Outlook: Gaining momentum

Economic recovery will strengthen commercial and leisure opportunities.

27 October 2014, words by Ian Bailey

 

The key factors to watch for sustained income and capital growth on rural estates will be:

■ An improved economic outlook

■ Rental and trading enterprise growth

■ Minimising rental voids

■ Reversions (agricultural and residential) to market rents

The general economic recovery is now underway, with GDP expected to show steady positive growth of around 2.5% per year for the next few years. As noted earlier, farm incomes tend to be inversely correlated to GDP growth, and therefore we expect non-farming activity to benefit most from the recovery.

Commercial and leisure sectors are now making significant contributions to gross income and we expect this to continue as the economy gains momentum. However, opportunities in these sectors tend to be location driven and to maximise success should be carefully researched.

This includes minerals, and for estates where this opportunity exists, returns can be high. However, across ‘All Estates’ 2014 recorded the lowest level for over ten years.

As the economy improves, and therefore construction and housebuilding, we expect income from this sector to increase although the rate of growth may be tempered as the difficulty in gaining planning permission for new sites may be a threat to future expansion.

Conversely, there are a few darker clouds beginning to appear on the agricultural sector horizon.

These include:

■ Commodity prices - the outlook is increasingly bearish across the arable and livestock sectors and not only for the remainder of 2014 but into 2015. On arable farms this may be alleviated by higher yields but as our Arable Benchmarking Survey for harvest 2013 shows the average total cost of production for combinable crops was, at prices 20% higher than current ex farm prices, a significant proportion of crop price.

■ CAP reforms, especially the new Greening measures, will have some impact on farm businesses and overall subsidy incomes will be reduced.

■ Interest rates – the expected interest rate rise may add pressure to farm cash flows and investment plans.

■ The rate of reversionary uplift may slow as many deals have already been negotiated.

 

 
 

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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