English farmland 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 shares and 48% for average UK house prices. Even prime property in central London have only increased by just over 100%.

Knight Frank Farmland Index Q3 2012

Key findings:

•    English farmland has risen by nearly 200% in 10 years
•    Good quality arable land is achieving as much as £8,000/acre
•    Farm rents increase by up to 40%
•    Knight Frank predicts price rises of over 5% in the next year




The farmland market did, however, experience a slight lull this summer with average prices across England dipping by 1% to £6,220/acre, according to the latest results from the Knight Frank Farmland Index.


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 farmland is only £70/acre 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 English farmland, from the best soil to the more marginal. Where there is strong demand for land we are still seeing much higher prices being achieved."


Tom Raynham, Head of Farm Sales in Knight Franks London office, says decent arable land is still making upwards of £7,500/acre. "Part of the problem is that there is still a real shortage of good quality 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 commercial agricultural land.  

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Rising Rents

Part of the attraction for investors is the sharp increase in farm rents. James Del Mar, Head of Rural Consultancy, comments: "Where we have been conducting three-yearly rent reviews for our landowning clients, we have seen increases of up to 40% for traditional Agricultural Holdings Act tenancies*.


"Rents for shorter-term and more flexible Farm Business Tenancies are also rising rapidly.  It has reached the point where landowners need to think very carefully before accepting the highest bids from prospective tenants.  On paper they look very attractive, but there is a danger that they will become unsustainable if commodity prices fall. If that happens, your tenant will struggle to pay the rent or may not look after your land as carefully as you would like."


Trees are also increasingly attracting investors, points out Tom Raynham. "We have recently sold blocks of amenity woodland in the south of England to UK and overseas buyers for £5,500 to £7,500/acre – a huge jump in the prices being achieved just five years ago."


James Prewett, Head of Regional Farm Sales in Central and Western England, is also seeing land regularly fetch over £8,000/acre, but says the market is becoming noticeably more polarised. "If there is competitive bidding potential buyers are prepared to pay good prices to secure a deal, but where there is less interest people are being more circumspect about what they will pay."


Clive Hopkins, Head of Knight Frank's Farms and Estates department, is expecting 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 famers, the situation has been the same all over the world. This should help to keep commodity prices high and give producers and other potential purchases more confidence going forward. I think the land market will experience a bit of a purple patch next spring."


*Agricultural Holdings Act tenancies are tightly regulated and often include rights of succession for further generations. Rents are generally reviewed every three years, with any changes usually coming into effect on Lady Day (25 March) or Michaelmas (29 September). Farm Business Tenancies are more flexible with terms negotiated on an individual basis.


For further information, please contact:
Andrew Shirley, Head of Rural Research, Knight Frank, +44 (0) 1234 720534, andrew.shirley@knightfrank.com

Charlotte Palmer, Country PR Manager, Knight Frank, +44 (0)20 7861 5037, charlotte.palmer@knightfrank.com

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