Tenancies undergo a reversionary shift

Agricultural and residential sectors remain the two most valuable in an estate’s portfolio.

27 October 2014, words by Ian Bailey


In future, at an estate level, our analysis suggests that as the economy picks up, the rate of income growth from agriculture over the next few years may lag behind that of the other sectors. Residential, commercial and leisure sectors are more closely correlated to economic activity (measured as GDP growth).

Average income from all agricultural sources on ‘All Estates’ rose by 5.6% to £76 per acre and represented 35% of gross income in 2014. The structural changes and growth in the other sectors already discussed are emphasised by the fact that in 1996 almost two thirds of gross income was derived from agriculture.

The performance of in-hand farming operations remain under pressure with income (net income after deduction of property repairs, insurance, third party rents and interest on borrowed working capital) around half the levels recorded in our 2012 survey (2011 harvest results). Although those on contract farming agreements fared best.

Across ‘All Estates’ average passing AHA rents increased by 8.5% to £79 per acre and average FBTs rose by 5.4% to £106 per acre. The FBT growth was more constrained due to the presence of concessionary FBT rents, such as those to family members or separate trusts (including surrender and re-grants).

Average rents mask the range and diversity of rental levels, which depend on several factors, including farm type, farm size and the term of the agreement. As a guide, Table 2 provides a snapshot of agricultural rents by farm type. The Savills rents database recorded an average increase for AHA rents settled in 2013 of 19% and for FBTs of 35% although our initial analysis of rents settled at Lady Day 2014 shows more muted growth; the averages mask the range of results.

Table 2

The range of rental levels was diverse, both across the regions (click here to see map) and by house type (Graph 3). Not surprisingly the highest regional averages were recorded in the South East of England at £10,600 per dwelling compared with £6,600 in the North of England. In most regions positive growth was recorded although there was some pressure on rental growth in the North and South West of England.

Graph 3

Residential portfolio

The residential sector now contributes the largest proportion (39%) to gross income having increased from 28% in 1996. Annualised income since 1996 from this sector has been 7.6%, which in real terms is 4.5%.

A significant proportion of this growth can be attributed to Assured Shorthold Tenancy (AST) annualised rental growth of 5.4% and of regulated tenancies of 6.4%.

The headline figures for the sector in 2014 are:

■ Average income from residential sources on ‘All Estates’ increased by 4.3% in 2014 to £83 per acre.

■ AST rents increased by 3.2% to almost £9,000 per dwelling with voids at around 6%.

■ Regulated rents increased by 3.1% to almost £5,500.

The range of rental levels was diverse, both across the regions and by property types.




Key Contacts

Sophie Tidy

Sophie Tidy

Director MRICS, FAAV
Estate Management


+44 (0) 1865 269 162


Ian Bailey

Ian Bailey

Rural Research

Head Office London

+44 (0) 20 7299 3099


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