As 2020 is likely to record a historically low level of supply across the farmland market, Fisher German’s Richard Gadd discusses the unprecedented surge in city dwellers looking for an urban retreat as well as what can be expected from the market in 2021.

The number of farms brought to the market in 2020 has fallen drastically short of expectations, due in no small part to Covid-19 lockdown restrictions. Adverse weather conditions earlier in the year followed by movement and viewing restrictions during the lockdown forced many vendors to hold off marketing campaigns.

The recent lockdown measures have resulted in some interesting shifts in buyers’ requirements across our rural marketplaces.

The majority of Fisher German’s agency teams across the UK have experienced a surge in demand for rural properties including secluded rural dwellings, smallholdings and farms. The farmland market has spiked the interest of many who would otherwise have considered such properties too remote and inaccessible for the daily commute.

The weeks following the easing of lockdown restrictions were spent arranging viewings for the wide range of farms and smallholdings we had recently launched, whilst trying to register the unprecedented number of urban and London-based residents searching for a rural retreat.

Not only are these buyers seeking a more rural location and lifestyle, but many are looking to the secure and tangible nature of farmland as a safer asset in which to hold capital through the uncertain economic outlook.

We see this trend continuing as a greater proportion of the population move towards full- or part-time homeworking arrangements, with less reliance on access to major road and rail networks for commuting purposes.

These buyers are generally seeking residential properties with smaller acreages and some amenity value.

We have also seen the green shoots emerge for some poorer-quality and less flexible land holdings as corporate, private and development bodies look to secure land for carbon offsetting/trade, biodiversity, educational and conservation purposes.

The forestry markets continue to strengthen, as expected, with buyer demand and values increasing.

Based on the principle of responsible investing, such demand for biodiversity and carbon offsetting opportunities continues to intensify but will be location-driven and subject to limitations on topography, access and natural capital potential.

History tells us that in times of economic downturn, farmland investment generally strengthens, as do values. The low-yielding and low-risk asset is often sought to weather the storm and restructure balance sheets in the short to medium term.

We are likely to see a further uptick in demand in the months ahead, not least as the number of lifestyle buyers intensifies.

In the short term, any significant adjustments to Capital Gains Tax rates may unsettle investors’ confidence and reduce demand from a proportion of our buying clients.

Potential vendors may also delay or decide against sales in preference of alternative farming structures, allowing for the ability to raise capital through the sale of machinery for example, and entering into suitable farming agreements with third parties, whilst also structuring businesses for Inheritance Tax purposes.

We expect an increase in supply of farmland to the market in 2021 and, subject to any significant tax changes, debt and retirement related sales are likely to rise steadily. We see this trend continuing over the next 12 months.

In addition, some farmers are considering sale and leaseback opportunities and offering land privately to ‘rollover’ buyers with significant price premiums.

We believe a greater proportion of mixed and combinable cropping farms will be marketed as cost pressures rise, and for those commercial holdings with limited opportunities through future environmental schemes.

We expect average values to remain fairly static through the remainder of 2020 and into 2021, albeit with a continuing wide range of values being achieved.

Looking forward, values will likely be dictated first and foremost by future domestic support policy and Brexit trade negotiations; with ongoing economic uncertainty, both buyers and vendors are likely to approach the market with caution.

Whilst awaiting further clarity around the Agriculture Bill, and specifically the proposed environmental land management schemes, we expect the farmland market to remain calm.

Progressive farmers and diversified farming businesses will continue to invest, as will those seeking land for sporting and amenity purposes or from a tax-driven perspective.