Key Highlights:

• Farmland prices rose by an average of 25.3% in the year to December 2007

• Prices rose by 3.3% in the final quarter of 2007

• Average farmland values increased to £4,316 per acre, up from £3,294 a year ago

• 37% of purchases are made by lifestyle buyers ahead of farmers on 34%

• Demand from purchasers rose by an average of 11%, on a year on year basis

Prices for UK farmland rose by 25.3% in 2007, with average farmland values increasing from £3,294 the previous year to £4,316 in 2007, says estate agents Knight Frank. Irish buyers account for almost half foreign purchases.In Ireland, the cost of land per acre now averages €20,367 (£15,237).

According to Mark Ashbridge, of Savills Private Finance, 40 to 45% of farm purchases are now made by lifestyle farmers. Knight Frank puts the figure at 38%, with only 32% of farm purchases by “genuine” farmers. Institutional investors (11 per cent), agribusiness (11 per cent) and developers (6 per cent) account for the rest of the purchases, Knight Frank says. This mounting interest, combined with a shortage of supply, has meant increases of up to 40% in the price of UK farmland in 2007.

A report in May 2007 said that the value of Irish farmland was heading for €60,000 per hectare (€24,281 per acre), the highest in Europe. 
 
According to estate agents Savills Hamilton Osborne King, prices would rise further in 2007, having increased by 40% on average in 2006. 

Clive Hopkins, Head of Farms and Estates at Knight Frank, comments: “It is clear that the problems facing the wider property markets have not been felt in the agricultural sector where prices have now risen to an average of £4,129 an acre.  Given the turmoil and the unsettled nature of the financial markets this represents an astonishing annual increase of 25.3%, the second highest annual rise on record.

“Over the last quarter of 2007 the trend for growth continued, though at the more modest rate of 3.3%.  While this means the market has now witnessed seven consecutive quarters of growth it should be noted that price rises have softened since their peak during the third quarter of 2007 when a 7.8% increase was recorded.  The cyclical nature of land purchase traditionally sees a slower market in the final quarter of the year.

“As in previous periods the market has been largely driven by non-agricultural money.  Lifestyle buyers continue to be the most active purchasing sector (37%) as they seek to add value to their properties while also protecting their immediate outlook.  Indications suggest this trend will continue through 2008, though at a lower rate due to a weaker outlook for the UK’s high value added business services sector which is the source of many non-agricultural buyers.

“When lifestyle purchasers act they do so decisively.  For example in 2007 we saw two estates of 5,000 acres sell to two individual purchasers, which underlines the fact that there is private money aimed specifically at the agricultural market.

“Foreign buyers continue to exert a strong influence on the market with 17.5% of all purchasers coming from overseas. As in previous quarters the Irish are the most acquisitive, 47%, which is no doubt due to the prices in the UK being vastly more affordable than those in Ireland where an acre now averages €20,367 (£15,237).

“As anticipated individual farmers provide the sector’s second most significant purchasing force with 34% entering the market, driven by recent increases in commodity prices.  In this regard we would point to the growth of interest in bio-fuels and a trend towards developing countries adopting western diets.

“Commodity markets responded aggressively to poor harvests caused by drought in many parts of the globe which resulted in an increased demand for grain. This resulted in prices for milling wheat rising by over 60% and feed by over 50% in a 14 month period.

“These prices look firm going into 2008, although this means the livestock industry is now facing increased feed costs that will place them under increased financial pressure.  With this in mind it is worth noting that at 62% individual farmers continue to make up the largest vendor group reflecting the struggle many have with tighter margins and a steadily ageing farming population attracted by retirement.

“The government’s proposals for changes to capital gains tax rules have not yet prompted a surge of land coming to the market and with land prices looking to continue an upward trend perhaps vendors feel comfortable waiting.

“Looking forward the agricultural market shows little sign of weakening. With supply limited and demand strong we consider land prices will increase by 13% over the next 12 months while rents will rise by around 12.5%.

“It is possible that the market for residential farms and estates may come under pressure from the expected downturn in the residential market next year.  However, the continued imbalance between supply and demand should mean that high quality farms and estates in sought after areas will continue to sell well.”