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Average farmland values almost break the £8,000 an acre mark in 2014

The average value of farmland in England rose by 15% in 2014, according to the latest results from the Knight Frank Farmland Index. Andrew Shirley looks at what 2015 might hold in store.

farm gate

The farmland market in England continued to set a blistering pace throughout 2014 with the average price of bare agricultural land ending the year at a record-breaking £7,925/acre, according to the Knight Frank Farmland Index.

Growth of 3% in the final three months of the year meant values rose by 15% overall during 2014. This was a markedly stronger performance than the other leading safe haven assets of gold (+4%) and prime central London luxury residential (+5%).

A continued imbalance between supply and demand helped to push up values in 2014. Around 20% fewer acres of land were put up for sale publicly last year, compared with 2013. Buyers of all types remain active in the market with strong demand from investors, farmers and existing landowners.

Tom Raynham, Head of Knight Frank’s Agricultural Investment team, comments:
“The investment market continues to focus on agricultural land for a number of reasons but mainly as a source of sheltering wealth and protection longer term against uncertain market forces. The election, changes to tax, uncertainty in Europe and changing climates will focus investors’ minds on safeguarding their portfolios and UK Agri Land provides that stability and legal security.”
Where demand has been strongest, land has been changing hands at prices well above the average figure recorded by our index. Large blocks of arable land have achieved the highest values and £13,000/ acre was paid on a number of occasions in 2014.

The big question now is whether the trend will continue during 2015.

A generally gloomy outlook for commodity prices could temper some farmers’ enthusiasm for expansion, particularly in the dairy sector, but most take a long-term view and will still be keen to take on land that will add economies of scale to their existing holdings. The dramatic slide in oil prices will also help to reduce input costs.

The outcome of the General Election in May, however, could have a longer-term impact on the market. But, with no real favourite emerging in the run-up to the election and another coalition government a strong possibility, I don’t think we will see a rash of farm disposals in 2015. More likely is the prospect that the market will pause for breath until the election and slowly take stock once the result is known.

But, given the many reasons to buy land, not least to obtain roll-over relief on the profits from the sale of farmland for development or infrastructure projects like HS2, I would be very surprised if we don’t see average values comfortably exceed £8,000/acre at some point in 2015.

James Prewett, Head of Knight Frank’s Regional Farms team, comments:
“With the diversity in values and completion between amenity, investment and agricultural purchasers, I am not surprised that average values are nearing £8,000 p/ac. Despite low volume, Knight Frank have some great instructions for spring 2015 to test the market”.

 

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