Knight Frank Farmland Index Q3 2013

Headlines:

•    The average value of farmland in England rose by 4% in the third quarter of 2013 to £6,678/acre
•    This was the strongest performance in a three-month period since Q2 2010
•    It takes growth over the past 12 months to 7%


The value of English farmland continues to rise as investors build their portfolios and farmers expand

Between July and September farmland outperformed residential property, even in prime central London, matched the rise in the value of the FTSE 100 and was only marginally behind the 5% hike in the price of gold.

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Demand from farmers, lifestyle buyers and investors, coupled with historically low availability, is helping to push up prices.


Tom Raynham, Head of Knight Frank's Agricultural Investment Acquisitions team, comments:

"We are seeing a steady increase in the number of enquiries from individuals and funds, both in the UK and overseas, looking to diversify their investment portfolios,"

Tom has just helped an overseas investor to acquire an arable unit of over 2,000 acres. Large blocks of good arable farmland, preferably over 1,000 acres, are most in demand and are making between £8,000/ acre to upwards of £10,000/acre.

Capital growth is a key driver for investors. Prices have risen by 222% during the past decade and are predicted to rise by at least 5% annually over the next three years. Investors, however, are also looking more closely at annual yields.

"From what I am seeing now, people start to get very interested if there is also the potential for additional income from the likes of renewable energy or a diversified farm business," says Tom.

The resurgence in agricultural research is also adding to the sector's investment potential with some exciting developments on the horizon that could help to boost returns with improved technology and crop yields.

Farmers are also prepared to pay strong prices for land, but are becoming more careful about what they bid on in the light of recent price increases. Location and quality have to be right.

James Prewett, Head of Knight Frank's Regional Farms team, comments:

"More marginal land hasn't seen the same sort of growth. I don't think prices have weakened, but they remain more stable."

An interesting trend that is starting to emerge is the number of dairy farms that are being sold and kept as milk-producing units.

"It's not something I have seen for quite a while," says James who has just acquired a dairy farm in Wales for a client. Milk prices have risen recently, but costs are still an issue meaning those farms with plenty of good grass acreage and lower overheads are most in demand.

Amenity or "lifestyle" buyers are also prepared to pay a premium above agricultural values for the right farms. Again, however, they need to be in the right location with a main house that is well proportioned, but not overly large, says James.