Brexit not the only force driving UK land values

A ‘counter-intuitive’ lack of supply is helping to balance out uncertainty caused by Brexit, a mitigating factor more prevalent in Scotland than England.

While the average value of agricultural land in England and Wales fell by 1.5 percent in Q4 2017, prices have been “cushioned” from larger falls by other forces, according to estate agent Knight Frank.

This latest drop means values fell by 4 percent overall during the year, reaching an average £7,201 ($10,063; €8,175) per acre. While much of this can be attributed to the medium-term uncertainty caused by Brexit, Andrew Shirley, Knight Frank’s head of rural research, said he does not think values are about to fall of cliff.

“There is no reason to believe that the quarterly decline is the beginning of a larger slide that will gain momentum during 2018. What appears more likely is that we are for a prolonged period of limited market activity.”

Scottish winner

The picture looked different in Scotland, where values gained 1 percent during 2017. Yet performance drivers appeared to be very much the same.

“The continued dearth of land and farms for sale is the main reason agricultural land values are holding their own, despite the uncertainty surrounding Brexit,” Shirley said. Only 61 Scottish properties over £1 million were sold on the open market in 2017, according to Knight Frank. That was a sharp drop on 2015 and 2016, when 75 and 72 such assets, respectively, changed hands.

In all regions, some of the unknowns associated with Brexit were lifted last year when Environment Secretary Michael Gove pledged to maintain the level of public support for agriculture across the UK to £3 billion a year – matching current EU subsidies – until 2024.

However, the payment regime is set to change significantly, shifting from a system that rewards farmers according to the amount of land they own to one that favors those who deliver environmental and public goods. The largest claimants may see their support payments capped; how the policy evolves post-2024 remains unclear.

A lack of clarity regarding the UK’s future trade relationship with the EU also makes farmers uneasy, since many export goods to the bloc.

Puzzling paralysis

Still, Knight Frank’s Shirley cannot quite figure out why sellers are being so cautious.

“The trend is set to continue throughout 2018, with no signs so far of a significant increase in the amount of land that is set to come up for sale,” he said. “This seems slightly counter-intuitive given that the outlook for farming post Brexit remains unclear. Now would actually appear to be a good time for anybody thinking of retiring or quitting farming to sell while values remain firm.”

Scotland could benefit from forthcoming changes, he remarked, since its farmland was well placed to host projects linked to the environment and other public goods. But the UK as a whole also has dynamics in its favor.

“Development rollover remains a strong driver in certain parts of the country, as does tax planning.” He also pointed to low interest rates and “relatively stable commodity prices” as potential reasons for investing in UK farmland.

“The market is being driven by a complex series of opposing forces,” he observed.