A considerable drop in demand for rural land was reported in the recent RICS/RAU Rural Land Market Survey H1 2016, and with supply continuing to increase, expectations have been pushed further into negative territory.  49% of contributors to the survey expect prices to fall across all farm types over the coming twelve months.

Anecdotal evidence from respondents to the survey suggests that there are a number of factors combining to dampen confidence in the market.  These factors include increased uncertainty due to the EU Referendum, subsequent confusion over the future of CAP payments, and low commodity prices.

Commercial farmland has seen the worst of the current decline with demand falling most significantly in this sector, but residential farmland also saw a sharp drop in buyer interest in the first half of the year with 19% more contributors reporting a decline rather than an increase.  This looks unlikely to change over the next 12 months, with expectations for commercial farmland over the coming year firmly in negative territory.  Average farmland prices now stand at £10,750 per acre.

However, the outlook for mixed residential land has also turned visibly negative with a balance of 42% of surveyors expecting prices to fall rather than rise over the next year.  According to the surveys transaction based measure, average farmland prices edged down in the latest period and now stand at £10,750 per acre.  The survey also shows that average arable land rents fell by 8.8% in H1 and by 3.1% over the last twelve months as a whole.

The land buyer profile has remained broadly unchanged over recent years with individual farmers still representing approximately 60% of all land purchases.  Meanwhile ‘lifestyle’ buyers compose around one quarter of the demand for land.

Although uncertainty is weighing on the market, currently, comments suggest that, over the longer term, farmland is still seen as a safe asset and desirable to investors with rollover money continuing to underpin demand.

If you wish to discuss this further or you are considering buying or selling land then please contact Sophie at sophiecligg@fcgagric.com  or your local FCG office.