Predictions for GB farmland market start to play out as supply continues its upward trajectory

Savills analysis of the GB farmland market highlights year-on-year the market is 44% larger in supply terms, with increases recorded in all regions apart from the East Midlands during the first quarter of this year.

Our research shows influences including Brexit and Covid-19 led to an uncharacteristically quiet market until recently, so analysing market activity against a baseline of 2012 to 2016 is more insightful. The results show supply in Q1 of this year was 33% higher across GB than the average from 2012 to 2016 (see chart below).

At a country level the picture is slightly different with supply considerably higher across England and Wales (43% and 53% respectively) but 14% lower in Scotland.

Andrew Teanby Associate Director Savills rural research comments, "In January we said 2023 represented a step change in farmland supply and forecast the volume would increase further this year. Early indications suggest this will be correct."

The question is why? If the decline in market activity was linked to Brexit and uncertainty whilst the UK governments developed their new national agricultural policies, then it follows once this policy emerges farmers will evaluate their options and begin to make long-term business and investment decisions with more confidence again.

The agricultural transition has advanced more quickly in England which is perhaps why supply is above average and behind in Scotland where much of the detail for future farm support is still awaited.

Triggering change has been a specific government objective and in England an exit scheme was introduced to encourage farmer retirements. The future without the baseline stability provided by the basic payment looks more complex, and the outlook is exacerbated by lower margins as costs have risen and commodity prices have dropped considerably since the initial impact of the invasion of Ukraine. Consequently, some farmers are changing how they run their farms, and others are retiring leading to some farmland sales.

What do buyers want?

Relative to last year 15% fewer new applicants registered in the first quarter of the year, but more than in 2021 and 2022.

Higher supply and fewer buyers offer an opportunity for those in the market to be more selective and focus on higher-quality properties. The quality of a farm's infrastructure for example is influencing values strongly. Farms with good-quality buildings suited to modern agriculture tend to attract more interest and competition in the current market, which can lead to a sale being agreed more rapidly.

Another wet autumn and spring mean buyers are scrutinising drainage more carefully, free-draining land is generally favoured unless yields are seriously impacted in drier weather. Where productivity is dependent on underdrainage, records and the quality of this system are becoming more important to buyers and will be factored into their offers given the expense of investing in new field drainage systems. Similarly, the security of water supplies for irrigating specialist cropping is coming under greater scrutiny.

Alex Lawson head of Savills rural agency comments, "Water and, more particularly, the potential financial benefits landowners can receive through stewardship schemes have also risen up the agenda - peatland rewetting, flood alleviation, nutrient neutrality and more active water meadow management, all offer welcome alternative financial returns.

Farmland values

At this early stage in the year, very few transactions have been completed so our overall average regional and national farmland values have changed very little from Q4 2023. As supply is likely to increase relative to demand in 2024, a greater variation in values is expected.