Farmland supply

Just over 151,000 acres of farmland were publicly marketed in Great Britain during 2017, down 16% from 2016 and 8% below the 10-year average of 164,000 acres.

The greatest fall in volume was recorded in Wales, down 40% year on year. Markets in England and Scotland proved more resilient, down 16% to 102,900 acres and 11% to 39,700 acres respectively.

The number of holdings marketed fell by 20% year on year to 725, in 2017, which is 5% below the 10-year long-run average. The falling supply levels suggest some caution among sellers following the decision to leave the EU.

These trends (see Figure 1) reflect a similarity between the 2007/08 global financial crisis (GFC) and the reaction to the EU Referendum result in 2016. Both events prompted an initial uptick in activity as some chose to leave the asset class (197,000 acres in 2008 and 181,000 acres in 2016). Similarly, the GFC was followed by a lull in new launches, leading to annual supply remaining below the long-run average until 2015.

^{Source: Savills Research | Note: *Of more than 50 acres}

Reasons for sale

Personal circumstances, such as retirement and death, account for a significant number of sales – around 40% during the past three years. However, the number of sellers citing debt as their principal motivation has increased from about 8% at the time of the GFC to around 20% since 2015.

As interest rates have been at historic lows over the period, we believe that weaknesses in commodity pricing is the main factor driving debt levels up and, in some cases, to unsustainable levels. Although pressure on farm earnings has been in part alleviated by a comparatively weak pound against the euro.

Despite the farming sector’s comparatively low gearing, the balance between the cost of debt and return on working capital employed is tight. For some, it would be negative if subsidy and diversification income is excluded.

With future farm income potentially under pressure, and the cost of serving loans set to increase, we believe debt will continue to be one of the material factors driving supply and could also temper demand.

^{Source: Savills Research}

Buyer types

The scale and profile of demand has remained largely unchanged over the past three years, with farmers accounting for around 40% of purchases where Savills acted for either the buyer or seller. In 2017, there was increased interest from institutions, while the return of the lifestyle buyer has continued.

Expansion of existing farm businesses remained the primary reason for buyers and accounted for just over half of transactions.

While Secretary of State Michael Gove provided some comfort to the farming community at the Oxford Farming Conference in January, there is a long way to go.

Uncertainty may impact on demand for commercial holdings, so realistic pricing is essential. However, interest in land with high amenity value and scope to diversify into alternative sources of income should stay strong.

^{Source: Savills Research}