'Finely balanced' UK farmland market to slow

Savills curbed expectations for growth in UK farmland prices, terming market influences "finely balanced", but forecast better times for residential-heavy sites which have been out of favour.

The property consultancy forecast that farmland values would grow at "around 6%" a year over the next five years, a "more muted" pace of increase than over the last decade, when prices have risen by a total of 270%, equivalent to more than 10% appreciation a year.

The outlook also offers downside to Savills' forecast at the start of 2013 that values would grow by 6.7% in 2014, 6.4% in 2015, by 6.6% in 2016 and 6.4% in 2017.

This year, prices have soared by 22% so far in the east of England, at 15% in the East Midlands, but with growth below 8% in other parts of the UK, including appreciation of just 0.7% in Wales.

'Finely balanced'

"The influences for future farmland growth are finely balanced against the risks," Savills said, listing potential threats to appreciation as higher interest rates, profitability pressures, and changes to taxation or subsidy regimes.

Farmers are protesting at government plans to cut agriculture subsidies by 15% to transfer cash to wildlife programmes.

However, the consultancy said that "there is currently more upside than downside" to prices, flagging a squeeze on supply, with land publicly marketed totalling 143,500 acres in 2013 up to the end of last month, half the level seen in the same period of 2000, although more land is believed to be being traded through private sales.

Furthermore, the "increased demand on land for renewable energy" represents a "driver for a competitive marketplace".

'Renewed interest'

Nonetheless, growth in prices of high quality arable land is not expected to beat this year's "stellar" increase - a rise reflected in the price growth in eastern England, predominantly a cropping area, compared with Wales, where livestock production is more common.

Where Savills did see acceleration occurring is in the market for farms with a large residential element, sites which have proved relatively unpopular with the dormant rural house market.

"With the country residential market forecast to start its recovery next year, the residential farm which in recent years has often failed to generate interest in all but the most popular lifestyle locations such as the Cotswolds, could begin to receive renewed interest from buyers."

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