The Rural Land Market
A few post-Brexit thoughts
With just over two months having now passed since the UK electorate's decision to leave the European Union, some observers of the farmland market might have been watching with interest to see if anything might be discerned in this post-vote/pre-Article 50 period.
Any such onlookers are almost certainly going to be left disappointed as, in comparison with other sectors, the market for farmland has always been relatively illiquid in terms of the volume of transactions happening at a given point in time. Even when enough deals are taking place to form what might be deemed a trend, the pace is more often than not best described as glacial.
However, that is not to say that the market is completely moribund, and certain aspects can be gleaned from the activity that we have seen in both the pre and post Brexit environment. Below are a few themes of note, which may be of interest to those with a watchful eye on the £/acre market, whether vested or otherwise:
As highlighted in the RICS Rural Land Survey for H1 2016, valuers were already reporting an extremely diverse range of prices being achieved in the first part of the year. This was a continuation of the theme in 2015 where the General Election, coupled with a continuation of suppressed commodity prices, saw both a restriction in supply and a noticeable cooling in the prices paid for the average parcel of Grade II arable land. However, certain holdings continued to achieve (and in several cases exceed) prices paid in what we will probably all look back on as a relative ‘peak’ in 2014. These exceptions made the rule of a falling market difficult to emphatically prove.
‘General Election Inertia’ which, arguably, contributed towards the limited supply for the first five months of 2015 was replaced this year with the Brexit equivalent which lasted for nearly two months longer and in a very real sense could and (as has proved the case in light of the result) will have a far more startling impact on not just the land market but the rural economy as a whole.
Whilst the Chancellor’s statement on 13 August that the current level of funding under the CAP Pillar 1 is to be upheld to 2020 will have encouraged many, the reality is that the vast majority of investors will be operating far beyond a four-year time horizon.
Anecdotally, since 24 June, we have seen deals agreed ranging from £7,000/acre to £13,000/acre for commercial blocks of bare land ranging from 80 to 300 acres, which would indicate that the theme of wide-ranging prices looks set to continue.
Private or ‘quiet’ deals are in vogue
As mentioned above, the diversity in the potential result of a land sale has caused both selling agents and their clients to give serious thought to ensuring price aspirations are at the right level. In the first part of the year in particular, we saw a notable increase in instances where land had been put to pre-determined individuals or a group of selected buyers (as opposed to exposing it to the open market from the outset). If judged well, this can be a successful venture for all concerned – vendors have the certainty of a sale which meets their criteria and buyers take comfort from the fact they are getting what they want without being fully exposed to the ‘unknown investor’.
Supply has remained tight, but consistent
Whilst by no means a certain or particularly scientific barometer of the land market, the amount of land publicly advertised in 2016 (in terms of acres) is almost exactly the same as the amount brought to the market in 2015, although it should be remembered that this still only represents less than 0.25% of the total farmed area of the UK. With supply this restricted nationally, it is likely to that values – to some extent at least – will remain relatively buoyant.
Keep the neighbours keen
What has become more pronounced this year is that there has been even less correlation between the productive capacity of a farm in terms of the land quality and the price it is likely to achieve. How it might fit into a neighbouring landowner’s plans and their own respective financial strength, allied to the fear of missing out to competition (whether real or perceived) will have a far greater influence on the end result of the sale than the quality of the soil (albeit the latter should obviously not be completely disregarded).