Is the heat finally coming out of the UK land market ?
After more than a decade of steady growth, the latter part of 2015 saw a slight reduction in the price of UK farmland in some of the most valuable areas of the country. Whilst this is unlikely to be the bursting of a UK wide bubble, 2016 is certainly likely to see exceptions to the rule of recent years trends as a result of falling commodity prices and a slight general increase in land coming to the market.
Decent sized blocks of well serviced and good quality arable land are likely to remain desirable across the board, but poorer quality land is likely to attract a much narrower audience than it has in the last few years. That said, the local market can easily distorted by a few keen local bidders. We are expecting to see more variation in the value of land as things move forward with a board range of factors having more influence than they have in the past.
On the rental side, both Agricultural Holdings Act and Farm Business Tenancy rents increased in 2015, but at a lower level than the previous year. Premiums for new Farm Business Tenancy agreements were still obvious during last year, but pressure through 2016 is likely to ease as commodity prices drop and more share and contract farming agreements are adopted.
As always, farm profitability drives the rental market and whilst commodity prices are generally down across the board, so are many inputs. Budget margins may remain the same for some into 2016, but for others these may fall significantly. The top producers are likely to weather any short term storm, but enterprises that are not being run efficiently are going to come under increasing pressure. Government forecasts for average farm incomes in 2015/16 can be found here.
These two upwards curves of land values and rents are levelling off and an air of caution is advised for valuations and rent reviews over the coming year.