Public sale of farmland slows while private sales grow

Andrew Black, Farm Agency Director at Savills, gives his round up of the farmland market in the North.

Savills research shows that only 131,000 acres of farmland were publicly marketed in Great Britain last year; 8% less than 2013 and the lowest number of acres since the end of the Second World War when some 650,000 acres were traded in England alone. However, it should be noted that this figure excludes the sale of the Co-operative Farms Portfolio, which extended to 17,800 acres of freehold land.

The private market is probably much stronger now and Savills estimates that private sales add another 30%, which could take the total to around 170,000 acres in the last 12 months although still a long way off historic levels.

England accounted for 70% of the market, totalling just over 92,000 acres. This is only a slight increase on the previous year and once again there were significant regional variations.

In the North of England, just over 14,500 acres were advertised, which represents a 35% decrease on 2013. Whilst in the South West and East of England volumes actually increased by 29% and 44% respectively. Unsurprisingly volume was down 25% in Scotland as a result of political uncertainty but the market saw a number of late offerings after the Referendum was settled in September.

More locally there were decreases in Northumberland (73% decrease compared to 2013), East Riding of Yorkshire (77% decrease from 2013 and the lowest level seen since 2003), Cumbria (30% decrease since 2013) and Cheshire (14% decrease). The market in North Yorkshire decreased by 49% from 2013 with just over 3,000 acres advertised which was a surprise when advertised land has remained fairly consistent at just under 6,000 acres per annum during 2011 to 2013.

The largest increase in the market was County Durham which saw a 282% uplift on the 2013 market, albeit from a very low base. This can be attributed to the sale of part of the Church Commissioners’ historic Bishop Auckland Estate.

Last year, Savills publically marketed 20,138 acres in total across the country and we are pleased to retain our position as market leader, handling more UK farmland than any other agent.

Values increased throughout the year by approximately 14.3% across the country (for all land types and quality). This growth is higher than 2013, when we reported growth of 11.7%. Looking at land types reveals significant variation with prime arable increasing in value by 16% this year and grassland of all quality increasing 12.5%.

Yorkshire Land Market 2005 to 2014 (acres)

Interestingly when you look at the growth since 2010, prime arable has grown 61.8%, average arable 58% and average grass 37.5%. The now established two tier market for arable land has certainly become more pronounced, with factors such as quantity, size, field shape and access all remaining important considerations.

Although it could be argued that land values are at a peak based on current levels of profitability Savills research model predicts continued rises of between 0% and 8% per annum over the next 4 years although there is definitely a widening range of sale values being achieved perhaps by as much as £10,000/acre in places.

In Yorkshire almost 9,000 acres of commercial farmland was marketed in 2014, which is just under 4,000 acres less than in 2013 and the lowest amount of land openly marketed in the last 20 years apart from 2003.

The statistics specifically exclude land sold privately in off market transactions, including the sale of the 4,000 acre Goole Estate owned by the Co-operative Group who were advised by Savills.

The chart below illustrates the amount of land offered for sale over the last decade, split by sector. ‘Arable’ refers to complete farms over 150 acres in size, ‘Grassland’ farms comprising dairy or permanent grass farms in excess of 100 acres, and ‘Bare Land’ sales including blocks in excess of 20 acres.

Arable Farms

In 2014 only 8 equipped farms (over 150 acres) were advertised with just 2 being over 300 acres. The largest, Summerhouse Farm near Doncaster extended to 886 acres and was marketed in up to 7 lots but rumoured to have been sold as a whole significantly in excess of its £10.75 million guide with several strong underbidders. In October Warren House Farm at Middleton on the Wolds with 387 acres was a late offering and is now sold (STC) for over the guide of £4.75 million.

The shortage of arable farms is not a new feature in the region and for over a decade we have hovered around 10 units per year in the Yorkshire market which explains why values remain strong for the most desirable farms. During the course of the year values of between £12,000 - £15,000/acre were being achieved for the best farms.

Grassland Farms

The average area of grassland farms (over 100 acres) marketed annually in the last ten years is just over 1,750 acres although this year we have seen 2,256 acres. The average size of grass farms has also increased, with 7 farms advertised averaging 322 acres in size. A large contributing factor was the sale of Hesleden Farm, a large upland unit near Skipton which extended to 1,096 acres. If this farm is removed the average size reduces to 193 acres; more in line with previous years.

A couple of farms were just under 150 acres but most were between 200 and 250 acres and primarily in North Yorkshire.

Four of the farms were upland units with the remainder being lowland stock farms, predominantly cattle and sheep enterprises with one retiring from dairy. Demand increased for well equipped Dairy units during the spring and summer but fell off sharply following the latest fall in milk prices.

Bare Land

Bare land offerings of at least 20 acres in size totalled 4,217 acres which is in line with the average for the last 4 years.

Sales included 2,286 acres of arable land in 32 blocks with an average size of 59 acres, and 2,360 acres of grass in 32 blocks with an average size of 74 acres. The amount of arable land was down by 935 acres (and at its lowest levels in the last 7 years) whilst the grassland acreage was up by 1,061 acres and almost matching the high of 2,400 acres in 2010.

The bare land market was dominated by a couple of larger sales, with 6 offerings in excess of 150 acres, of which 5 were grassland blocks. The largest of which was 476 acres of upland pasture near Skipton which was guided at just over £1,000/acre. The largest arable block was 188 acres of grade 1 and 2 land near Selby which is believed to have sold at around £15,000/acre.

The bare land sector illustrates the wide range and diversity of values being achieved with many sales for the best qualities achieving between £10,000 - £15,000/acre although poorer grades are consistently around £7,000 - £9,000 and still some land struggles to sell at all for £6,000 - £7,000/acre.

Investment Farms, Estates, Sporting & Leisure

There continues to be strong demand for sporting, amenity and investment farms with premium prices achieved for the few properties available.

This is a small sector of the market with only three offerings in 2014 extending to 2,198 acres in total. All were situated in North Yorkshire featuring two investment farms let on Agricultural Holdings Act 1986 secure tenancies. One was a Vale of York arable farm extending to 238 acres and the other featuring two grassland farms extending to 237 acres being sold by Yorkshire Water.

There is still good demand from investors for farms with reversionary potential and sporting appeal illustrated by the Summerstone Estate, in Nidderdale. Extending to some 1,374 acres the estate was let under a single Farm Business Tenancy expiring in 2018 and is now sold (STC) significantly in excess of its original £2.75million guide price.

Whilst volumes are at a new historic low level there is no obvious reason why volumes should increase. Hopefully the introduction of the Basic Payment Scheme will not have the same effect as the uncertainty of the Single Farm Payment introduction in 2003/2004 when in Yorkshire we saw barely 2,000 acres marketed across the county.

In 2014 it was evident that land sales have increasingly become reliant on external factors, in particular debt loading and serviceability, although not always through forced receivership. Farming profitability and optimism may have an impact on land supply as well as demand. Recent decreases in milk prices at the farm gate and low cereal prices could now prompt some farmers considering retirement to seize the opportunity given current high values.

Savills expect Bank of England base rate to rise in the next two years which will put further pressure on farmers relying on existing loans, in particular if used to support cash flow. The outlook may lead to more debt related sales.

Rollover funds from the sale of development land are now increasing competition for good quality, sizable, attractive farms. As the residential market improves demand for mixed and amenity farms will strengthen and the political uncertainty in Scotland may increase competition for amenity and sporting estates in the North of England.

Even with limited supply, record prices have not been achieved for all land types. The two tier market will continue with a widening gap for the best arable land where competition between cash buyers is driving values as opposed to poorer quality purchases relying on bank funding which is serviceability driven.

The recent announcement to changes in Stamp Duty Land Tax (SDLT) should not have an effect on farmland values as property considered to be in mixed use will still qualify under the flat rate banding system as opposed to the new, progressive system introduced for residential property. This has seen a notable increase in SDLT for purchases over £1,050,000.”