The headline is that the market continues to be far more resilient over the past two or three years than some expected. Analysis of our Farmland Database shows that average arable values remain unchanged from 12 months ago at £9,200/acre.
However, average values do mask what is essentially a multi-tiered market for farmland. In 2019 we saw nearly a 300% range between the lowest and highest price paid for arable land – from a low of £6,000/acre to a high of £17,500/acre.
There is also a wide polarisation in the price paid for pasture land, although some of this variation is because pasture land ranges so dramatically in quality and appeal, from marginal hill land through to parkland on residential estates.
As we have noted in previous reviews, demand has become extremely location specific over the past three or four years, with farms and estates in the right location to attract lifestyle and non-farmer buyers tending to realise higher prices. Focusing too much on average values can be misleading.
Another statistic that stands out from 2019 is that the percentage of farms marketed during the first half of the year that had either sold or were under offer by the end of the year was higher than in 2018. This is initially surprising as while demand from lifestyle and non-farmer buyers remains stable, buyers who derive their primary income from the land are taking a more cautious approach. There is still ongoing uncertainty about farm incomes, which has made many farmer buyers more reticent about borrowing against future farm profits.
Given this backdrop, it is interesting to consider further what might lie behind the increase in the percentage of farms sold during 2019 and the stability in average prices. One explanation is the fact that the volume of land which came to the market in 2019 was 35% lower than the previous year and 20% below the five-year average. This was something we expected – we’ve seen before that previous rounds of Common Agricultural Policy (CAP) reforms tend to lead to a fall in the amount of land marketed. But the fact there has been such scarcity in the marketplace raises the question as to whether supply-side factors are having the greatest influence on average values at present.
Looking forward, while the UK does now have a clearer sense of direction politically, there are still plenty of questions facing farmers and landowners in terms of the financial implications of the Agriculture Bill and the new Environmental Land Management System (ELMS).
Some vendors will decide that they have put decisions on hold for long enough and are no longer willing, or able, to delay selling. But equally, others could decide to sit tight for another year to see what happens. So while there is a chance that more land could come forward in 2020, it feels unlikely supply will be above the five-year average.
Demand from non-farmer buyers is expected to remain firm, particularly in a hotspot ‘crescent’ comprised of Hampshire, Berkshire, Gloucestershire and Oxfordshire. Overseas buyers have also become more visible in today’s market – due in part to the weakness of Sterling.
A phenomenon seen over the past year or so in Scotland is unprecedented demand from forestry investors for hill ground suitable for planting trees, which has seen prices rise significantly. We believe this could become a growing trend in England and Wales.
The net result is that the outlook for the land market will continue to be highly dependent on location. Demand from lifestyle buyers and other non-farmers is expected to remain a key driver of the market, underpinning values in the more popular areas. While some high-quality commercial arable land in those areas focused on productive farming is currently achieving below average prices, this does mean it looks good value for money in the long-term.