Farmland market levels off, but outlook still positive

Farmland values have plateaued following eight successive quarters of sustained growth, suggest the latest estimates.

Arable land prices have averaged £10,900/acre so far during 2023, according to Strutt & Parker’s farmland database, which records sales of farms, estates and blocks of publicly marketed land larger than 100 acres.

This is slightly lower than the £11,100/acre during the first six months of 2023 – but the same as the 2022 average, which itself was 15% higher than in 2021, says Matthew Sudlow, head of Strutt & Parker’s farm agency.

Interest rates

“Despite rising interest rates and a squeeze on farm profitability, the farmland market remains extremely resilient. Although it appears the growth in values has slowed in some locations, this is only because there have been fewer sales at £12,000/acre or more.”

In other words, the market remains robust. “Some 60% of the arable land traded in England this year has still sold for more than £10,000/acre,” says Mr Sudlow. This compares to 33% in 2021, highlighting the continued strength of the market, he adds..”

Prime farms

The feeling among agents is that demand is more variable than it was a year ago. But prime farms in popular areas still sell well. Buyers include farmers with rollover money to spend, private individuals, the investment sector and green investors.

Traditional farmer buyers have accounted for around 40% of transactions so far in 2023. Historically, this figure tends to be 50-60%. But this year some significant purchases are being made by a handful of overseas buyers.

“They like the fact it is easier to buy at scale in the UK than in some other European countries,” says Mr Sudlow. “The UK’s appeal is being enhanced by our industry’s enthusiasm for adopting regenerative farming.”

Drill timings

The amount of land brought to the open market during the first nine months of the year stood at 65,600 acres – some 9% above the five-year average. There also continues to be plenty of activity on the private market, but overall supply remains constrained in historical terms.

Mr Sudlow says the outlook remains positive, but greater polarisation in values is a possibility. “With demand becoming more variable, location is once again becoming an increasingly important factor in determining the price.

“The expectation is that the market is set to remain buoyant in perennially popular areas of the country, such as the Cotswolds and counties close to London. But traditionally less popular regions focused on productive farming may struggle to achieve the same level of interest as they would have seen last year.”

Lower levels of farmland coming onto the market remain a talking point with questions about  a possible rise in the amount of land available – especially if farmers choose to sell up in the face of a challenging harvest, high input costs and falling Basic Payment receipts..”

End of bull run ‘no reason for concern’

Solid investment

“While this is clearly a possibility, there is little hard evidence it is happening yet,” says Matthew Sudlow of Strutt & Parker. Overall, the sentiment is that farmland remains a solid investment, with a proven track record of capital growth.

“The value of arable farmland has risen by 29% over the past 10 years and by 351% over the past 20 years. Since 2000, arable farmland has outperformed the commercial and residential property sectors, and equities, delivering an annualised return of 7.8%.

The return from gold (8.9% per year over 20 years) has been slightly higher, although gold started from a very low base in 2000.

“While it feels as if the bull run in the farmland market might be over for now, our forecast is that we are in a period of stabilisation, rather than facing any significant decline in values.”