An increase in the supply of commercial farmland, coupled with a tailing off in demand growth across many parts of the country, has resulted in a significant reduction in price growth expectations, according to the latest RICS/ RAU Rural Land Market Survey H1 2015.
The supply of farmland increased sharply during the first half of 2015, as demand growth moderated and the outlook for price growth over the coming 12 months is considerably more subdued.
Meanwhile, demand from ‘lifestyle’ buyers continued to increase, and a net balance of 18% of respondents expect the price of residential farmland to continue to rise over the year to come.
During H1 2015, a net balance of 51% of respondents reported an increase in the supply of commercial farmland while demand for these blocks declined, albeit very modestly, for the first time since 2008.
Scotland and the North East of England saw a reduction in demand not just for commercial but also residential farmland, while the results for South West and the East Midlands suggests demand is still edging upwards.
Significantly, the headline transaction based measure of farmland prices fell by 2.5% during H1 2015 and by 1% over the course of the year to reach £9692 per acre. Average rents also slipped during the first half of the year both for arable and pasture land, reflecting the weaker to many commodity markets.
We are seeing a considerable divergence in the outlook for commercial farmland compared to land with a significant residential component. Annual average arable land rents fell by 7% during H1 and by 9.7% over the year, with anecdotal evidence suggesting the recent falls in commodity prices are the primary cause of this decline.
Despite this, the lifestyle market remains relatively strong across much of the country with the price of land with a large residential component generally expected to continue moving higher.
Political uncertainly leading up to the general election is likely to have had some further impact on the results in the survey, however market conditions look set to remain challenging notwithstanding the outcome with the global economic environment set to remain a drag on commodity prices.
