Post-Brexit uncertainty may subdue market activity

13 July 2016

Across Great Britain the average value for prime arable land recorded a small fall of -1.3% during Q2 of this year, leaving values for the first six months of the year down by -1.7% at £9317 per acre.

On a country by country basis, the markets behaved slightly differently with prime arable land in England falling by -1.4% during the quarter to £9423 per acre while in Scotland and Wales partly due to the later start to the market these values remained unchanged for the quarter at £7941 per acre and £7500 per acre respectively.

Looking at the supply of farmland to the end of June for Great Britain a 1% increase was recorded but this masks some significant regional variations. Supply in England was down by -10% while in Scotland a 23% increase was recorded.

Post the Referendum uncertainty will be the key factor of influence and it may be that farmland activity in the second half of this year may be more subdued as potential sellers wait and see how the political and economic landscape evolves.

Farmland values are currently under pressure through low commodity prices,  but the market remains diverse and we expect sales prices will be very dependent  on local demand and farming families moving area to increase their acreages and scale of enterprises.

In the short term, there are factors that suggest the additional  downside (over and above our current forecasts) of Brexit on farmland values may be muted . Agriculture tends to do well in recessions (if this occurs) and is deemed a safe haven in times of uncertainty. In addition the weak pound creates opportunities for overseas buyers. Both of these factors, along with the reduced supply driven by uncertainty, will help support farmland values.

Importantly, the fundamental factors driving the value of UK farmland remain. Supply is historically low, the product is finite, there are competing land uses and a variety of ownership motives will all support farmland value growth in the long term.

In the event however of a significant reduction in farm subsidies and therefore incomes the negative effect is likely to be greater on rents than land values, as the relationship between rents and agricultural profitability is stronger than for land values, where ownership motives extend well beyond farm income generation. Although we expect the scarcity of land to rent will moderate any downward pressure on Farm Business Tenancy rents.

Anecdotal evidence suggests that deals agreed prior to the Referendum are largely being honoured (one or two buyers are seeking to renegotiate but where successful only by moderate amounts) and a number of new deals have been struck since 24th June at levels anticipated beforehand.

 
 

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Key Contacts

Ian Bailey

Ian Bailey

Director
Rural Research

Savills Margaret Street

+44 (0) 207 299 3099

 

Alex Lawson

Alex Lawson

Director
National Farms and Estates

Savills Margaret Street

+44 (0) 20 7409 8882