The farmland price
rally, which has driven values to record highs, has further life yet, fuelled
by demand from funds prizing the asset both for its investment returns and
tax benefits, Savills said.
The property consultancy
estimated farmland values would increase by an average 40% over the next five
years, although slower than the 138% increase witnessed over
the past five years.
Savills said it alone had buying interest on its books totalling
£6bn from funds seeking to invest in farmland, particularly high-end commercial
"The short-to-medium term outlook for farmland values remains
a positive one," Ian Bailey, Savills head of rural research, said.
Savills in October pegged the price of prime British arable land
at just under £7,200 an acre, up 8.5% year on year, adding that prices of
£10,000 an acre were "regularly achieved".
Importance of quality
However, while the overall picture is one of positive growth
there appears to be increasing demand for "quality" land.
"It is no longer a case of one size fits all," said Alex
Lawson, Savills director of farms and estates.
"There are now clear divergences in value between the prime
quality, well located blocks of arable land and the rest," said Lawson.
The price gap between secondary and tertiary quality land was
"likely to widen further," particularly when "priced unrealistically".
Given the relatively limited supply of good quality properties,
due in part to healthy commodity prices, good commercial arable farms and the
best dairy enterprises could see growth of 52.7% in the five years ending 2017,
The average farm will rise in value by 34.9%.
Farmland has been regarded as a good inflation hedge in
recent years, particularly during the UK recession.
The ultra-low interest rate environment has also stimulated
Savills believes that
base interest rates will remains below 2% for the next five years but suggest
rises above this level could affect demand.