The Bidwells Agri-Investment Index (BAII) revealed that although returns have weakened marginally in 2014 and 2015, they were still substantially higher than most conventional asset classes – with annualised returns over the nine years to 2015 at 16.74 per cent for ‘let’ and 12.08 per cent for ‘farmed’ , which compares to around 4 per cent for the FTSE 100.
The BAII tracks the investment performance of more than £500m of agricultural and rural property in England – but with a strong bias towards the arable east.
Traditional let agricultural property assets are more resilient to commodity price volatility, according to the report. This continues to be the primary factor influencing returns from agricultural businesses.
The total return for BAII farmed property in 2015 is expected to be 7.4 per cent, compared to 11.58 per cent for let property assets.
Roland Bull, partner at Bidwells, said: "The let element of the estate is protected to a greater extent from the short term volatility in the commodity markets, with more stable rental incomes and capital growth driven by tenancy reversions and non-agricultural development.
"2014 was the eighth consecutive year of double digit total returns in the BAII Let portfolio, with performance broadly in line with expectations at 13.57 per cent. The farmed portfolio, however, saw the worst results yet, in both income and capital terms, with a total return of 7.83 per cent.
"One factor is that is that farm rents are typically reviewed on a tri-annual basis, so although an immediate drop in commodity prices will hit the tenant’s profitability, it may take some time to filter through to the investor.”
Mr Bull added the capital growth was derived not only from the price rises in vacant farmland, but also from non-agricultural development and tenancy reversions.