Farmland values ​​in Britain set to rise, analysis finds

Farmland values ​​are expected to rise in the near term as key supply and demand drivers come into play, but growth rates vary by land type, geography and quality, according to a new analysis.

From 2022 to 2026, Savills estimates growth in the value of lower quality ranched land (6% per year) will outpace prime arable land (2.5%) excluding inflation amid still tight supply .

The forecast is included in the agency’s latest rural research report, Spotlight: The Farmland Market, released this week.

The supply of publicly marketed farmland in 2021 reflects a slower-than-expected “rebound” in available acres from low volumes in 2019 and 2020.

This suggests that supply levels are unlikely to return to those seen historically in the near to medium term, Savills says.

It was widely assumed that the government’s lump-sum exit scheme, designed to help English farmers into retirement by capitalizing their subsidy payments, would lead to an increase in supply. However, the proposed scheme was met with little enthusiasm.

Emily Norton, head of rural research at Savills, said: “Many in the industry have benefited from high commodity prices this year, which has dampened farm profitability from the effects of the first cut in subsidies.

“It remains to be seen whether this only delays the inevitable, the continued rise in input costs will affect farm profitability this year.

“We expect some under-diversified companies to start feeling the effects of transitioning away from the direct subsidy environment.

“This may result in increased supply as some choose to exit the sector, but not to a sufficient extent to impact values.”

Britain’s farmland value forecast builds on this year’s market performance and reflects the fact that the risk posed by uncertain business and farming transition plans 13 months ago has now diminished .

In the 12 months to December 2021, average values ​​for all land types increased by 6.2% as tight supply coupled with continued interest from traditional sources of farmland buyers as well as growing prices supported by new ESG-driven buyers.

Alex Lawson, head of Savills rural agency, said: “From a macro perspective, farmland has historically acted as a good hedge against inflation and, in the environment of persistent low rates of interest, they have increased their appeal as an asset class in a mixed portfolio.

“More recently, its newfound value as a tangible store of genuine carbon and important environmental credentials has only added to its appeal to investors, and we see no reason for that to change.”

This renewed interest in farmland coupled with a lack of supply has led to a revision of Savills’ forecast.

It projects that the real values ​​of lower quality grasslands will increase, on average, by 6% per year in the short term (2022 – 2026), as the ability of grasslands to provide valuable carbon and water management services increases. its demand compared to other types of land. .

In addition, forest planting projects for carbon offsets target grasslands, seeking sites that have no limiting factors for planting trees.

For prime arable land, near-term commodity prices look set to hold and growing interest in energy crops and renewables could continue to support production profits and consolidation of the most productive companies will boost competition for the best land.

In his research, Savills says he expects this to support growth, estimated at 2.5% per year excluding inflation, in the short term.

Mr Lawson said: “It is also clear that demand for farms with a strong amenity or lifestyle appeal is likely to remain due to the lasting impact of the pandemic on working practices.”

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