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LAMMA 2021

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Tight supply in farmland markets

With lockdown restraining the farmland market in the first half of 2020, Alex Black takes a look at the main trends driving buyers and sellers this year.

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There has been a surge in farms coming to market since lockdown restrictions were eased.
There has been a surge in farms coming to market since lockdown restrictions were eased.
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Tight supply in farmland markets

Supply of farmland to the market remains tight this year as a result of people holding back on marketing land during the coronavirus lockdown.

 

While more land was now being brought forward, it was expected this shortage of land would continue to impact the market.

 

Prices have become even more polarised, particularly for arable land, although demand for woodland creation was affecting the price of pasture land.

 

Agenda

 

Environmental goods were on the agenda with increased interest in tree planting and forestry across the country.

 

And with working from home likely to become the new normal for many office workers, people were considering moving away from the city and into the countryside.


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Low supply

 

The big story of 2020 was one of historically low supply, according to Strutt and Parker head of estates and farm agency, Matthew Sudlow.

 

Mr Sudlow said: “Analysis of Strutt and Parker’s farmland database shows the amount of land publicly marketed in England during the first half of 2020 was 50 per cent lower than 2019 levels and one of the lowest figures on record because of the impact of Covid-19.

 

“Just four farms of more than 100 acres were launched during April, which is traditionally a busy month for farms to be advertised.

 

Handful

 

“Supply dropped from 45,500 acres in the first half of 2019, to 23,000 acres in the first six months of 2020.

 

“In terms of the number of farms, only 79 were launched this year, compared to 136 in the equivalent period last year. Of these, only two farms were bigger than 1,000 acres, with only a handful larger than 500 acres.”

 

He added there had been a surge in farms coming to the market since lockdown restrictions had been eased, with more land marketed in June 2020 than June last year.

 

But supplies remained tight.

 

“The volume of land which came to the market in 2019 was itself 35 per cent lower than the previous year and 20 per cent below the five-year average, with uncertainty around Brexit and ahead of last year’s election prompting some buyers to hold back,” he added.

 

“This tight supply, coupled with pent-up demand from the start of the year, has resulted in a rise in average values over recent months.”

Price volatility

 

Polarisation in the prices paid for farmland has been a key trend in recent years and has intensified this year.

 

Mr Sudlow said: “While the average sale price of arable land in England during the first half of the year was £9,400 per acre – 3 per cent higher than the average last year and above the five-year average – prices ranged from a low of £5,200/acre to a high of £17,500/acre.”

 

However, the trends were different for arable and pasture land.

 

“Almost 40 per cent of the arable land sold during the first six months of 2020 sold for £10,000/acre or more – the highest percentage since 2015. But at the same time there was a rise in the amount of land selling for less than £8,000/acre,” Mr Sudlow said.

 

“The picture for pasture is slightly different in that more land sold for more than £10,000/acre, but less land sold for below £6,000/acre.”

 

He added part of this could be due to increased interest in buying grassland for tree planting, with strong competition between buyers for farms with land suitable for woodland creation.

 

“Looking to the future, there are challenges on the horizon which could result in some downside risk on prices,” Mr Sudlow said.

 

“These include the economic outlook after Covid-19, the implementation of the Agriculture Bill and post-Brexit trade deals.”

 

Lifestyle buyers

 

However, he said it was possible the market would benefit from a rise in lifestyle buyers.

 

Potential buyers may also see land as a safe asset class in times of uncertainty.

 

“Getting the right advice on local market conditions is vital,” he added.

Tree planting

Tree planting

Interest in forestry has been spurred on by the UK Government’s net zero commitment, which requires business and industry to consider the effect on the environment.

 

James Adamson, head of Savills forestry, said there had been a subsequent rush for carbon sequestration ability with investors looking to position themselves to benefit from these income streams.

 

“Of course, no-one is denying the forestry sector has a large role to play in the UK’s net zero pledge, but perspective should not be lost on the practical and economic implications of tree planting as an offsetting mechanism,” Mr Adamson said.

 

“Limited available land area and competing existing land uses in the UK make substantial tree planting quotas challenging to deliver.”

 

He highlighted there were barriers to planting trees, as the UK nursery stock of saplings was limited to orders the nurseries know will be fulfilled with a lag of one to two years to produce new stock to meet increasing demand.

 

“Woodland creation also requires prior approval as a change of land use from agricultural production and this process can be time-consuming,” he added.

 

Habitats

 

“Once approved the land cannot be reverted to farmland, which can deter owners of better quality land to consider a change of use.”

 

There was also a relatively limited area in the UK suitable for tree planting with it important not to compromise economic land uses, biodiverse habitats and protected ecosystems to reach tree planting targets.

Environmental buyers

 

Farmland with the potential to provide environmental service delivery is receiving interest from a new type of buyer, who recognises the important role rural property has to play in achieving a more sustainable and carbon neutral environment, according to Alex Lawson, director Savills farms and estates.

 

“This awareness of nature and all it entails has been gaining momentum for some time and the idea of natural capital is now poised to become a major market driver,” he said.

 

The current Defra proposals for a change in emphasis towards the environment and public goods was a potentially interesting revenue stream for these buyers.

 

“While it is early days there is genuine interest from environmentally motivated buyers for certain property types,” added Mr Lawson.

 

This was particularly true in Scotland, with private individuals now joined by institutions and companies looking to offset their pollution elsewhere.

 

“While financial return has previously been the key driver for investment, having a balanced property portfolio which can potentially deliver environmental benefits is now also a consideration, and in some cases a requirement.”

Moving to the country

As people realise they can work efficiently and effectively from home, there is a surge of people moving out of the cities and into the countryside.

 

Louise Taylor, managing partner of Barbers Rural Consultancy, said they also believed they would be safer in the countryside.

 

“In light of this move we are currently experiencing a buoyant market in the rural sector – partly due to Covid-19 but also due to the fact the market has been frustrated for months and people have been desperate to move having started the process pre-lockdown,” she said.

 

However she did not expect this buoyancy to be maintained long-term.

 

“The critical point will be at the end of the furlough scheme when many people will move from furloughed to redundant as businesses fail to open or open with a reduced workforce,” she said.

 

“The property market depends on first-time buyers as without them, no-one else can move up the ladder. If they are unable to service a mortgage, then the market will become stagnant.

 

“It will be interesting to see what the Government does to help them.”

 

She added the stamp duty ‘holiday’ would likely keep the market going in the short- to medium-term but first-time buyers were already exempt up to a certain level.

 

She said the day-to-day life of farmers had been ‘relatively unaffected’ and they would probably carry on business as usual as they were used to dealing with difficult times but this strategy ‘is not going to hold up in the long-term’.

 

“While we expect land prices to hold for the time being, we would not be surprised to see more farmers appreciating the need to change and grow in order to survive, whether this results in more diversification or land being sold for planning,” she added.

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