Farmland market remains robust as competing motivations for ownership maintain demand levels

Covid-19 impacted the farmland market in both 2020 and 2021, affecting property marketing plans. In 2022, although supply increased, it remained constrained as landowners took stock of the new post-Covid landscape. 2023 initially shows signs of a return to historically average levels, with the benefit of more certainty in the future agricultural support plans across England, Wales and Scotland encouraging more market activity.

Supply

Savills rural research forecast an increase in farmland supply over the next few years, albeit not to its pre-Covid levels, with an anticipation supply will reach 150,000 acres by 2024. During Q1 of this year 16,700 acres were publicly launched across Great Britain, the most we have seen since 2016, and 30% more than during the same period of 2022.

Across England, in all the regions, except the East Midlands, the acreage advertised was higher than their respective ten year averages, however the same cannot be said for either Scotland or Wales. In the former just 1,600 acres were marketed compared to the 10 year average of 2,600 acres and in Wales volumes were down by 21% compared to Q1 2022.

The use of 10 year averages can skew the picture slightly given the constrained supply since 2017, therefore the last period of relatively normal market conditions and activity, from 2011-2015 (prior to the Brexit referendum), provides a useful benchmark against which to assess current levels of farmland supply. Against this benchmark supply across Great Britain is down 5%, England is up 3%, Scotland is down 89% and Wales is up 17%.

Andrew Teanby associate director Savills rural research comments, “It’s early days and the next few months will be significant in determining the supply side of the farmland market. This being said, our rural agents have confidence that there are a good number of commercial units coming to the market in the next two quarters.”

Alex Lawson head of Savills rural agency adds, “As is often the case, some sellers need the reassurance from the visibility of other sales or market activity before pressing ahead with their own sale, and late March in particular has seen a flurry of activity. In January and February, a number of properties were offered privately with vendors choosing to test the market rather than embarking upon an open market launch.”

Evelyn Channing head of Savills rural agency in Scotland comments, “It’s very early days for new launches in Scotland but the pool of potential buyers is there. This continues to include a good proportion from England, which tends to account for circa 25%-30% of viewers of our farms – for farms located in the Scottish Borders this figure is typically 40%. For the next quarter of this year we have a number of good commercial farming units to bring onto the market.”

Values / Demand

Even with the anticipated uptick in supply during Q2, there remains pent up demand in the market driven by a wide range of motivations associated with land investment. In Q1 our farmland value survey recorded increases for both grade 3 pasture land and poorer quality pasture land, indicative that interest in delivering nature-based solutions on these land types is still driving values. When comparing March 2022 to March 2023 across Great Britain, a similar story emerges with the highest increase in land value coming from poorer quality pasture land at 12.9%, the only land type to outperform the highest levels of inflation seen during this period.

Alex again, “A backlog of capital gains tax rollover relief motivated buyers remain a force in the market. These buyers are required to reinvest within three years of selling or disposing of an asset, and given supply has been constrained for the last three years, the clock is ticking for many of these investors.”

Andrew adds, “To what extent the increases in supply will meet demand in 2023, is yet to be seen. Quarter two will undoubtedly paint a clearer picture, with close to 50% of the acreage marketed each year usually launched during this period. Many prospective buyers will hope this trend continues.”