Despite uncertainty, value for money of Scottish farmland is trumping politics when it comes to buying

02 March 2017

Savills Rural addressed 500 property professionals at Savills Scottish Property Outlook, held at the Edinburgh International Conference Centre on Wednesday 1 March 2017.

Charles Dudgeon, Savills Head of Rural Agency said:

“For an industry well documented as being supported by EU subsidies, surprisingly more than 60% of UK farmers voted to leave the European Union. The UK government confirmed in August that agricultural subsidies would remain in place until 2020.  Yet there is no indication what the situation will be thereafter.

“Uncertainty, coupled with continued poor commodity prices, has filtered through to the market.  There has been a degree of caution and perhaps a capping of enthusiasm which by the end of the year, saw average prices soften and an adjustment in the average value of prime arable land to £7,500 per acre previously £7,900 in 2015). 

“However with average values, there are distinct local variations and a widening price gap between the best and the poorest land across all land types. Values in Aberdeenshire vary significantly from East Lothian. Of particular note is the significant price differential of about 25 – 30% in land values north and south of the border. It is this gap that continues to fuel the Scottish farmland market with buyers who have taken advantage to double, or in some cases treble the acreage farmed for the same money (as illustrated by the sale of both Press Mains and Hassendean farms).

“Scale would appear to be the predominate driving force in the market, achieved either through relocation to a cheaper area or on a more local basis where progressive farmers are hungry to expand for future survival.  On the whole, farms are taking longer to sell through increased due diligence especially where funding has to be arranged or released from elsewhere.

“Post Brexit, the weaker pound not only benefits those with diversified income streams such as tourism, but has lead to an increase in the value of EU payments and higher commodity prices. Despite this, average values are expected to remain under some pressure in the short term as increased debt in the industry filters into sales.  Brexit will create uncertainty during the next few years which may restrict the amount of land coming to the market. This is likely to support land values in the short term, and Savills research has forecast an increase in value for all land types across UK of 5.5% by 2022.  

“People buy farmland for a variety of ownership motives, as was illustrated by the sale of Meikle Findowie, which resulted in a the top bid well in excess of the asking price coming from an investor looking for long term capital growth and requiring bare land to plant trees.

“Commercially managed stocked forests are recognised as being highly suitable for wealth preservation (being eligible for BPR after 2 years) or for conversion into tax free income through timber sales, and this market is buoyant. There were three significant forest estate sales in Scotland last year, each around £10 million.

“UK timber prices have more than doubled over the last decade and are forecast to increase over the medium to long term, supported by the weaker pound and increasing domestic demand for biomass and from construction.  The cumulative growth returns are estimated to be in the region of 32% over the next five years, making forestry the stand out rural asset investment.

“Renewables offer an alternative, however there are relatively few transactional opportunities, principally wind and solar. Anaerobic digestion and biomass projects and the emergence of new technologies such as batteries offer further opportunities.  There may be potential for rental incomes yielding 5 - 8% to be capitalised and also to provide landowners with a much needed significant capital sum for reinvestment elsewhere.

Commenting on the Scottish estates market, Savills Rural Director Evelyn Channing said:

 “The market in 2016 for estates was the most active in a decade. Last year saw a total of 24 landed estate sales with a combined total asking price of £83 million, including some significant and notable deals.

“This is a niche market, not driven by supply and demand but often the chance of a once in a lifetime opportunity to enjoy all that Scotland has to offer. This has been evident during the marketing of Tulchan Sporting Estates Limited, which has ignited UHNW interest from around the globe.

“There continue to be fewer buyers in the market, not helped by talk of IndyRef2 and misunderstandings over the Land Reform bill.  In 2016, 62% of buyers were from the UK - this represents a notable shift in buyer origin from 2014, when 100% of estate purchasers were foreign.

“Buyers are wary of third party interests such as agricultural tenancies, crofting and community rights, and flexibility of ownership is key to this. Ease of access and privacy are high on the agenda, whilst diversity of assets and the ability to generate income are increasingly an added attraction to many.

"Across the rural spectrum we believe that there will continue to be a limited number of opportunities in 2017.  Yet the desire for scale, the weak pound and favourable interest rates will encourage interest in Scottish farmland.  

“Scotland’s standing in the global property market is underpinned by our stable legal system and will undoubtedly continue to attract interest from far and wide.  Despite the ongoing debate around Scottish independence, commercial reality is continuing to dominate the rural market, and value for money is certainly trumping politics when it comes to buying in Scotland."  

 
 

General Enquiries

Savills Edinburgh

 

Key Contacts

Charles Dudgeon FRICS

Charles Dudgeon FRICS

Director
Rural Sales

Savills Edinburgh

+44 (0) 131 247 3702

 

Evelyn Channing

Evelyn Channing

Director
Rural Sales

Savills Edinburgh

+44 (0) 131 247 3704