Industry Eye: Market review shows farmland prices rising as demand outstrips supply

Our Farmland Value Survey shows that the average values for all types of farmland across Great Britain increased by around 6 per cent during the year, although the range of values achieved widened considerably with arable land typically selling for between 3,500 and 7,000 per acre. Although supply nationally was down by almost 26 per cent, the most significant reductions were in the East of England (minus 47 per cent) and the South West (minus 31 per cent). The number of farms advertised nationally for sale in the North of England was down 24 per cent on 2008 with the greatest fall in North Yorkshire, whilst supply was level in Northumberland and slightly up in Cheshire. Including bare land sales, locally the area of land offered for sale in Yorkshire was up 8 per cent on the previous year at 11,360 acres. Demand continued to outstrip supply throughout most of the year although foreign buyers were to a large extent replaced by English purchasers.Values regained the 5 per cent fall recorded towards the end of 2008 and ended the year up 4.6 per cent in Yorkshire.

Forecast for 2010

As we leave a decade dominated by tight supplies and fluctuating farming fortunes,I can see no reason to expect volumes to significantly increase but argue that there must be very little room for them to reduce any further. Savills forecasting model suggests growth of between 5 per cent and 6 per cent annually until 2015 which if achieved, is likely to match many other investments. Challenges range from potential climate change, volatile input and output prices and the frustration that increasing world populations should lead to greater demand, which never seems to happen.

Losing the IHT benefits of land ownership is always a risk, although the removal of Indexation Relief significantly increased the potential Capital Gains Tax liability.

I believe that increased supply would be good for the market and provide opportunities for many seeking to reorganize their businesses or to relocate. Many currently feel trapped and it is difficult to buy a property unless you are a cash purchaser. More profitability in the dairy and cereal sectors would provide more confidence for farmers to buy land whilst the weak pound is also important.

I predict that 2010 will see tight supply, strong demand for commercial farms, a two-tier market for bare land and some early sales by vendors fearing potential tax increases. The strength in both farmland and residential markets should continue through spring with potential uncertainty during May and June, depending on the outcome of the election before markets stabilise again in autumn.