the period.

In addition, as with the agricultural portfolio, there has been a significant reversionary shift to market rents (ASTs) from concessionary and nominal/zero rents (see Table 1).

Table 1

Our research suggests that many of these properties have come from the agricultural sector, where surplus houses have been relinquished as labour is replaced by machinery or farm tenancies are amalgamated to capture efficiencies of scale. In addition, proactive management has reduced the proportion of houses (outside of farm tenancies) which previously made no contribution to the gross income.

At the same time estate managers have been exploiting the opportunities presented by any under used assets within the core estate. This has included converting redundant buildings for commercial and leisure use. The area of commercial workspace has increased by four times on the average sized estate to around 12,000 sq ft since 2000, when data collection began. This has led to these sectors now contributing up to a fifth of gross income, although during weaker economic times this proportion often reduces. In the last recession this proportion reduced to average 17%.

These structural changes have ensured the long term steady increase in estate income per acre (Graph 1) which has increased faster than inflation. This is in direct contrast to straight farm incomes which suffer higher volatility being directly linked to commodity prices and are without the same degree of benefit provided by the contributions made by other property assets.

Graph 1

In 2014 gross income increased by 2.9% to £214 per acre. However, net income growth was squeezed (-0.3%) due to a 7.1% increase in total expenditure with a 7.9% increase in repair costs being the main factor contributing to higher costs (click here for more detail on estate costs).

This is illustrated in Graph 2 and clearly shows that income growth from agriculture, in real terms, has almost kept pace with inflation but is significantly below the real income growth recorded in the residential, commercial and leisure sectors.

However, agriculture is an integral part of the rural estate and the opportunities presented by the other sectors has ensured that incomes generated across the estate have more than matched inflation.

Graph 2

 

 
 

Key Contacts

Sophie Tidy

Sophie Tidy

Director MRICS, FAAV
Estate Management

Savills Oxford

+44 (0) 1865 269 162

 

Ian Bailey

Ian Bailey

Director
Rural Research

Savills Margaret Street

+44 (0) 207 299 3099

 

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