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Agricultural land market remains robust despite harvest washout

Knight Frank’s experts explain why they think agricultural land prices will continue to rise despite a slight pause in their upwards trajectory over the summer months.

(Source: Knight Frank, 03 Oct 2012)

Agricultural land has outperformed the majority of other mainstream asset classes over the past 10 years, recording capital growth of almost 200%. This compares with just 57% for the FTSE 100 equities index and 48% for average UK house prices. Even luxury houses in London have only increased by just over 100%.

The farmland market did, however, experience a slight lull this summer with average agricultural land prices across England dipping by 1%, according to the latest results from the Knight Frank Farmland Index. But Andrew Shirley, Head of Rural Property Research, says the drop needs to be put in context.

“Given that farmers have just experienced one of the worst growing seasons for many decades, switching virtually overnight from drought to monsoon conditions, the fact that agricultural land is only slightly below its all-time high is a reflection of how robust the market remains.

“It is also worth noting that our index reflects the performance of all types of agricultural land, from the best soil to the more marginal. Where there is strong demand for land we are still seeing much higher prices being achieved,” adds Andrew.

Tom Raynham, Head of Farm Sales in Knight Frank’s London office, says “Part of the problem is that there is still a real shortage of good quality agricultural land for buyers to get excited about. A number of new farmland funds are appearing and I have just been retained by a private investor aiming to spend upwards of £10m building a portfolio of agricultural land.”

Part of the attraction for investors is the sharp increase in farm rents, both for traditional Agricultural Holdings Act tenancies (which include succession rights and are reviewed every three years), and more flexible shorter-term Farm Business Tenancies.

Trees are also increasingly attracting investors, points out Tom. “We have recently sold blocks of amenity woodland in the south of England to UK and overseas buyers at a significant increase from the prices being achieved just five years ago.”

Clive Hopkins, Head of Knight Frank’s Farms and Estates department, is expecting agricultural land prices to start rising again soon, increasing by around 5% over the next 12 months. “While it has undoubtedly been a difficult year for the UK’s farmers, the situation has been the same all over the world. This should help to keep commodity prices high and give producers and other potential purchasers more confidence going forward. I think the agricultural land market will experience a bit of a purple patch next spring.”

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