Farming News - Commercial farmland demand is expected to remain very strong

Commercial farmland demand is expected to remain very strong

 

  • Farmland prices higher than year ago levels
  • Strong demand from commercial farmers amid tight supply conditions
  • Price expectations elevated in the commercial sector, but flat in the "lifestyle" sector

 

The H1 2012 RICS Rural Land Market Survey provides a mixed message in terms of land prices; the opinion based measure shows further gains, while the transactions based measure shows a fall. However, given that transaction volumes during H1 2012 fell to their lowest level since H1 2006, we would caution against over-interpreting the dip in the latter; lack of market liquidity is likely to have played a role. Indeed, we suspect the underlying trend remains positive given the anecdotal evidence to this effect.

 

This message is reinforced by the survey's results showing broad-based falls in supply, coupled with rising demand and elevated price expectations in the commercial sector.

 

Commercial farmers - which account for over two thirds of all farm land purchases - remain keen to expand production onto neighbouring plots given high agricultural commodity prices in many sectors. Meanwhile, the residential (or 'lifestyle') segment continues to trend sideways along with the broader housing market.

 

The survey's national 'transaction' based measure of farmland prices - which is based on actual sales and includes a residential component - declined by 7% in H1 to £7,794 per acre but is still up by 3% on the year. The survey's 'opinion' based measure - which is an estimate of the hypothetical value of pure bare land by surveyors - edged up by 2% in H1 to £6,628 per acre and stands 8% higher than a year ago.

 

The most & least expensive land

 

The most expensive agricultural land is located in the West Midlands, followed by the North West at £7,219 and £6,938 per acre respectively. The least expensive is located in Scotland, followed by the North East at £3,906 and £5,094 respectively. Out of the ten regions in Great Britain, six experienced price gains in bare land prices, with Scotland and the Eastern region recording the largest gains during H1 (12% and 9% respectively).

 

Out of the regions that showed a fall in bare land prices, Wales, the North West and the West Midlands saw the largest declines (4% in each case). Surveyors estimate that average yields on agricultural land currently stand at 2%; roughly unchanged since 2009, but well below 3.4% estimated at the end of 2003.