Agricultural Rent Survey

Agricultural Rent Survey
 
Rental Growth Continues To Slow

3 June 2016, words by Andrew Teanby

Our preliminary analysis of spring 2016 reviews suggests the downward trend has continued

 

Our Agricultural Rent Survey shows that in England and Wales1 the rate of growth in agricultural rents to 31 October 2015 continued to slow, a trend first highlighted in 2012 (Figure 1). Average settlements for all Agricultural Holdings Act (AHA) rent reviews peaked at 22% in October 2012 subsequently reducing to 16% in the year to 31 October 2015. For Farm Business Tenancies (FBTs) average rent review settlements peaked at 36% in October 2012; in the year to 31 October 2015 the average was lower at 22%.

FIGURE 1

Average percentage change in rent reviews in year to 31 October

 
Figure 1

Source: Savills Research

This easing of the rate of rental growth is understandable, since Autumn 2012 average wheat prices have reduced by 48%, lamb by 15% and milk by 12%, whilst beef prices have increased by just 2%. The decline in income has been partly offset by lower prices for some key farm inputs such as fuel (-39%) and fertiliser (-23%). Overall, profitability has fallen with Defra’s recent Total Income From Farming figures showing a 29% decrease between 2014 and 20152.

As a consequence we are seeing both the size of rental increases dropping and a reduced volume of reviews being conducted. Our preliminary analysis of spring 2016 reviews suggests that this trend has continued.

In the year to 31 October 2015, 94.8% of the rent reviews Savills agreed resulted in a rental increase, with 3% unchanged and 2.2% resulting in a decrease.

It remains rare for arbitrators to be involved in settling rents. Over the past five years arbitrators have been appointed for 5.6% of the reviews where Savills was involved and generally this was because one of the parties wished to extend the negotiation period. In just 0.3% of cases the rent was set by the arbitrator.

The frequency of rent reviews has some impact on the size of increase. If we calculate an annual change by looking at rents that were reviewed both this year and three years ago, for AHAs they have risen by an average of 14%, which is equivalent to 4.7% per year, and less than the average for all AHA rents settled in the 12 months to October 2015. The FBTs which were last reviewed three years ago rose by 20% or 6.7% per year.

Despite this rental growth the income return on let land remains low; in 2015 on average landlords achieved a 1.3% return on their capital employed.3

FOOTNOTE:

1 All figures in this report relate to England and Wales and have been produced by the Savills research team unless otherwise stated.

2 Source: Defra Total Income from Farming in the United Kingdom: First estimate for 2015.

3 Source: MSCI IPD UK Annual Rural Property Index, year ending 31 December 2014.

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Key Contacts

Andrew Teanby

Andrew Teanby

Associate
Rural Research

Savills Lincoln

+44 (0) 1522 507 312

 

Ian Bailey

Ian Bailey

Director
Rural Research

Savills Margaret Street

+44 (0) 207 299 3099

 

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