Key Highlights:

• Farmland prices rose by an average of 25.3% in the year to December 2007
• Prices rose by 3.3% in the final quarter of 2007
• Average farmland values increased to £4,316 per acre, up from £3,294 a year ago
• 37% of purchases are made by lifestyle buyers ahead of farmers on 34%
• Demand from purchasers rose by an average of 11%, on a year on year basis

Clive Hopkins, Head of Farms and Estates at Knight Frank, comments:

“It is clear that the problems facing the wider property markets have not been felt in the agricultural sector where prices have now risen to an average of £4,129 an acre. Given the turmoil and the unsettled nature of the financial markets this represents an astonishing annual increase of 25.3%, the second highest annual rise on record.

“Over the last quarter of 2007 the trend for growth continued, though at the more modest rate of 3.3%. While this means the market has now witnessed seven consecutive quarters of growth it should be noted that price rises have softened since their peak during the third quarter of 2007 when a 7.8% increase was recorded. The cyclical nature of land purchase traditionally sees a slower market in the final quarter of the year.

“As in previous periods the market has been largely driven by non-agricultural money. Lifestyle buyers continue to be the most active purchasing sector (37%) as they seek to add value to their properties while also protecting their immediate outlook. Indications suggest this trend will continue through 2008, though at a lower rate due to a weaker outlook for the UK’s high value added business services sector which is the source of many non-agricultural buyers.

“When lifestyle purchasers act they do so decisively. For example in 2007 we saw two estates of 5,000 acres sell to two individual purchasers, which underlines the fact that there is private money aimed specifically at the agricultural market.

“Foreign buyers continue to exert a strong influence on the market with 17.5% of all purchasers coming from overseas. As in previous quarters the Irish are the most acquisitive, 47%, which is no doubt due to the prices in the UK being vastly more affordable than those in Ireland where an acre now averages €20,367 (£15,237).

“As anticipated individual farmers provide the sector’s second most significant purchasing force with 34% entering the market, driven by recent increases in commodity prices. In this regard we would point to the growth of interest in bio-fuels and a trend towards developing countries adopting western diets.

“Commodity markets responded aggressively to poor harvests caused by drought in many parts of the globe which resulted in an increased demand for grain. This resulted in prices for milling wheat rising by over 60% and feed by over 50% in a 14 month period.

“These prices look firm going into 2008, although this means the livestock industry is now facing increased feed costs that will place them under increased financial pressure. With this in mind it is worth noting that at 62% individual farmers continue to make up the largest vendor group reflecting the struggle many have with tighter margins and a steadily ageing farming population attracted by retirement.

“The government’s proposals for changes to capital gains tax rules have not yet prompted a surge of land coming to the market and with land prices looking to continue an upward trend perhaps vendors feel comfortable waiting.

“Looking forward the agricultural market shows little sign of weakening. With supply limited and demand strong we consider land prices will increase by 13% over the next 12 months while rents will rise by around 12.5%.

“It is possible that the market for residential farms and estates may come under pressure from the expected downturn in the residential market next year. However, the continued imbalance between supply and demand should mean that high quality farms and estates in sought after areas will continue to sell well.”

Courtesy: Knight Frank Residential Research

The Knight Frank Farmland Market Index is a valuation based index, compiled quarterly from valuations prepared by professional staff in Knight Frank’s Farms & Estates Department offices in the UK. The index is based on the valuation of a comprehensive basket of properties throughout all UK regions based on actual sales evidence.

Farmland is defined as agricultural land that has a dwelling and/or buildings located on it. Bare land is defined as agricultural land which does not have either dwellings or buildings located on it.

For further information, please contact:
Clive Hopkins, Head of Farms & Estates, Knight Frank
Email: [email protected] Tel: 020 7861 1064

Olivia Smith, Country & International Residential Press Manager, Knight Frank
Email: [email protected] Tel: 020 7861 1034 Mob: 07789 878015