Headlines

• Average farmland values in England rose by almost 3% this year to £6,214/acre

• In the 60 years prices have risen almost 11,500% from just £54/acre

• Land prices are predicted to increase by around 5% next year

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"The average value of farmland in England rose by almost 3% this year to £6,214/acre, according to the results of the Knight Frank Farmland Index. This takes growth over the past five years to over 50%, and the 10-year increase to more than 200%. In the 60 years since Elizabeth II ascended to the throne, prices have risen almost 11,500% from just £54/acre.

"Unsurprisingly, given the summer washout that badly affected harvest, all of the growth in farmland values came in the first half of the year. Prices remained virtually flat in the second six months.

Time to call it a day

"A fall in the supply of good farms for sale, coupled with an increase in demand from private investors, helped to keep prices stable and we expect values to increase by around 5% next year. More land may come to the market as some more highly-geared producers with one bad harvest in the barn and another in the ground decide to call it a day. However, there is unlikely to be the kind of glut that could pull back prices.

"An increase in availability, particularly of good blocks of arable land, could actually benefit the market with more stock for potential buyers to choose from and bid on. There will, however, continue to be strong regional variations. Areas like the Cotswolds that are attractive to buyers from outside the locality are likely to remain hotspots, but in areas where demand is mainly driven by neighbouring farmers, smaller, less productive parcels of land could prove harder to sell.

"The recent confirmation by the taxman that character-appropriate farmhouses will not be hit by the new annual charge on £2m+ residential properties owned by companies will also settle the nerves of some contemplating a purchase. If farming hadn't been given relief from the tax, designed to clamp down on Stamp Duty Land Tax avoidance, it would have affected farming partnerships where one of the partners is a company, and also overseas buyers who often use a corporate structure for their purchases.

"It has also recently been announced that the on-going reforms of the Common Agricultural Policy (CAP) will not now be implemented until 2015, a year behind schedule. This delay should not affect the farmland market as it seems likely that the current system of farm support payments is likely to remain, albeit with a greater emphasis on the delivery of environmental benefits.

"Although equities did outperform farmland for the first time since the credit crunch last year, the global economic recovery is still sporadic and we expect farmland to remain an attractive investment asset over the coming years."

Clive Hopkins, Head of Knight Frank's Farms and Estates department, comments:
"Looking back over 2012 it has been a year of many uncertainties and interruptions. The backdrop of global recession; threat of multiple tax changes that might impact on the benefits of buying and owning land for both national and international buyers; a poor harvest; a poor drilling season; rising input costs - and amongst all this the build up to and the Olympics themselves - all caused the understandable diversion in the market.

"This aside, there has been a market, although the regional variations in prices have never been more evident. The best sales have been those that came to the open market. With the backdrop of the above, many purchasers have sat tight, not wanting to commit and certainly not wanting to do anything without the comfort of competition.

"Looking forward to 2013, there are purchasers who would now like to "do something".  Therefore, we consider that the market may move very positively in Q1 and Q2 of 2013. Uncertainties and interruptions behind us create a clearer future and this is no more demonstrated by the appearance of agricultural investors in the market. Buyers looking for investment opportunities for both medium and long term will add further momentum and impetus to the market. Capital growth opportunities remain and this will attract national and international interest. We look forward to 2013 and the anticipated market 'bounce'."