The average value of English farmland fell by 1% in the third quarter of the year. This follows a period of strong growth that saw prices hit a new record high.

"According to the Knight Frank Farmland Index, bare agricultural land is still worth over £6,000/acre. That is 5% higher than 12 months ago and almost double the prices being achieved five years ago," says Andrew Shirley, the firm's head of rural research.

"In terms of capital appreciation, farmland has outperformed many other asset classes over both the short and long term. The FTSE 100, for example, has lost around 10% of its value in the past three months alone and has grown by a miserly 6% in the last decade," he adds.

So why have farmland values weakened slightly now and is it the start of a longerterm trend? Clive Hopkins, head of Knight Frank's Farms and Estates team, thinks not. "Against the backdrop of growing economic uncertainty in the UK and around the world, there was a bit of a perception among buyers and investors that the market could be overheating slightly.

"People have decided to take a step back, but that doesn’t mean they are not interested in the right product - they are just being cautious. A number of my clients looking to invest say they are waiting to see how the economic situation pans out over the next six months."

Tom Raynham, head of national farm sales, says buyers are taking a much tougher stance. "There is a perception that anybody who is selling must have a good reason. Potential purchasers don’t feel they need to rush and are prepared to wait for the right price."

Bank Caution

Banks are also becoming more cautious, says James Prewett, who heads up farm sales in central and western England. "They still see farmland as a safe asset to lend against, but given their rising concerns over property markets in general, they can be bit twitchy when prices start to creep above £7,000/acre.

"Cereal prices hit a record high earlier in the year, but they have come back quite sharply since then and arable farmers who might be considering buying more land are waiting to see what happens now."

The market is becoming increasingly polarised with land that attracts competitive bidding due to its location or quality still achieving very strong values. "In the Cotswolds we sold some land this year for around £11,000/acre, but something in Warwickshire that didn’t generate quite such excitement went for £6,750," explains Clive.
 
Prices are likely to remain flat or weaken slightly in the final quarter of the year, but will rebound in the first half of 2012, he predicts. "The general direction of the land market is still upwards as investors look to tangible assets supported by strong fundamentals."