RICS/RAU Rural Land Market Survey

The latest survey results covering H2 2016 indicate a further softening in farmland demand, a trend which started to emerge in the latter half of 2015. The RICS/RAU report also suggests that anecdotal evidence from survey respondents highlight Brexit and future farm support uncertainties as well as declining agricultural profitability due to poor commodity prices as key headwinds.

The report also forecasts a further price declines over the next twelve months although it notes that respondents’ sentiments are less negative than the last survey, conducted at the time of the referendum.

The survey uses a combination of transaction based measure of farmland prices (which includes a residential component where its value is estimated to be less than 50% of the total) and an opinion-based measure (a hypothetical estimate by surveyors of bare land prices). The transaction-based measure suggests an average price of £10,233 per acre which is 7% lower than a year ago. The opinion-based measure, although 3% lower than last year, was broadly flat in comparison with H1.

RICS/RAU Rural Land Market Survey H2 2016 – Key Results

(£ per acre unless specified) H2-2015 H1-2016 H2-2016 (p) % change
Farmland: transaction based1
Weighted average price 11,049 10,952 10,233 -7%
Bare land: opinion based
Weighted price 8,306 7,975 8,062 -3%
Arable 9,304 8,911 8,982 -3%
Pasture 7,308 7,040 7,143 -2%
Rents: weighted average per acre
Arable – AHA 86 79 78 75 -5%
Arable – ATA 95 (FBT) 151 142 135 -11%
Pasture – AHA 86 56 60 53 -5%
Pasture – ATA 95 (FBT) 103 96 94 -9%
Yields (%) 1.8 1.6 1.5 -17%

(p) provisional subject to revision; includes residential component (less than 50% of value) Source: RICS/RAU

The report also estimates that average arable FBT rents are 11% lower than a year ago whilst pasture rents are down by 9% on a year-on-year basis. AHA rents have also declined although as one might expect this is not as pronounced given they are set at a lower level to reflect their longer term duration.

Average land prices since 2003 (£ per acre)

Source: RICS/RAU

Yields on investment land are also lower. During H2-2016, it is estimated that 63% of buyers were individual farmers whilst lifestyle buyers accounted for just under 25%.

In Ireland, the Irish Farmers’ Journal Land Price Report estimates that average land values decreased by 1.6% on 2015, a second consecutive fall. The average value of Irish farmland is estimated at €8,771 per acre (£7,455).

Looking ahead, with UK farm profitability and incomes picking up and Sterling likely to remain weak in the foreseeable future, it is possible that farmland prices could stabilise and possibly even rise during 2017/18, especially given the low interest rates and potential effect of inflation which has driven land prices upwards in the past. Longer term, Brexit remains the big unknown and the period of relatively robust land prices over the last 15 years could end if the exit terms and future farm support are unfavourable. Brexit will also become more of an issue for rents, particularly FBTs as 2019 draws closer. It is likely that ‘Brexit clauses’ or clauses to review rental values in the light of a significant change in support for example will become a more common feature of rental agreements.