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Farmland keeps pace with London's residential market

Over the past five years farmland has outperformed many other asset classes, including gold, and has even kept pace with London’s luxury residential market.

(Source: Knight Frank Farmland Index Q3 2015, 5 Oct 2015)

Land Performance

  • +8% over 12 months
  • +43% over 5 years
  • +198% over 10 years

The average value of bare agricultural land in England rose again between July and September, according to the latest results from the Knight Frank Farmland Index. This represents the eleventh consecutive quarter of growth and means values now stand at a record high.

Over the past five years farmland (+43%) has outperformed many other asset classes, including gold (-10%), and has even kept pace with London’s luxury residential market (+43%).

This strong performance brought new buyers into the market, including a wide range of investors from both the UK and abroad.

However, potential purchasers, particularly farmers, have gradually become more considered in their approach to acquisitions since the beginning of 2015. This is partly due to a prolonged period of low commodity prices.

Prices are unlikely to fall over the next few years because buyer demand remains strong, albeit cautious. Supply, while up on the year, is also low in historic terms and the market is unlikely to be saturated.

A sudden upwards shift in interest rates could put some pressure on more farmers to sell up, but the indications from the Bank of England seem to point to a gradual rising of rates starting in the second half of 2016.

Price variability on a local, as well as a regional level, is also likely to grow as a dominant theme of the market.

Extremely high prices will continue to be paid for large blocks of top quality land where a number of buyers are in the running. Where interest is more limited, vendors will need to temper their expectations.

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