The rare opportunity in rising UK farmland

UK farmland values rose 2 percent during the third quarter of the year taking year-on-year prices up 15 percent, according to the Knight Frank Farmland Index.

Farmland values currently stand at an average of £7,690 ($12,280; €9,640) per acre, and farmland continues to outperform other asset classes including gold and the FTSE 100.

The Wellcome Trust’s £249 million acquisition of Co-operative Group’s farm business in August set the market alight, and at least one consortium of UK pension funds bid for the deal. In the deal’s wake, asset managers suggested that the UK farmland market could be an area of interest for the UK pension industry, despite the expense associated with the UK sector.

But institutional investors still recognise that the market’s fundamentals are unlikely to change, according to Ian Monks, partner at consultancy firm Bidwells.

“A number of [institutional investors] recognise that scale and opportunity are lower in the UK,” he told Agri Investor. “Due to the low turnover of land, there are not very many opportunities available.”

Robert Bourn, principal at agriculture lender Agri Partners agrees. “I would treat [the Co-op deal] as a specific case in isolation,” he said. “Distressed assets with the kind of volume involved in Wellcome Trust come about once in a blue moon, therefore it’s not really a strategy an institutional investor can prepare for in advance, or reasonably expect to come around again anytime soon.”

Furthermore, UK-based agricultural assets do not feature the favourable operating returns available in other markets. “Average operating returns are currently at 2.5 percent, in comparison with 6 percent in New Zealand, for example. These numbers can put institutions off,” said Monks.

“Farmland is perhaps more appropriate for endowments or charities that don’t have external clients and that are withdrawing capital periodically,” said Monks.

High net worth individuals are making some transactions, but the bulk of the number of deals were done privately, rather than on the publicly-advertised market according to Knight Frank.