Farmland market eases as industry restructures

Recent increases in farmland values are start to ease as the industry feels the impact of higher interest rates and production costs, say land agents.

Prime arable land in the eastern region is now trading at an average of £10,404/acre – up 3% compared to the end of September 2022, say rural property agents Savills. But prices are 3.5% down compared to the end of June this year.

Similarly, the value of Grade 3 arable land is averaging £9,480/acre – up 5% on the same time last year, but 3.6% down compared to three months ago. Poor arable land is trading at £7,959/acre, up 18% year-on-year but down 5.5% since the end of June.

‘Highly localised’

Savills associate director Oliver Carr, who works for the rural agency team in West Suffolk, Cambridgeshire, Hertfordshire and Bedfordshire, said a number of factors were affecting farmland values which remain highly localised.

“Farmland values in the East of England are 17% above 2020 levels and also remain higher than the national average, with values of prime arable and grade three pasture now around £10,200 and £7,000 per acre respectively across Great Britain,” he said.

“This has largely been driven by continued pent-up demand from buyers motivated by business asset rollover relief and natural capital investors which have so far insulated the market from wider economic factors and sustained overall value growth.”

There was a lot of variation in the market depending on location, land grade and farm type, said Mr Carr. Prices were generally still up on last year – although interest rates were affecting finance costs meaning neighbouring landowners may find it harder to fund purchases.

“For some, farmland competition is also beginning to weaken where the pool of buyers has reduced following acquisitions by those with rollover relief funds and as investors take advantage of guaranteed rates of return from bank interest rather than less predictable alternative investments.

Opportunities

“Levels of supply have also started to increase, with more opportunities to purchase larger-scale commercial farms this year, while at the other end of the scale, higher interest rates have triggered some smaller-scale sales to raise capital.”

Some 16,500 acres of farmland were publicly marketed in the east of England in the year ending September 2023, says Savills. Although this is 7.8% down the same period last year, it remains higher than 2021, 2020 and 2019.

Of the land marketed this year, some 5,768 acres were in Norfolk, 4,518 acres in Suffolk, 2,327 acres in Essex, 2,312 acres in Cambridgeshire, 1,410 acres in Hertfordshire and 133 acres in Bedfordshire.

Increase in land sales expected during 2024

The amount of farmland being openly marketed could well increase next year as farmers make more informed decisions about the future of their business, says Will Radbourne, part of the rural agency team at Savills in Essex.

“The agricultural transition is progressing and it is now clearer what the new agri-environment schemes such as Environmental Land Management and the Sustainable Farming Scheme will require or incentivise – and the degree of financial reward these will provide.”

Consequently, says Mr Radbourne, eastern region farmers are able to now make more informed decisions about the future of their business and property, which in some instances may involve retirement and sale.

“Additionally, high costs of production combined with increased interest rates have put a strain on some businesses, perhaps accelerating retirement plans.”