Why invest in farmland?

Once overlooked by many commercial property investors seeking strong returns, farmland is enjoying a renaissance. Not only is it a safe bet for investors, it’s an attractive prospect for both capital and income growth.

Land value

According to Savills, the price of prime arable farmland in the UK has risen by 277% over the last 10 years. That’s more than double the figure for London’s best performing areas (135%). Even more conservative figures from rival Knight Frank’s Investment Farmland Index put the figure at 228% over 10 years. 

Prices stayed relatively flat between 1985 and 2000, but macroeconomic factors have since sparked a rapid rise. Investors seeking a safe haven during the financial crisis played a big part but, as Steve Humphris of Countryside Solutions highlights, prices were affected by “better global trade connections, an increasing population and land [as] a reducing commodity”, adding, “we lose around 10,000 acres a year out of 20m in England and Wales.”

Income potential

Revenue from crops and livestock can be difficult to predict due to the time required for them to mature, leaving farmers susceptible to fluctuations in energy and feed prices. There are ways, however, to mitigate losses and maximise gains.

Large farming groups like Greenshields Agri, which plans to float on AIM, store vast quantities of grain for up to two years in order to take advantages of price shifts.

Smaller holdings, meanwhile, can take advantage of the government’s feed-in tariffs for renewable energy, in place since 2010, to reduce energy costs and even profit from solar and wind power. Changes to planning rules have also made it easier to convert working farm buildings for residential use.

Important variables

While farmland is undoubtedly an attractive asset, there are a range of factors to look out for when investing.

Land quality and average crop yields are obvious areas for consideration, but local factors, such as farmers competing for contiguous land, can't be underestimated. This can skew prices, as Andrew Shirley of Knight Frank notes: “the market can vary by as much as £4,000 per acre within a matter of metres”.

Finally, tenancies granted before 1984 frequently come with succession rights, and agricultural property relief is often limited at 50%, as opposed to 100% for tenancies granted after 1995, which can halve the value of a property.

For support and advice on claiming rent arrears from tenants, contact us at Dukes today.