In the second quarter of 2022, the average value of bare farmland in England and Wales experienced a notable 4% increase, reaching £8,190 per acre, according to Knight Frank’s Farmland Index. While this surge brings values close to the historic highs observed in 2015 at £8,306 per acre, the market has witnessed an even more remarkable 16% growth over the past year, driven by an 8% increase in the first half of 2022. This marks the strongest annual growth rate since 2014, as reported by Knight Frank.
The primary factors behind this remarkable rise are a scarcity of available farmland and sustained high demand. As of the end of June, only 34,016 acres had been publicly sold, representing an 11% decrease compared to the previous year, according to Farmers Weekly’s land tracker. Fierce competition among a diverse range of investors has resulted in sale prices frequently exceeding market expectations, with some values soaring as high as £20,000 per acre.
Factors Driving the Farmland Boom
To understand the dynamics behind the surging farmland values, we need to delve deeper into the factors driving this trend:
- Limited Supply: One of the fundamental drivers of rising farmland values is the limited supply of available farmland. The United Kingdom is a relatively small country with finite land resources. As urbanization and infrastructure development continue, the amount of land suitable for agricultural use decreases. This scarcity of available farmland has created a competitive environment where buyers are willing to pay a premium to secure agricultural properties.
- Strong Demand: Demand for farmland in England and Wales remains robust. This demand is driven by a diverse set of investors, including traditional farmers looking to expand their operations, individuals with capital to invest, lifestyle buyers seeking rural retreats, and environmentally conscious investors looking to support sustainable agriculture. The wide range of interested parties has contributed to the high demand for farmland, further intensifying competition.
- Investor Appetite: Investors view farmland as an attractive asset class for several reasons. Farmland often offers stable and predictable returns, making it a relatively low-risk investment option. Additionally, it provides diversification to investment portfolios and serves as a hedge against inflation. As a result, farmland has gained popularity among institutional investors, driving up demand and prices.
The Impact of Competitive Bidding
Matthew Sudlow, Head of Estates and Farm Agency at Strutt & Parker noted that competitive bidding and best-and-final offers have become commonplace, especially in the £2 million to £5 million price bracket. This competitive environment has led to farms selling more rapidly than in previous years. In fact, nearly half of the farms sold in the first half of 2022 are either under offer or have already exchanged hands. This represents a significantly higher proportion than what is typically observed in a normal year.
The phenomenon of competitive bidding has not only accelerated the sales process but has also driven up prices. Bidders eager to secure farmland are often willing to pay premiums above the asking price, resulting in values that occasionally exceed £20,000 per acre.
Diverse Range of Investors
One notable aspect of the current farmland market is the diverse range of investors participating. This diversity extends beyond the traditional farming community to include individuals with rollover capital, lifestyle buyers, and environmentally conscious investors.
- Traditional Farmers: For many traditional farmers, expanding their land holdings is essential for growing their agricultural businesses. They see the acquisition of additional acreage as an opportunity to increase crop production or expand their livestock operations, ultimately boosting their income.
- Individual Investors with Capital: Individuals with capital to invest view farmland as a long-term, tangible asset that can generate stable returns. In a world of economic uncertainty, farmland offers a sense of security and a hedge against market volatility.
- Lifestyle Buyers: Some individuals are drawn to farmland for lifestyle reasons. They seek the tranquility and beauty of rural landscapes, along with the opportunity to live a more sustainable and self-sufficient lifestyle. Farmland can provide the ideal backdrop for those seeking a change of pace.
- Environmentally Conscious Investors: The growing awareness of environmental issues has led to increased interest in sustainable agriculture. Investors looking to support environmentally friendly farming practices are attracted to farmland that aligns with their values.
Large Farms on the Market
An intriguing aspect of the current farmland supply in 2022 is the presence of a higher proportion of large farms, particularly those exceeding 1,000 acres. According to Savills, farms of this scale account for 21% of the farmland advertised so far, compared to the 10-year average of 11%. Among these, two industrial farms, each exceeding 4,000 acres, located in the East and North of England, are currently being marketed by Savills. These sales will serve as a substantial test of the market’s appetite for large commercial units.
The Coldham Estate in Cambridgeshire and the Goole Estate in the East Riding of Yorkshire, both owned by Co-op Farms until 2014 when they were purchased by the Wellcome Trust, are currently up for sale. The charity announced the sale in April after conducting a “strategic review of its land holdings.”
Looking ahead, experts predict that the upward pressure on farmland prices is likely to persist. The supply-demand imbalance, driven by limited available land and strong investor appetite, is expected to continue in the short to medium term.
While supply does seem to be increasing, especially with privately available farms entering the market, it remains insufficient to meet the robust demand. The Ukraine crisis has had a significant impact on the cost and risk of production, possibly accelerating retirement decisions that might have been delayed during the agricultural transition.
In the first half of 2022, farmland values rose by 2.6% for all land types in Great Britain. Prime arable land commands an average value of approximately £9,420 per acre, while Grade 3 grassland averages around £6,100 per acre. However, it’s essential to note that in the current market conditions, characterized by limited supply and various factors influencing prices, average values may not provide a complete picture. Local markets, competition between neighboring landowners, and rollover capital continue to disrupt expected pricing trends.
The surge in farmland values in England and Wales is a testament to the unique dynamics of the agricultural real estate market. Limited supply, strong demand from a diverse group of investors, and competitive bidding have driven prices to near-historic highs. As farmland remains an attractive investment option and a valuable asset for traditional farmers and newcomers alike, the future of the market appears to be characterized by continued price growth and sustained investor interest. However, the nuances of the local market and other disruptive factors will continue to influence individual land transactions, making it essential for investors and buyers to carefully assess each opportunity in this thriving sector.