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Brexit weighs on UK farmland values

MSCI vice-president Colm Lauder has said a vote for Brexit could negatively impact UK farmland and forestry for years to come.

A vote for Brexit could negatively impact UK farmland and forestry for years to come, Colm Lauder from research investment firm MSCI told Agri Investor.

Recent research from his firm suggests anxiety over Brexit has dampened UK farmland, and to some extent, forestry returns.

Lauder added if the UK leaves the EU, a lack of export and subsidy support could damage British farmland and forestry prospects for years to come.

“The farm and rural sector in the UK is one of the most dependent on the EU, in terms of both subsidies and of general export demand,” said Lauder. “You could see a sustained slowdown in agricultural activity for the next decade if the referendum passes.”

He added that referendum anxiety has permeated the whole UK investment landscape, but that in the event of a Brexit, agriculture would be hit particularly hard.

“It’s going to affect all sectors. There have been a good number of deals put on pause, as we wait to see what will happen,” he said.

Land valuations for both asset classes continued to grow in 2015, according to the company’s indices, but income from forestry and rural property capital growth has fallen after years of strong returns, particularly in the last two quarters of 2015. Rural land capital growth was 4.1 percent in 2015, compared with 8.9 percent in 2014. Total returns for the sector declined to 5.5 percent from 10.4 percent in 2014. Rural income returns remained steady at 1.3 percent, compared with 1.4 percent in 2014.

Declines in UK forestry incomes appear more cyclical than other rural sectors, according to MSCI. Although both forestry income returns and timber prices fell in 2015 (0.5 percent and 9.5 percent respectively), total returns increased by 10.8 percent, tied to continued capital growth of 11.3 percent, according to the annual forestry index.

“Both [forestry and farmland] sectors have had a great couple of years [and] continued to perform very well up to the middle part of last year,” Lauder told Agri Investor, adding that tempered capital growth is likely to be a sign of moderation after several years of exceptionally strong returns. He added the decline was mostly a natural regression following a prolonged boom.

“UK timber and forestry markets have been buoyant for a long time,” said Lauder. “It’s really more of a levelling out of the market than any other effect.”

Strong institutional interest in timberland across the Americas has helped increase forestry valuations in recent years, but the UK’s relatively small timberland market has not followed that trend, said Lauder.

“There was a lot of growth four or five years ago,” he said. “There was a feeling that [forestry] was a good hedge against poor market performance. But recently we haven’t seen any spikes.”