Rising demand pushes up prices of UK farmland as investors seek a stable long term asset

Written by Ray Clancy

Friday, 19 February 2010 09:26

Farmland prices in the UK are rising as land once again becomes an attractive investment as it is regarded as a stable asset, according to figures published yesterday. (Thurs Feb 18)

Prices increased in the second half of 2009 as demand outstripped supply. Landowners are currently reluctant to sell and this has led to exceptionally low levels of supply on the market, the latest rural market report from the Royal Institution of Chartered Surveyors shows.

Some 31% more chartered surveyors saw demand for commercial farmland rise rather than fall in the six months to December last year. This was up from 22% in the previous half year and demonstrates the growing appeal of land as an asset class, the report says.

Demand for residential farmland also started to pick up, with 1% more surveyors reporting it rising rather than falling, a stark contrast to the first half of the year when 30% more reported it to be falling.

The increase in demand is coming from investors who view farmland as a stable venture, reflecting the fact that prices have remained resilient throughout the recession, the report says. Established farmers are also looking to capitalise on rising livestock prices and greater optimism surrounding the prospects for agriculture by acquiring land close by so that they can expand their existing operations.

Meanwhile, those with land are keen to hold on to it and as such very little is coming on to the market, which is helping to drive up prices further. The net balance of surveyors reporting falling rather than rising availability of land stands at 40% for commercial land and 43% for residential farmland.

Bare land prices, which are based on the opinions of respondents to the survey, rose by 4% in the six months to December last year and now stands at £12,715 per hectare, up from £12,172. Over the same period, the transaction based measure for land which includes a residential component rose by 7.8% and now stands at £16,381 per hectare, up from £15,199

‘When prices were rising two years ago it was mainly being fuelled by hobby farmers, buying up rural retreats with city bonus money and inflating the market. However these latest results indicate that it is now farmers looking to expand and investors who see it as a viable business or investment class that are fuelling the rise in demand,’ said RICS spokesperson, Sue Steer.

‘Those with land are loath to dispose of it, and those without, or with a limited supply, are keen to get into the market and capitalise on its rising value. Couple this with the fact that farmers are increasingly optimistic about the outlook for agriculture and suddenly an investment in either pasture or arable land is a very attractive prospect,’ she added.