Rural Land Market

The latest Rural Land Market Survey released by the Royal Institution of Chartered Surveyors (RICS) and the Royal Agricultural University (RAU) shows there has been a sharp increase in the supply of farmland during the first half of 2015.  In contrast, demand for commercial farmland has fallen. This has affected land prices recorded over the first half of 2015 and expectations for growth over the coming year.

The survey always includes two measures; the ‘transaction‘ based measure uses actual sales and includes a residential component (where that component is estimated to be worth less than 50% of the total value of the land).  The ‘opinion’ based measure is a hypothetical estimate of bare land only, no residential component is included and therefore it tends to be less than than the transaction-based figure. 

The latest results show the transaction based survey for the first half of 2015 actually fell by 2.5% compared to the second half of 2014.  Over the year it fell 1% to £23,950 per hectare (£9,692 per acre).  By contrast the opinion based weighted average price rose by 2.5% in the first half of 2015 compared to H2 2014, to £20,828 per hectare (£8,429 per acre); a 4.5% rise compared to the first half of 2014.

Arable land prices rose by 2.85% to £23,353 per hectare (£9,451 per acre) compared to H2 2014 and pasture land values by 2.09% to £18,305 per hectare (£7,408 per acre).  But with a sharp increase in supply of commercial farmland and for the first time since 2008, a fall in demand, the majority (albeit only a small majority) of surveyors are expecting prices for commercial farmland to fall over the coming year.  Meanwhile, demand from ‘lifestyle’ buyers has increased (although lower than for H2 2014) and as the economy slowly recovers; prices for ‘residential’ farmland are therefore expected to continue to rise.  With just about all agricultural sectors feeling price pressures it is perhaps not unsurprising that commercial values are forecast to decline or if not stabilise during the coming months.  Over the last few years it has been commercial farmers looking to expand their businesses that has been one of the main drivers of the price increase, with the lack of available land adding to price pressures.  This appears to have reversed and it remains to be seen if this is just a short-term ‘pause’ or a more fundamental shift.

The survey also looks at rental levels.  Arable rents under the AHA 1986 and ATA 1995 both fell by 3.6% and 7.0% since the second half of 2014, to average £198 per hectare (£80 per acre) and £363 per hectare (£147 per acre) respectively.  Rents for pastureland rose by 5% to £148 per hectare (£60 per acre) under AHA 1986 Tenancies, but fell by nearly 3% to £257 per hectare (£104 per acre) for ATA 1995 tenancy agreements compared to H2 2014 levels.