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Farmland beats economic downturn to reach new highs in Diamond Jubilee year

As farmland values continue to rise, Knight Frank’s experts explain why the demand for farmland is so strong.

(Source: Knight Frank, 02 Jul 2012)

English farmland prices rose on average by 3.7% in the second quarter of 2012 following a marginal increase in the first quarter of the year. The average value of farmland is now at an all time high and is now 2.3% above the previous record high reached in summer 2011.

“Having just spoken to a private family office keen on investing in farmland, I am not surprised that average values are moving up,” says Andrew Shirley, Head of Rural Research at Knight Frank. “We are seeing interest from a wide variety of investors, as well as farmers. The ongoing economic troubles in the Eurozone and other parts of the world only seem to enhance farmland’s reputation as a safe-haven asset.

“It is interesting to note that over the past 60 years farmland has often performed well in times of economic crisis. During the reign of Queen Elizabeth prices have risen by almost 11,000%.

James Prewett, Head of Regional Farm Sales in Central and Western England, confirms that UK farmland is attracting buyers from increasingly further afield. “I am now starting to see genuine bids from private Chinese investors. They tend to already own property in London, so are starting to feel more confident about buying other assets here. Part of the attraction is lifestyle, but investment seems to be the main driver.”

Tom Raynham, Head of Farm Sales in Knight Frank’s London office, says private investors who were previously just looking now seem to have made up their minds to get on with things. “With no clear end in sight to the problems affecting a number of the EU’s economies there is a strong desire to get money into something solid.”

Funds are also looking, adds Tom, but they tend to be more numbers driven. “Farmland’s potential for capital appreciation and its lowrisk profile come at a price, which is a relatively low annual yield. Rents, however, are starting to increase so I think it is possible to achieve higher yields with careful management.”

Farmers remain the most active buyers. “Farmers continue to take a long-term view and will pay strong prices for the right land,” says Andrew. “There were some worries that the current system of agricultural subsidies could be under threat as part of the ongoing reform of the Common Agricultural Policy (CAP), but it appears the reforms will not be that radical.

“Looking forward, we expect average values to continue to firm with further growth of around 4% over the rest of the year,” he adds.

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