Expenditure increases in 2014

The annual cost of running a rural estate is £96 per acre, an increase of 7.1%.

27 October 2014, words by Ian Bailey

 

Average total expenditure on ‘All Estates’ increased by a significant 7.1% during 2014 to £96 per acre with the result of no increase in net incomes.

Graph 5 shows annualised increases in costs when adjusted for inflation. It is significant to note that the largest costs, notably repairs and management, have recorded the lowest growth above inflation. Whereas, the smallest individual costs, including insurance, accountancy, legal and rates have increased above inflation.

Repairs

A 7.9% increase in repair costs was the main factor contributing to higher costs and represented 21.5% of gross income. By the very nature of repairs, unless an estate has a significant portfolio and a rolling repair programme, annual repair costs tend to fluctuate from year-to-year. Our research shows 30% of all repairs are given out to external contractors often to the benefit of local businesses.

Since 1996 the amount estates spend on property repairs per unit area of the whole estate has almost doubled although this cost has shrunk from 25% to below 22% of gross income. In addition, as Graph 5 below shows expenditure on repairs and improvements has only slightly exceeded inflation. A comparison with the repair and maintenance indices published by the Department for Business, Innovation & Skills confirms that repair spend on rural estates has been in line with the national trends.

Management

Average management costs across all estates in 2014 increased by 7.5% to just under £27 per acre and represented 12.6% of gross income. The annual management fees are often linked to rent roll performance and the annualised growth since 1996 of 5% is very similar to that of ASTs (5.4%). However, as a proportion of gross income management costs have been squeezed from 14.4% to 12.6%.

Insurance

The average amount spent in 2014 on estate insurance increased significantly (22.3%) to almost £7 per acre. To some degree this will reflect the current times in which litigation is more prevalent but also reflects greater build costs due to higher standards of refurbishment including fixtures. Owners are mitigating additional liabilities with increased public liability cover and separate environmental cover.

Legal

Average legal costs increased by 18.4% to almost £5 per acre in 2014. The proactive approach to restructuring the estate, especially during the recession which focuses the attention on the future, may have contributed to this result. Topics coming under scrutiny and additional professional advice have included investment strategy, debt, succession and IHT planning, joint ventures, diversification and strategic development.

Graph 5

 

 
 

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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