Low supply and resilient values – key features of the 2020 GB farmland market

Record low supply in 2019 looks almost certainly to be topped in 2020, as the combination of Brexit, agricultural policy reform and the COVID-19 pandemic weigh on the market. Yet, according to Savills latest research, despite this uncertainty, farmland values have remained strong, highlighting the underlying confidence in rural investments and the ongoing resilience of the sector.

Supply

Farmland supply remains at historic lows and according to our database which tracks sales over 50 acres, 95,160 acres were brought to the public market as at 30 September. Over half of this activity occurred between July and October and followed the momentum seen in June as the market emerged from lockdown.

Source: Savills Research

Our agents note however, that while publicly marketed supply does remain at levels well below longer term averages, private and off-market sales have been a popular avenue for some vendors with Savills transactions accounting for an additional 24% of supply across Great Britain.

Values

The Savills Farmland Values Survey continues to show that values are resilient with minimal changes to the end of September 2020.  Great Britain’s average ‘’All types’’ farmland indicator remains unchanged at £6,690 per acre with prime arable down 0.1% to £8,690 per acre. Grade 3 arable was up 0.2% to £7,323 per acre while grade 3 pasture land was unchanged at £5,384 per acre.

Farmland values have been relatively static over the past 18 to 24 months with lower transaction volumes providing less market evidence and volatility in pricing. In reality, values achieved remain highly localised and primarily driven by location, asset quality and soil type.

Market sentiment

Chris Spofforth, Savills head of farm agency in the south east, said “There continues to be a remarkable uptick in interest for houses in the country and amenity farmland as many urban-based buyers seek more green space out of the major centres.  Rural estates with notable residential components are also attracting interest at the higher end of the market.”

Also continued demand for greenfield land with forestry planting potential shows natural capital motives are beginning to gain traction in the market.

Chris continues: “Looking ahead, trade and policy reform are expected to develop in detail before the year end. The sector is set for radical change, however we expect the demand fundamentals to remain strong and the market steady with such low supply.”

Comparable performance

Volatile stock markets and the recent inflation of gold prices highlight the current uncertainty across investment markets, as the financial ramifications of the pandemic continue to emerge. Farmland however, both here and globally, has shown resilience throughout this period, with business interruption limited and stability in capital values.

Furthermore, times of economic uncertainty have proven fruitful for farmland investors and our analysis shows in the seven years following the global financial crisis, farmland outperformed UK equities, gold and bonds.

Angus Locke Savills rural research says, “As investors revisit portfolio allocation over the coming months and years, the appeal of uncorrelated and inflation hedged alternative assets like farmland may be bought into focus. Momentum behind a ‘green recovery’ is likely to complement this, as society and governments recognise the importance of the land based sector in mitigating the effects of climate change.”

For more information, contact Chris Spofforth at Savills on 07812 965379 or cspofforth@savills.com