Farmland market forecast is for “more subdued” six months

It is likely that UK farmland market activity will be “more subdued” for the remainder of this year as potential sellers wait and see what happens as a result of the Brexit vote, according to the latest farmland market analysis by Savills.

The firm has also concluded, however, that the fundamentals of the market will remain untouched, pointing out that the supply of farmland for sale is historically low, the product is finite and that there are competing land uses and a variety of ownership motives driving demand, all of which “will support farmland value growth in the long term”.

“Uncertainty has to be the key factor and it is very likely that farmland market activity in the second half of this year will be more subdued as potential sellers wait and see,” said Savills’ Ian Bailey (pictured above), adding that such uncertainty will principally be around those factors that have direct impact on farm incomes.

“These will include the UK’s international trade relationships and the level of farm support that will replace the Common Agricultural Policy (CAP) with subsidies currently representing about 67% of the average UK farm income.

“However, farming subsidies under the CAP are already falling and are playing a reducing role as a driver of land values. This is especially so for diversified businesses where direct agricultural income is only a part of the total income stream.

“The impact will be felt most on purely farming businesses and especially so for tenants who will not have the flexibility or the assets to generate additional income streams.”

The firm also pointed out that, in the short term at least, the weak pound makes UK exports more competitive and will potentially give UK farmers a “significant increase” in farm subsidies in 2017, if the weak pound continues through September.

It is also stated, however, that any subsidy increase may be a short term benefit and that rural businesses should make use of any window of opportunity that is created prior to the triggering of Article 50 to begin the UK’s formal departure from the EU.

“Early indications are that farm support may, post Brexit, continue but it is likely that there will be less money available,” said Savills.

For the moment, however, in-process sales appear to have largely continued in the face of the Brexit vote.

“Anecdotal evidence suggests that deals agreed prior to the referendum are largely being honoured,” said the firm. “One or two buyers are seeking to renegotiate but, even where successful, have only achieved a moderate amount. In addition, a number of new deals have been struck since June 24, at levels anticipated beforehand.”

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