Land quality, type and location are increasingly important drivers of farmland value, according to property agents Savills. This has led to a widening in the value gap between the most and least in demand land, which currently is as much as £4,600 per acre.

Another key contributor to the rise in values is the continuing lack of supply. Putting this into context, to the end of November supply across Great Britain was 143,500 acres which is 51% less than for the same period of 2000. However, this substantial difference in volumes does not account for the considerable private market which has been a feature of the past few years. Estimates suggest it represents about 30% of all land traded this year.

Average ‘All types’ Farmland Values (at Dec 2013)

Alex Lawson Director of Savills farms and estates commented, "This year there has been a variety of buyers in the market, but while the motives behind their interest in farmland are varied, for most their land choice and location were not. This has led to high sale prices for prime arable land in the East but weaker or zero growth for predominantly livestock farms or those with a high proportion of the value tied up in the residential element."

Focus on the East

Although prices in the Eastern counties have outperformed other areas of the country there has been a significant variation in values within this region. The thin market for quality arable farms in the right location in the East of England, notably Norfolk and Suffolk, has driven consistent and strong growth across the region with average prime arable land reaching £9,600 per acre and recording growth of over 20%.

In contrast, although still strong, average prime arable values across the East Midlands reached just under £9,000 per acre, up 14% since the beginning of the year. More diversity, especially across Lincolnshire, in terms of land quality and desirability of location created more patchy demand from buyers leading to a wider range of prices achieved.

Our forecasts

Looking to the next few years, while the influences for future farmland growth are finely balanced against the risks, we believe the reasons for growth currently outweigh the negatives.

On the one hand, supply is historically low, the product is finite and demand for quality is strong. The increased demand on land for renewable energy, which is competing with food production to feed growing populations amidst rising concerns for food and fuel security are all drivers for a competitive marketplace.

However, there are always issues which threaten to upset the balance with downward pressure. These include interest rates, debt due to pressure on profitability and cash flows, changes to taxation and subsidy regimes – all of which have the potential to increase the supply side of the equation and therefore put pressure on future price growth.

We believe there is currently more upside than downside however. Growth in values for the best quality arable land are not forecast to exceed this year’s stellar performance, but nonetheless our forecasts show steady increases over the next five years.

We expect average values to continue to grow at around 6% per year over the next five years. However, this average growth will be more muted than that recorded over the past 10 years (270%). We also expect significant variation between the rates of growth across the farmland market.

With the country residential market forecast to start its recovery next year, the residential farm which., in recent years has often failed to generate interest in all but the most popular lifestyle locations such as The Cotswolds, could begin to receive renewed interest from buyers, who recognise now is the time to take advantage of the future potential uplift in values.