Rural market hit by supply shortage

Ryan Fowler

May 16, 2017

The estates and farms market is seeing a shortage of stock for sale as sellers are reluctant to list with new research suggesting they could be cautious due to the future effects of Brexit.

It means that since the beginning of the year many of the farms or estates that had been on the market for some time have been sold and buyers seem to have got their heads around Brexit, according to the latest analysis from real estate firm Knight Frank.

But vendors are more cautious about selling unless they really have to and while Brexit may be an issue it is lack of supply that is currently having the most impact.

Frankfurt and the City

In the first quarter of 2017 the firm’s farmland Index stabilised with farm land prices in England down by 0.5% following a drop of 8.5% last year, taking average value of bare farmland to £7,435 per acre.

However some locations are attracting much higher prices with a 760 acre block of arable land in Oxfordshire currently attracting offers of around £9,500 per acre.

Clive Hopkins, head of farms and estates at Knight Frank, said: “Looking forward it is hard to predict the longer term impact of Brexit. The real issue that will affect values is supply.

“Although most farmers I speak to have come to terms with the fact that by 2020 agricultural subsidies will be much diminished, I do expect that more of them will decide to call it a day in the coming years.

“I think the market will stand a limited increase in the number of farms for sale, in fact prices could be higher for those that bring their units to the market early, but if interest rates rise hastening the trend, prices will start to suffer.

“‘We won’t see the huge drops experienced in Ireland following the financial crisis, but it’s not inconceivable that average values could settle at around £6,500 per acre until supply and demand comes back into balance. After that I think we will see prices begin to increase steadily again.”

The research also shows that in 2016 the Scottish farmland market remained fairly resilient despite the Brexit vote and average values fell by just over 3% to £4,223 per acre, according to Knight Frank’s Scottish farmland index.

In 2016 some 71 units priced at £1m or more were launched in Scotland, totalling just over 30,000 acres and nearly 80% of this stock is now sold or under offer.

Tom Stewart-Moore of Knight Frank’s Scotland farm sales team, said: “Looking ahead it doesn’t seem that 2017 will bring a flood of farms for sale. The market faces challenges, but we have been saying that for a while.

“The prospect of only two more years of the current Basic Payment Scheme for farmers in Scotland is now becoming a reality. There remains a big question mark as to how both the Scottish and UK Governments are going to support farmers going forward.

“However, despite all of this, the early signs so far this year suggest that there is still a strong appetite for farms. Interestingly, the first few months have seen two large farms sell privately for premiums in the Scottish Borders, which shows the health of the marketplace.

“We expect large, well-equipped farms to continue to sell well. The market will remain price sensitive so pricing is key.”

The report also points out that farms in Wales are the most dependent on subsidy payments and agri-environment schemes of any region in the UK but so far there has not been much impact from Brexit because Welsh land values have never hit the picks seen in England and Scotland.

Hollie Byrne, of Knight Frank’s regional farms team, said: “There is therefore a certain amount of trepidation about the shape of the new home grown agricultural policy that will take the place of the EU’s Common Agricultural Policy. Topography is such a limiting factor here that regardless of commercial acumen it is very difficult for farming businesses to be highly profitable.

“Looking forward some people are pessimistic about where values will head if the financial support for farming is cut back, but I believe the Welsh Assembly will be fighting strongly to make sure this doesn’t happen. It firmly believes that support for agriculture is support for the wider social fabric of rural communities and their economies,’ she pointed out.

“Payments for agricultural activities may well be cut, but they could be replaced by schemes promoting rural enterprise, the environment, biodiversity, water quality and carbon sequestration to mitigate the impact of global warming.”

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