Investors increasingly adding farmland to their mixed portfolios

Investors are waking up to the benefits of holding farmland as part of a mixed portfolio with research showing that last year the proportion of investment motivated buyers doubled to 31%.

Property consultants Savills say that along with gold, farmland is a good hedge against inflation and its weak correlation with mainstream assets means it performs well when other assets are showing poor returns.

Its latest research also found that the number of new applicant registrations increased by more than 45%, providing further evidence of the current interest in farmland as a strong performing asset.

‘In the past 15 years let and in-hand land has outperformed all assets except residential property, but during the past three years farming and forestry have topped the investment performance league in the UK,’ said Ian Bailey head of Savills rural research.

However, with the supply of farmland across Great Britain in an historical context remaining tight at 158,000 acres, values could only move one way. Savills Farmland Value Survey shows the average value of grade three arable land for Great Britain increased by 11% in 2010 to £5,250 per acre. This average figure masked some exceptional prices paid, which in some cases reached well over £10,000 in England and over £7,000 per acre in Scotland.

Demand was particularly strong for good quality commercial farmland and so unsurprisingly the highest rates of growth were recorded down the eastern side of England where a number of larger arable units traded.

‘Anecdotal evidence suggests there was significant activity off market for large commercial farms and estates last year, which was driven mainly by vendors' requirements for privacy, especially in the case of top end estates,’ said Alex Lawson, director of Savills.

‘In the wake of an improved sentiment for prime country property and predictions for a relatively robust run of commodity prices, Savills has revised its baseline forecast for average farmland values upwards to 9.7% growth for this year,’ he added.