COMMENT The auction room has long been an indicator of growth in land values and the past 12 months has been no different, with prices largely holding firm at around £9,000 per acre for farmland lots.
While uncertainty around farming subsidies had the potential to constrict demand, lack of stock throughout 2019 and the first half of 2020 has led to increased appetite from a range of buyers for farmland at all levels. Buyers are now competing for the best farmland lots to hit the auction room, with rivalry between farmers, amenity buyers, property developers and investors all looking to snap up everything from smaller land parcels to large agricultural holdings.
Previous years have seen a steady supply of farmland through both regional auction rooms and via private treaty, however this has depleted rapidly in recent months. In fact, in 2019, the total number of publicly advertised acres was down by 41% in comparison to 2018, and so far in 2020, supply has decreased by 65% against the same period in 2019, according to the Farmers Weekly land tracker. We have seen a direct correlation between this and the competition faced at auction for the best lots.
Who is buying?
Buyers continue to be mainly local farmers, looking to square off holdings or enlarge their enterprises. However, there is also demand from rollover and inheritance tax investors, those looking to replace land which has been acquired for infrastructure projects, property developers and also smaller-scale amenity buyers.
Values appear to hold firm across different areas of the East of England, and it is more the determination of the buyer which can drive disparity between prices paid. As an example, at the Cheffins property auction in July, eight acres of arable land at Stretham, near Ely in Cambridgeshire, was sold for £91,000 to a local buyer, representing values of £11,375 per acre. Similarly, at Necton near Thetford in Norfolk, 15.93 acres sold for £157,000 to a local farmer, therefore achieving £9,855 per acre.
We have seen that contract farmers and those running some of the region’s largest agribusinesses only tend to look for larger parcels of land as it is better suited for the large-scale, modern-day agricultural machinery. Whereas smaller parcels suit the hobby farmer, or those looking for amenity land, and these buyers tend to bid for lots of less than 10 acres as it is a more manageable size.
In general, the further south the better the price which can be achieved for land, however often this comes down to the original lot, with some examples achieving in excess of £12,000 per acre if the buyer is right.
Similarly, farmland in the Fens with its rich, peat-heavy soil can achieve premium prices due to its vegetable growing ability. Access and quality are all important here, and pieces with good road frontage will always perform better than those without; while soil health, irrigation and natural capital continually can drive prices upwards. In addition, any holdings which offer diversification schemes, or the potential for them, and longer-term development opportunities always manage to achieve a premium, particularly as farmers and landowners look to mix-up income streams ahead of the imminent cap on subsidies.
Potential for redevelopment
Farmland in strategic locations with the potential for redevelopment can also be a good way for farmers to release capital quickly, often while having minimal impact on their farming operation.
As an example, in Cheffins’ September auction, 13.68 acres of Grade 2 arable land is available in Doddington, near March in Cambridgeshire. Situated on the edge of the village and with road frontage, this is the type of lot which is as likely to sell to developers or speculators, as it is agricultural buyers; the ever-increasing presence of an overage clause will serve to protect the current owner if there is a change in future planning policy, but this will not deter a speculator who may still see potential for uplift in the longer term. This lot has an estimate of £110,000-plus.
At the other end of the scale, 3.66 acres of arable land close to Wisbech in Cambridgeshire does not enjoy this level of strategic location and as such is more likely to be of interest to local farmers or even amenity buyers looking for additional land for grazing. It has an estimate of £25,000-£30,000.
Both of these parcels share similar estimated values of around £8,000 per acre despite their difference in profile, size and overage provision.
Farmland has always been notoriously difficult to price, partly due to the legal and practical issues which arise when it comes to the market, so the auction room offers landowners a very real opportunity to achieve high values with lower legal fees and less hassle in a completely transparent transaction. As farming incomes hang in the balance due to Brexit and the fluctuation of cereal prices as a result of the Covid-19 pandemic, we expect to see an increase in disposals of unwanted acres at auction – particularly for those looking to release capital fast.
Ian Kitson is a director at Cheffins
