Farmland supply unlikely to quench thirst of demand, and values forecast to move upwards

Crispin Holborow, Head of Savills Country Department says, "Farmland is seen as a safe haven in times of trouble, which has held true this year. There are still useful tax benefits both in trading and owning land quite apart from the potential windfalls from development in the future. Land also has obvious lifestyle attractions and an improvement in the amenity and country house markets in the second half of the year have reinforced the rises in farmland values recorded since June."

Savills forecasts that average farmland values will continue to rise in the short and medium term by about 6% per annum. This forecast for annual growth is based upon Savills newly launched farmland model for Great Britain. The weighted model, which takes into account the key variables that affect price such as farm incomes, wheat price and yield, subsidies, prime country house values, is adjusted for any 'lag' effect. (see document attached)

Ian Bailey, Head of Rural Research says, "Our model predicts that average grade 3 arable land values in England could reach £7000 per acre and more than £5000 per acre in Scotland. However, the current ranges in values achieved are wide and applying our forecasts to the higher figures achieved could see the best land reaching £10,000 per acre well before 2015." (see document attached).

Savills suggests that the supply of farmland at a national level is unlikely to increase to the point of saturation, which would have the potential to have an adverse effect on values. In England for example the average annual supply of farmland between 2000 and 2009 was 123,000 acres per annum and just 105,000 acres during 2009. The volume of supply would need to reach at least 130,000 acres for there to be any risk of saturation.

Ian Bailey, comments, "We see little reason for the annual supply to increase dramatically save for unforeseen shocks; debt levels, which are the biggest driver of supply are not expected to change significantly on a national basis".

Bailey continues, "There might however be regional variations, including as small livestock producers in the South West and off-farm businesses in the South East, which have succumbed to recessionary pressures."

source : Savills

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