GB Agricultural Land Market Survey

Agrigultural Land Market Survey
 
Farmland and forestry outlook

6 February 2017, by Ian Bailey

Average value of farmland is likely to remain under some pressure in the short run

 

The average value of farmland across Great Britain is likely to remain under some pressure in the short term due to low commodity prices (see Driver 1 – below) despite the fall in output costs and increased subsidy receipts due to the weak value of sterling.

This price pressure will be tempered by a continued low supply (see Driver 2), which will help to underpin prices in the medium to long term. In addition, we expect increasing rollover and general economic improvement in the medium term to support demand and therefore prices as shown in Figure 7.

FIGURE 7

Farmland value forecasts

 
Figure 7

Source: Savills Research

Brexit may create uncertainty in the farmland market during the next few years impacting on the amount of land coming to the market (see Driver 3).

In conclusion, we expect average values to increase by a total of 5.5% across GB over the next five years, although there will continue to be distinct local variations and the price gap between the best and poorest land is likely to widen.

As we note when we ‘valued Britain’ there is a significant area of tenanted farmland and in the event of a significant reduction in farm subsidies and therefore incomes, the negative effect is likely to be greater on rents than land values, as the relationship between rents and agricultural profitability is stronger than for land values. However, we expect the scarcity of land to rent will moderate any downward pressure on market rents (see Driver 4).

Key market drivers for 2017

 

Source: Savills Research, Focus Economics 


Strong demand in Forestry

A stand-out rural investment

Investors looking for a diversified product with good long term credentials should consider forestry as an alternative 100% land back investment with long-term annualised total returns calculated at 9%.

Although UK timber markets will fluctuate from season-to-season and year-to-year, the prospect of a longer term upward trend in timber pricing structures remains very real, making us confident in the future of forestry as an asset. High yield class, well-managed commercial spruce forests with good access to timber markets will, remain in strong demand, supported by the weaker pound and increasing domestic demand for wood biomass and from construction, with the predicted uplift in housebuilding a key driver.

In conclusion, the positive outlook for the UK timber market means it has excellent prospects and we estimate returns to be in the region of 32% over the next five years, making it the stand out rural asset investment.

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Key Contacts

Ian Bailey

Ian Bailey

Director
Rural Research

Savills Margaret Street

+44 (0) 207 299 3099

 

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