Brexit impact on British farmland “may be muted”

The impact of the UK’s vote to leave the European Union upon farmland may be muted, forecasts Savills.

The firm’s latest research shows that muted pressure on farmland value growth continued into Q3 2016 with average values of ‘all types’ of farmland across Great Britain falling 0.8 per cent, taking the year’s total fall to 2.3 per cent so far.

Regional variations in values, though, have “never been greater”, with the East of England and South East England recording average falls of around 2.5 per cent to 3 per cent during Q3. Overall, average values of prime arable land fell by 2.5 per cent in England to £9,360 per acre, but Scottish and Welsh values of prime arable land have remained stable at £7,940 and £7,500 per acre respectively.

“Low commodity prices and patchy local demand are the principal factors affecting the land market. The prospect of a significant increase in farm subsidies this year due to the weak pound and higher commodity prices may help support land values in the short term,” says Savills. “The weak pound also benefits diversified income streams such as tourism. In addition overseas buyers can take advantage of the currency play.”

Overall there was no rush of land to the market but September recorded a significant increase of activity compared with the two previous years. However, this increased activity was mainly located across Wales and South West England.

Across the UK, supply in the first three quarters of 2016 was 3 per cent higher than the same period of 2015 at 162,400 acres. The supply in farmland in England decreased by 1 per cent, but in Scotland and Wales increased by 4 per cent and 43 per cent respectively.

While supply in Scotland has increased, it remains at historically low levels and this factor, along with the comparatively good value for money, is continuing to support prices.

“In the short term, there are factors that suggest the additional downside of Brexit on farmland values may be muted,” reads the report. “Agriculture tends to do well in time of economic uncertainty. In addition, the weak pound creates opportunities for overseas buyers. Both of these factors, along with the anticipated reduced supply, may help support farmland values.”

Farmland value stays firm post-Brexit

21st October 2016

The value of farmland in the UK has held firm in the wake of the UK’s vote to leave the European Union.

The value of farmland in the UK has held firm in the wake of the UK’s vote to leave the European Union. According to Knight Frank’s Farmland Index, the value of bare agriculatural land in England dropped 1.3 per cent in the third quarter of 2016 to £7,762 per acre, the lowest quarterly drop since prices began to slide at the end of 2015.

Over the past 12 months, the index has dropped by 8 per cent, but Knight Frank attributes that mostly to the “ongoing slump in agricultural commodity markets”. Indeed, while the EU referendum “did have an impact” upon market activity in the months surrounding the EU referendum, the majority of deals that were put on hold were “wrapped up quickly”.

The Brexit’s impact upon the value of the pound, meanwhile, has made farmland more attractive for foreign-currency denominated buyers, with prices effectively down 21 per cent on an annual basis in dollar terms. With land prices up 8 per cent in the 12 months to September 2015, the last year’s fall has taken the market back to where it was two years ago. The average value of land, though, is 145 per cent higher than it was a decade ago, which is better than many asset classes.

“This autumn’s crop of farms and estates was always going to be the first real post-referendum test of the market,” concludes Knight Frank. “So far we have had strong interest from buyers based both in the UK and abroad, which suggests values should hold up for the remainder of 2016.”

 

How has Brexit impacted the farmland sector?

22nd August 2016

With many questions surrounding Brexit still unanswered, what can we tell about the impact of the UK’s EU vote upon the farmland sector?

New research from Savills provides an interesting insight into the market post-Brexit, with the advisors forecasting muted supply to the end of 2016.

“Most of the questions surrounding Brexit and its impact on the UK remain unanswered and will do for some time, but our analysis to date is beginning to suggest that the impact of changes to trade agreements could be far more significant than changes to the existing agricultural subsidy,” says Savills.

Nonetheless, the biggest factors impacting price at the moment remain low commodity prices and location-based demand. Supply is also a factor, and a barometer of the impact of the uncertainty surrounding June’s referendum. Around 123,000 acres were publicly marketed across the UK in the first seven months of 2016, on a par with the same period in 2015. In England, activity dropped 6 per cent, due to uncertainty. In Scotland and Wales, though, activity rose 8 per cent and 35 per cent (from a low base) respectively.

The second half of 2016 is expected to be quieter than the first, although the market often cools in the summer, so the current slowdown may be partly a seasonal trend, rather than a direct result of Brexit. Indeed, Savills is relatively confident of prices being bolstered by both the expect fall in supply and rising overseas interest in the face of the weak pound.

“Agriculture tends to do well in time of economic uncertainty,” says Savills. “In addition, the weak pound creates opportunities for overseas buyers. Both of these factors, along with the anticipated reduced supply, may help support farmland values.”

 

English farmland values hold steady

28th July 2016

English farmland values held steady in the second quarter of 2016, despite the looming EU referendum.

The price of agricultural land dipped 1.7 per cent in the three months to June 2016, a smaller drop than the 3 per cent decline recorded in the first quarter of 2016, according to the latest Knight Frank Farmland Index.

English farmland is now worth an average of £7,773 per acre, 6 per cent down from the peak of £8,306 per acre in September 2016, but still up 160 per cent over the last decade – a stronger performance than London residential real estate, which has risen in value by 98 per cent over the same period, although it is weaker than gold, the 10-year return of which is almost at 200 per cent, due to rising demand for the precious metal in the wake of the Brexit.

English farmland values fall amid Brexit uncertainty

13th April 2016

English farmland values have fallen by 3 per cent in the first quarter of 2016, as uncertainty looms on the horizon.

The latest Knight Frank Farmland Index shows that average values fell back below the £8,000 per acre mark, resulting in the largest quarterly drop since the 5 per cent slide that occurred at the end of 2008 in the wake of the Lehman Brothers’ collapse.

Agricultural land has, historically, proven a valuable investment. In the last 50 years, prices have surged 4,886 per cent, with values up 176 per cent in the last 10 years alone. Since 2011, prices have risen 32 per cent, notes Knight Frank, placing farmland’s performance consistently above that of gold in recent years.

In the last 12 months, though, the market’s growth has significantly slowed, with prices down 2 per cent across 2015.

“Given the significant issues weighing on the market at the moment, a period of readjustment is perhaps unsurprising,” says Knight Frank’s report. “Agricultural commodity prices remain low with little prospect for a strong rebound in the short term, while the potential implications of a UK exit from the EU are adding further uncertainty.”

“Last year the feeling was that the “in” campaign was going to win the EU referendum relatively comfortably, but now the polls are predicting a much tighter result, with neither side of the argument yet to establish a convincing lead.”

Values are only £18 per acre below where they were at the end of 2014, with prices still 180 per cent above 10 years ago, but predicting where values will head in 2016 and beyond is “almost impossible”, says Andrew Shirley, Knight Frank’s Head of Rural Research, until the outcome of June’s EU referendum is known.

Farmland values suffer first fall in four years

22nd January 2016

Simon Lieschke

Farmland values in England suffered their first fall in four years in the final four months of 2015. Agricultural land prices have been enjoying something of a boom in recent years, due to the finite supply of stock. But in the last 12 months, that boom has begun to slow down, with the average value per hectare reaching a record high in the third quarter of 2015 of £20,524 – but only 0.5 per cent higher than the previous quarter.

In the final three months of the year, prices actually declined by 1.7 per cent, or 3 per cent year-on-year, ending the year at £8,165 per acre.

The figures from Knight Frank note that the average value of bare agricultural land still rose 4 per cent in the first half of the year and 3 per cent overall during 2015 – a performance that compares favourably with a rise of 1 per cent for prime London residential property and falls for the FTSE 100 (-5 per cent) and gold (-7 per cent). Indeed, farmland has been a popular alternative investment among those looking for safe havens away from troubled stock markets.

Nonetheless, it marks a significant turnaround after a period of steady growth. What has caused the bumper crop of returns to end? Knight Frank cites a number of reasons, from the run of low commodity prices – feed wheat is worth just half of what it was fetching just a few years ago and many dairy and livestock businesses are struggling to remain profitable – to the potential impact of a Brexit upon the market.

Indeed, the EU referendum is expected to be held this year, something that could be holding back buyers from paying agricultural subsidies. Coupled with a possible, albeit unlikely, rise in interest rates, spirits are likely to be low.

What will happen in the future?

Knight Frank rules out December market the start of a long run of price drops, instead forecasting that if the UK decides to stay in the EU, prices could return to their previous climbs.

“Where there is competitive bidding from local farmers, values will remain firm,” notes the agency.

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